With growing vulnerability to extreme weather and geopolitical threats, the industry needs new risk transfer solutions
A new report focuses on the critical threat to the global food and drink industry due to the growing interconnectedness and complexity of global supply chains, which has increased the sector’s vulnerability to both natural perils, such as the effects of extreme weather, and manmade threats, like Russia’s invasion of Ukraine.
‘Farm to fork: Rethinking food and drink supply chains’ - a collaboration between Lloyd’s and Willis Towers Watson - focuses on the food and drink sector’s risk challenges and aims to spark product innovation.
It identifies opportunities for insurance to consider the protection they can offer business and how supply chain risk management technologies, including data capture and visualisation can improve resilience.
The research identifies several key factors driving risk across food and drink supply chains, including economic pressures, demand changes, labour challenges, technology, transport, geopolitical and political risk, and climate change and sustainability.
There is an opportunity for the insurance industry to develop new products to protect against the loss of Tier 2 suppliers, notifiable pests and diseases, transit delays and commodity price volatility.
Insurance not fit for purpose
The report also identifies a lack of alignment between companies’ business-critical risks and the insurance cover they have purchased.
For example, the research found that while 82% of businesses have at least some insurance for extreme weather impacts to their supply chain, less than a third (31%) believe that this is sufficient to address the risk to their operations.
Through its leadership of the Sustainable Markets Initiative Insurance Taskforce, Lloyd’s is exploring the adaptability of current crop insurance models to emerging countries which play a vital role in global food security.
Rebekah Clement, sustainability director at Lloyd’s said: “In today’s global economy, the food and drink industry is no stranger to the effects of shifting geopolitics and economic uncertainty. It is arguably more important than ever that businesses ensure the safe and timely transportation of critical and often perishable products which maintain a level of balance for global food security.
“Whilst insurance cover for supply chain risks does exist today, the findings in our research point to a lack of alignment between shifting key risk drivers for food and drink business and their current insurance cover.”