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Managing the Risks and Rising Costs of a Hard Market on Food & Beverage Businesses

Despite a hard insurance market, Food & Beverage businesses can engage 4 best practices to manage their risk and keep rising insurance costs at bay.

 

The rapidly evolving insurance market will mean rising costs at this year’s renewals for many food, beverage and agribusiness companies.

In most cases this rise, dubbed a hard market, can be directly tied to the attrition of catastrophic weather claims as well as social inflation, or an increase in litigation and high-priced, plaintiff-friendly settlements across industries.

When the pandemic spread across the globe and civil unrest swept the U.S., these costs were compounded, as global insurance companies struggled to pay out unforeseen claims and defend the undefendable.

According to Marsh’s Global Insurance Market Index, overall insurance pricing increased 20% in the second half of 2020. In many cases, that’s just an average. Pricing for specific coverage lines is often higher. For example, Marsh estimates professional lines premium costs to be up 40%, while public company D&O coverage is up 60%.

Unfortunately, the hard insurance market isn’t going to disappear any time soon. In fact, depending on how the coronavirus pandemic continues to play out, there’s a chance it’ll get even worse before it gets better.

 

What is a hard insurance market?

A hard insurance market is a market cycle that occurs when insurance companies impose tougher underwriting standards, reduce coverage limits and are more selective in the risks they’re willing to insure.

The result is a reduction in coverage options, changes in scope of coverage and a rise in policy premiums. A hard market is caused by a number of factors, including increases in frequency and severity of claims.

 

What can Food, Beverage and Agribusiness companies do to manage costs during a hard market?

 Although it’s impossible to reverse the market right now, there are a number of risk management practices food, beverage and agribusiness companies can engage to both minimize exposure to risk and simultaneously ease the total cost of insurance.

Consider the following best practices for managing risk and rising costs in a hard market:

  1. Establish a culture of safety across your organization. Easier said than done; doing so requires both big-picture actions like instituting regular training, safety demonstrations and inspections as well as local on-site precautions, including removing hazards from the plant floor and ensuring all equipment is returned to its proper place every time it’s used. Consider instituting a twice-daily check-in, or “huddle,” before each shift begins and when it concludes, requiring everyone to pass in front of their manager’s eyes. In many cases, this simple addition can drastically reduce the potential for Workers’ Compensation claims.

    Closely follow local and national COVID-19 recommendations and requirements in your facilities and go beyond these rules when appropriate. Set up sanitation and temperature-checking stations to screen each worker when they arrive, provide them with proper personal protective equipment (PPE) and configure workstations to be 6 feet apart when possible. You may want to stagger employee arrival and break times to minimize exposure as well.

    Avoid supply chain risk by instituting a regular review of all vendors’ and partners’ insurance coverage as well as the COVID-19 and hazard prevention in their facilities and across their fleet operations. Partnering with businesses that don’t share your priorities can open you up to unnecessary third-party exposure, should their operations be deemed deficient in any way.

  2. Re-assess head count, fleet and facilities. Since the onset of the pandemic, many food, beverage and agribusiness companies have downsized or shifted employees, facilities or fleet in some way.

    Make sure the changes to your organization are communicated to your underwriter prior to obtaining a quote for new coverage or renewal, as each operational nuance can make a difference in policy costs and coverage scope. For example, if one plant recently retired vehicles, reduced its workforce or pivoted heavily, it may be possible to reduce premium dollars accordingly. On the flip side, not disclosing a new product or service means you won’t be covered for it either.

  3. Go out to market early. In a hard insurance market, it’s especially important to commence renewal discussions earlier to make the process as efficient as possible for all stakeholders – risk managers, brokers and underwriters. While 60 or 90 days were previously enough to price out renewals, now it’s important to gather information and touch base with underwriters at least 120 days ahead of the renewal date.

    In the current environment where a hard market has merged with unknown pandemic risk, underwriters will ask more questions, even if you’ve been a customer for years. Questions may include: How are you mitigating the potential effects of COVID-19 across the organization? What is your facility’s plan for a COVID-19 outbreak?

    Underwriters will demand greater data transparency during a hard market, requiring clean, accurate and more comprehensive risk data than in previous years. Scrutiny for new policies will be significantly higher as well. 

  4. Know your numbers. Underwriters typically receive less than 50% of the data they need to quantify an organization’s risk and exposure, which can lead to higher premium costs and reduced limits. The key to obtaining competitive pricing is knowing your business’ risk data, including loss control, past and current/outstanding claims, current accident risk mitigation strategies and outcomes, employee data, facility features and ages and more.

    Traditionally, risk managers and other third-party risk assessors will aggregate data via multiple spreadsheets and documents. This is both extremely time consuming and inefficient. Employing a system-driven renewal management process using insurance renewal software can substantially reduce the time and effort required to gather and manage renewal data, and ultimately, reduce coverage costs.

 

Next Steps

Now is the time to explore the range of data-driven IRM solutions available to help guide your business through whatever obstacles come your way, as safely and efficiently as possible.

For more information on reducing the effects of a hard market on your business, contact John Irving, our Food, Beverage and Agribusiness practice leader.

 

 

Dec 30, 2020

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