Property and Casualty

Food Processing and Distribution: Steady Insurance Market in an Unsteady World

February 21, 2024

Despite the byzantine process that controls how food gets to your plate (or refrigerator or restaurant table), it may come as a surprise that the market for property and casualty (P&C) insurance covering the food processing and distribution industry is relatively stable today, considering where the market was just 12 to 24 months ago.

Consider the myriad businesses along the global food and beverage supply chain. They include suppliers, manufacturers, processors, importers, distributors and countless other vendors.  

In their work — besides trying to make a profit selling food and beverage products — these companies need to account for transportation issues, supply chain hiccups, food safety and cold chain management, not to mention maintaining a healthy workforce with robust employee benefits and health insurance.  

Despite this byzantine process that controls how food gets to your plate (or refrigerator or restaurant table), it may come as a surprise that the market for property and casualty (P&C) insurance covering the food processing and distribution industry is relatively stable today, considering where the market was just 12 to 24 months ago. Yes, even with all these variables, the foundation is solid in terms of coverage terms, limits and premiums.   

However, there are some notable qualifiers here: There will be some pricing increases that are beginning to moderate in some lines of business, such as Property Insurance — especially for property that is located in areas prone to catastrophic peril. Another P&C area that isn’t quite as rosy is Commercial Auto, but there are signs of improvement.    

Nevertheless, generally speaking — no matter where you are in the food supply chain — the insurance marketplace for food processors and distributors has more steadiness than we’ve seen in the past.   

Climate issues affect Property Insurance costs 

Even with this relative sturdiness, there will be areas of coverage that fluctuate, and the primary outlier among these is Property Insurance. Price increases here will affect any food company that owns its own processing facility or warehouse, with more extreme premium increases impacting coastal properties and any located in California.   

There are several reasons for Property Insurance issues, including damage from fires, theft, infrastructure malfunction and other potential problems. But increasingly extreme weather poses the largest Property Insurance problem, so food processing facilities — especially those that lack the protections that may come with newer construction — could have difficulty finding a competitive insurance option. (These issues aren’t specific to just food processing facilities. Indeed, extreme weather doesn’t discriminate.)    

Lengthy supply chains multiply risks 

Managing risk throughout the course of the supply chain requires insurance coverage for issues such as supply disruption and food safety.  

“Companies need strategies to manage risk at every point in the process,” Alera Group notes in its 2024 Property and Casualty Market Outlook.   

Many of the issues affecting food processing stem from transportation, a critical point along the supply chain because of the importance of maintaining food safety. Unlike other products — electronics, textiles, etc. — much of the food produced and shipped today is perishable, and spoilage or temperature abuse claims can pose a significant financial risk.   

Consider the importance — and difficulty — of maintaining consistent food temperature as product moves from a processing facility onto a truck, to be loaded onto a vessel, then onto a truck once again to move to a cold-storage warehouse. And keep in mind, this is only the halfway point on the product’s way to the end consumer.  

Given the many steps in the supply chain, keeping food at a set temperature is extremely complicated and can lead to greater coverage exposure. To guard against disproportionate exposure, many companies transfer that risk to the cargo insurance marketplace. However, coverage terms for losses related to change of temperature varies greatly, and policy holders need to pay close attention to what they’re buying.    

But a cargo insurance policy is only intended to cover goods during international transit — a very important, yet limited, portion of the food supply chain. To pick up all sectors of the supply chain, companies can turn to a Stock Throughput Insurance policy, which covers goods during international transit and also offers better coverage solutions for food and beverage products while in storage domestically or during truck or rail transit.   

The costs of damage control 

When a food and beverage executive considers damage to food products, the executive must also contemplate a scenario where an adulterated product unintentionally makes its way into the supply chain, possibly all the way to the consumer level. Perhaps goods became adulterated due to temperature fluctuation, or perhaps the problem stems from the introduction of a pathogen such as salmonella or listeria.   

This level of risk awareness and risk management is necessary because contamination and recall incidents can be, in a word, devastating. They attract media attention and have a disastrous impact on the public’s confidence in the affected product or brand. Even if a product isn’t recalled, businesses affected by food-contamination issues may face exorbitant expenses managing the damage and rebuilding both profits and brand image.   

Special insurance products are dedicated to managing the financial risks associated with product contamination, liability, and recall. These policies are known as Accidental Product Contamination and Malicious Product Tampering coverage. The market for them is relatively stable, although the frequency of contamination events has been steadily rising.    

Greater awareness of food safety issues has created new traceability rules, leading to 23% more recalls in Q1 2023 over the previous quarter, according to the Alera Group report. A $41 million increase to the FDA budget suggests audits and recall events will continue to increase.   

Train heists and other factors  

As previously noted, the food processing supply chain is vast. Given this, food processors and distributors must also consider risk management and coverage for other areas, including:   

  • Ensuring steps are implemented to manage the condition, packing, loading and securing of cargo, which will help minimize product damage while in transit.   
  • Addressing the growing issue of theft, which continues to be a concern. There was a 57% increase in thefts from Q2 2022 to Q2 2023, according to one study. Cargo thieves often focus on food and beverage products because they are so easy to resell. To minimize the losses from theft, companies need to take steps including GPS-container tracking, placing multiple drivers on trucks, improving route efficiency and increasing driver accountability. As the New York Times Magazine reported in the January 23 article “The Great Freight-Train Heists of the 21st Century,” “This ever-quickening tangle has opened new vulnerabilities to be exploited by supply-chain thieves.”   
  • Working to increase protection against cybercrime such as ransomware attacks, which hit global food companies including Dole, Maple Leaf Foods, Apetito and KP Snacks over the last few years. Indeed, one study found malware detections in the food and agriculture industries had increased by more than 600% over the course of one year.   

For a more in-depth look at strategies for navigating P&C market conditions — including for the food processing and distribution industry — see Alera Group’s 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current market and tips for navigating its challenges, along with analysis categorized by industry and lines of coverage.     

A qualified agent or broker can help you explore your options with thorough, clear documentation of risk management programs, claim histories and financials.  

With more than 180 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. To contact an Alera Group agent or broker, click on the link below.   

About the author 

Michael Lieberman  
Senior Vice President,  
Foa & Son, an Alera Group Company   

Michael Lieberman is an experienced insurance professional responsible for the risk analysis, coverage design and brokering of insurance coverage to meet the needs of commercial clients. He has experience in all commercial coverage lines, with a sharp focus on the unique benefits of specialty insurance products such as marine cargo, FDA rejection, and product contamination and recall.   

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