May 9, 2013 by Canadian Underwriter
Food security and challenges related to the supply and distribution of food globally will be major risk issues over the next decade, and the insurance industry can play a key role in risk mitigation and helping to protect both businesses and vulnerable populations, notes a recent report from Lloyd’s.
A growing global population and changing demographics are having a major impact on food demand, while climate change, water scarcity and political factors all affect availability of food supply, notes the report, “Feast or Famine: business and insurance implications of food safety and security.”
“As food supply chains become increasingly global, the risks of disruption to supply, traceability and accountability increase, and supply chain risk management becomes increasingly important,” the report says.
For example, food contamination can have a significant impact for food suppliers, retailers and other businesses, in addition to adverse health effects on people, the report says. “Businesses could face risks and costs associated with product recall, decontamination, lost sales/profits, litigation, brand and reputational damage, trade restrictions and reduced company valuations,” it notes.
“Agroterrorism” is also an increasing operational risk, the report notes. The risk is especially high for food or drink products that are produced in large quantity and stored for long periods, the report says.
“Given that the geopolitical and ideological issues which generate these threats are usually beyond the immediate control of the food sector, managing the risk requires a thorough analysis of each part of the food supply chain,” notes an article on the subject on the Lloyd’s website.
“It’s here that the expertise of specialist risk managers and anti-terrorism experts, such as those who advise hotel chains in areas of high political risk, can pay dividends,” it adds.
As food security issues become more complicated and more evident, “all-encompassing risk management strategies” are an important part of mitigating risks, the report notes. Agricultural and crop insurance, as well as coverage for supply chain risk and business interruption are increasingly important, it adds.
Product and environmental liability, as well as coverage for terrorism and political risk are also important to mitigating food security-related risks, the report notes. Microinsurance has become one way to “bridge risk management gaps” in developing countries, it also says.
“A globalized world and food system means that it is a system particularly vulnerable to governments and businesses succumbing to panic, hoarding foods or limiting exports,” the report says.
“In the past, non-governmental/intergovernmental organizations have measures and managed the risks faced by vulnerable populations. Now, insurance is well placed to play a large role in progress and in enhancing food production, processing and trading systems — by providing effective risk management advice and expertise, as well as risk transfer.”
The full report is available on the Lloyd’s website.