Covid-19 shifts insurance conditions for food & drink businesses

Insurers are facing higher claims pressuring underwriting profitability at the same time as investment returns are declining due to disruption on capital markets. This will affect the sector’s risk appetite and the food and drink sector will need to prepare earlier and more carefully for renewals to secure the desired protection.

The insurance sector is bracing for major losses from Covid-19. Lloyd’s of London, for example, has estimated the loss for the market at $3bn-$4.3bn (opens a new window). Losses for the whole insurance sector could reach $107bn in 2020 which would be comparable to some of the biggest major claims years for the industry, according to Lloyd’s CEO John Neal. Adding an expected decline in the value of investment portfolios of $96bn will bring the total projected loss to the insurance industry to $203bn, Neal explained. 

Following events of this magnitude, insurers are likely to require fresh capital or reduce underwriting capacity. Or both. Further, insurers will need to reassess their risk appetite and adapt their capacity allocation for each insurance class accordingly. Consequently, insurers will recalibrate rates and terms and conditions to improve underwriting profitability. 

This makes it even more important for businesses in the food and drink industry to prepare well ahead of policy renewals. 

Fire Risk

Fire risk and composite materials such as insulation are a major topic for insurers since the Grenfell Tower catastrophe in London which caused 72 deaths and involved combustible cladding. Businesses in the food and drink industry that are involved in processes that require heat generation such as baking or deep fat  frying will need to have very robust business continuity and  safety measures in place to achieve sustainable rates and terms and conditions for their insurance programme. 

Operational changes

Insurers will also want to know if there have been any relevant changes to the business’ operations which could affect its risk profile. Covid-19 has meant higher demand for certain grocery products since pubs and restaurants were forced to close. Further, the pandemic may have changed the taste and potentially even the environmental awareness of consumers. Retailers and consequently manufacturers usually react promptly to changes in demand, adding new products to their offering or ordering higher volumes. Insurers need to know about such changes to the business mode as this can affect the risk exposure. An exceptional increase in demand may have coincided with a workforce shortage which could have increased the risk of mistakes remaining undetected. Plus, some businesses may have had to quickly adjust operations to be able to supply supermarkets instead of restaurants and pubs since these had to close. The pandemic may have a long-term impact on companies in the food and drink sector, including sourcing strategies, distribution networks, as well as commodity prices.

Impact on revenues 

While the food and drink industry has mostly remained operational during the crisis as was deemed an essential sector, some have seen turnover and profits tumble as customers changed habits or distribution channels were disrupted or ceased to exist temporarily. This includes members of supply chains for restaurants and pubs for example that were not able to adjust distribution.  Insurance buyers who are struggling financially due to the pandemic may be eligible to payment holidays, a cheaper deal or a partial refund, helped by recent guidance from the Financial Conduct Authority (FCA). (opens a new window)

Resilient supply chains

The outbreak of the pandemic has disrupted cross-border trade as well as lean production with tight inventories. Experts are warning of aftershocks in the supply chains, particularly when international sourcing is involved, but not only there. In agriculture, seasonal farm workers from abroad might be scarce, meaning that some essential ingredients may become harder to source, for example. In such cases, securing alternative channels early may be advisable. In any case, keeping strong and close relationships with key suppliers is essential as while reassessing customer demand and distribution channels. Robust contingency plans for supply chain disruptions as well as to support business continuity are now more important than ever. 

Preparing for renewals

After major market shocks like Covid-19, insurers tend to prioritise property risk underwriting over long tail casualty risks, which means that the latter may require special attention prior to renewals. 

Insurers have already been pushing for premium increases for casualty risks prior to Covid-19 to account for a rise in claims and operational costs as legal costs keep climbing.

Generally, underwriters are requesting more information than in the past years before taking a decision, particularly when it involves areas where their risk appetite is low. There might be opportunities with specialty insurers who are eager to broaden their books of business, but for some risks several insurers may be needed to satisfy the desired protection level. As a result, placing a competitive insurance programme will take longer than in the past. 

In order to achieve the best possible outcome, insureds may want to reassess their own risk appetite and preferred limits they are seeking in the market. Increasing deductibles and co-insuring the risk can help reduce premiums., along with Captive participation for the  “Jumbo sized accounts”  In order to assess the right level of limits, companies can perform various assessments such as a benchmarking exercises to analyse their exposure to potential large losses.

Top Tips for renewals in a hardening market: 

  • Prepare well ahead of renewal and remain open to adjusting strategy according to market responses;

  • Differentiate the risk. Prepare a detailed submission; 

  • Review and adjust the insurance programme structure; 

  • Additional modifiers such as independent risk engineering audits can assist in the modelling/rating process

  • In a hardening market, personal/video presentations to underwriters can make a real difference; 

  • Communication between all parties should be constant and transparent throughout.

For further information, please contact: 

Richard O'Keeffe, Partner, RS London P&C


Debbie Day, Partner 


Ian Price, Broking Leader