Packaging your risk
Property insurance continues to change and EPS concerns tighten.
Increasing insurer scrutiny requires demonstrated risk mitigation.
Without action, food producers may struggle to have 100% of their risks covered.
Working with a broker to strategise short and long term planning is the best key to success.
‘Prevention is better than cure’ may be an old adage, but it is certainly true in the food production industry. The insurance market for producers has undergone wholesale change over the last 12–18 months, and these changes are set to continue for several years. Insurers now require more detailed strategic plans on how food producers will mitigate the major risks facing businesses, or producers run the risk of insurance coverage not being available at all.
Fail to plan
For property insurance classes, the food production industry is still being impacted by concerns surrounding combustible expanded polystyrene (EPS). After a spate of major fires both in Australia and overseas in recent years, insurers have upped their level of scrutiny around their own risk recommendations for clients. In the past, these risk recommendations may have been ignored but now, if they are not actioned or explained to insurers, food producers will be paying more for their cover, or run the risk of not securing full coverage for their business.
High cost claims linked to EPS and increased insurer scrutiny have led to a perfect storm for producers. For years, producers have been able to secure cover for a reasonable premium cost without too much difficulty. This means that some producers have not developed their risk mitigation strategies and processes adequately, which has now left some clients in a vulnerable position. Insurers are now backing away from the market or will continue to reduce their exposure unless mitigation actions are taken.
It is vital that food producers work alongside their brokers to strategise their approach to risk mitigation. We work with independent risk engineers to provide clients with the most appropriate advice for all the major perils they currently face and how best to mitigate these exposures. We then provide evidence to insurers that these areas are being addressed and risk recommendations are being adhered to. Whether it be around business continuity planning or maintenance projects, internal risk culture, robust hot work permits or impairment notices, insurers want to know how their clients would respond to an event and how they plan to meet the risk challenges identified.
"High cost claims linked to EPS and increased insurer scrutiny have led to a perfect storm for producers."
Culture and cladding
Insurers understand that producers may not be able to commit to the total cost of a retrofit of EPS or sprinkler systems within their business in one hit, but producers must now show a detailed plan of action that relates to their EPS exposure. This means that if a panel is damaged or needs replacing, a panel that meets FM Global standards is used as the replacement as a minimum.
While many producers may hear mitigation and automatically think of the capital expenditure, there are areas of mitigation that can be cost effective and also have a huge benefit from an insurable perspective.
We have seen issues around the culture and ownership of risk that can be fixed relatively quickly while committing a low amount of capital expenditure. Training and education of maintenance and engineering staff to ensure they know their responsibilities with the hazards involved, and what to do in case of emergency, can also pay dividends. Many of the major losses we have seen over the last several years have been linked to poor internal risk management processes or lack of awareness.
Internal quality assurance systems and risk mitigation strategies are fundamental for food producers to gain access to customers through major supply and supermarket chains. Ownership and understanding of risk comes from the top down so board level, senior staff and owners of a food production business need to understand the risks they face. Once risk is better understood at the highest level, it can be better understood throughout the business. Everyone has a role to play to make a business safer and better equipped against the risks it faces.
A lot of these risk mitigation activities take real buy-in from the producer. Insurers will present their recommendations and we, as brokers, can advise clients on the best course of action to take to get the best outcome for their business.
"Once risk is better understood at the highest level, it can be better understood throughout the business because everyone has a role to play to make a business safer and better equipped against the risks it faces."
Advice before insurance
Once the work has been done to identify the risks associated with our clients business, detailed plans are drawn up on mitigation projects both now and into the future. We then communicate this information to the insurance market so insurers and underwriters are aware of the actions our client has undertaken within the previous policy period, and what has been identified for mitigation work across the coming years.
The final piece of the puzzle is the actual seeking of insurance cover. So much work has been undertaken with our clients during the year, the placement of insurance is really the tangible evidence of whether the client’s risk has improved or not.
While placement capacity for food production risks still exists in Australia, this area of the insurance industry is becoming increasingly complex. We had a medium sized client that previously had five insurers on their property policy, their recent renewal saw this number of insurers more than double to 13. One of our larger clients requires 50 insurers to fully cover their risk. With this added complexity, added time is a necessity.
"While capacity for food production risks still exists in Australia, this area of the insurance industry is becoming increasingly complex."
We view our relationships with our clients as a year round investment. Insurers will want to be updated on how mitigation works are progressing as they take a long-term view of risk management. As a producer, you will not be able to iron out all of your mitigation work in the short-term, so we work on a stepped process to give insurers the documentation and peace of mind they need as they build a relationship with your business.
There are real tangible results that are linked to detailed risk management. When insurers don’t have information, or feel uncomfortable with the information that they have, they price this into the premium they charge. We have worked with clients on in-depth risk mitigation strategies stretching over a number of years and the response from the insurance market has been profound.
A specialised understanding of the insurance challenges facing food producers is becoming increasingly important. The market will continue to change and food producers need to ensure that they have the right advice on their mitigation strategies to receive the best outcome.
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National Head, Food Production
T: (02) 9424 1871
M: 0407 102 666
Client Manager, Food Production
T: (02) 9424 1711
M: 0427 240 486
‘Property Loss Prevention Data Sheets 1-57’ FM Global (January 2018)