How do Food & Agriculture companies insure their plants abroad?

International Insurance in Agriculture

Multiple positive benefits come with international insurance programs.

International or Local Insurance?

When an enterprise has a wide range of operations in more than one country, a convenient form of insurance ensures the entire enterprise, together with foreign entities, in an international program.

This is a fitting solution for companies with subsidiaries, commercial agencies, warehouses or production plants abroad.

Advantages of the international programme?

Multiple positive benefits come with international insurance programs.

They allow for controlling the scope of coverage and the cost of insurance from the level of the parent company by one person responsible for the risk or insurance. It is easy to obtain a homogenous and possibly the broadest scope of insurance coverage for the entire company without leaving any gaps. International programs usually mean higher limits and broader protection than those locally available for individual companies or plants.

Thanks to their wide scope and uniform structure, international programs come with a lower premium. This is not always guaranteed, but in most cases, the premium is lower than one negotiated with many different offers for individual companies/subsidiaries.

The conclusion of an international program allows a higher level of deductible. A group of companies, acting as a whole, can retain a higher share than a single entity. The higher risk levels remaining with the client, the smaller share of risk transferred to the insurer and the lower the final premium.

In the international program, people responsible for risk or insurance have access to all claims data, which allows for better analysis of causes and minimization of unacceptable risks. Finally, control over claims also means more effective claims handling by insurers.

However, there are several elements where international programs will not always be sufficient, and a better solution would be insurance taken on the local market. For example, there are risks exclusive to one company which do not exist at a group level (e.g. crop insurance). Also, we should not forget insurance that requires local service (e.g. health or accident insurance for employees).

As seen above, from the parent company’s point of view, international programmes have many advantages but do not always cover 100% of the risks associated with the activities of local companies. Therefore, the best solution is to combine both insurances. Use an international programme for those risks and assets managed at the group level and attach local policies (to the extent that the programme does not offer full coverage).

Based on this assumption, the best solution for the client will be to use the professional assistance of an experienced broker in both the development of international programmes and with a good understanding of the local market in the many countries where he actively works. GrECo is such a choice.

Related Insights

Zsolt Varga

Practice Leader
Food & Agriculture

T +36 20 292 33 73

35 ways to improve crop insurance

A farmer who already have crop insurance and for those thinking of getting one

Some advice for farmers who already have crop insurance and for those thinking of getting one.

Adverse weather conditions are common companions in our lives.  It is difficult to predict weather conditions, even if there is a long experience from the past. Global climate change and the probability that bad things may always happen lead us to thinking about how to insure this uncertainty.
 
The following text is our message to the farmers who already have crop insurance and those who are envisaging to buy an appropriate product.

First of all, why do I need crop insurance? 

In the practice of farming risk management, there are several tools for dealing with weather risks, in particular:

  • use of weather forecasts;
  • application of irrigation systems;
  • technologies of minimum tillage;
  • use of more drought-resistant varieties / hybrids;
  • diversification of crops, varieties / hybrids, growing regions, sowing dates;
  • external borrowing, government support, aid from friends after a damage has occurred.

Is this enough to be sure that I, as a farmer, will have guaranteed yield and financial results?

Of course, not.
 
The best irrigation technologies and moisture saving practices will help to prevent or mitigate the loss, but, unfortunately, not in full. It is like in aviation, where people care for the utmost safety of flights, but there are still parachutes and oxygen masks on board.
 
Some farmers rely on the strategy to compensate losses of bad years by the yield surplus of good years. However, such practice is getting more and more problematic, as we are facing more often than before consecutive bad years (e.g. 2018 and 2019 in Poland and Lithuania). Sometimes there are even three bad years in a row. Imagine!
 
Moreover, such a self-retention strategy for losses requires actually more money than buying insurance.  You, as a farmer, can say “I will no longer buy a new Range Rover right now, as I have to freeze my funds to cover my loss caused by the next drought”.
 
In some CEE countries, farmers do not have a long-term risk management strategy and live just as they are, despite facing a lot of risky situations. If you really think to sell your farming business at any time, the value of your company will be much higher, if there is a stable annual cashflow that is supported by an effective crop insurance policy.

And let’s not forget about your health! A farmer sleeps better when he has an appropriate insurance policy, he feels much safer, especially if his cover is provided by a recognized insurance company, who cares for long-term relationship.

Find the right insurance company

You can trust your partner after you have made a thorough check. It is true that there are sometimes complaints about insurance products and companies. But on the one hand people tend to speaking 10 times more about bad experience than about positive events. On the other hand, mistrust can be a result of misunderstanding. First of all, we recommend to our farming clients to understand who their insurers really are.
 
Some points for you to consider and to ask your insurance agent:

  • Who is the shareholder of the insurance company?
  • How long do they exist?
  • Who reinsures the risks of damage to your crops?
  • How much will the insurer really pay from his own account in case of a catastrophic weather event, i.e.  when the other farmers will also suffer loss?        
  • What was the ratio between collected insurance premiums and payments in the past?
  • How many people with agronomic education or practical experience in agronomy work in their staff?          
  • How many crop insurance contracts do they have in their portfolio and how many insurance claims were made?        
  • Are there any substantial loss payments per single claims?  
  • Are there any farmers who received significant payments and can recommend this insurance company to you?

Realize the gaps in your coverage

The second thing suggested by us is that you understand your insurance cover.
 
In CEE/SEE markets it is difficult to find the ideal crop insurance.  Due to the nature of agriculture itself, detecting the ideal insurance solution is generally not easy. But there are some insurance markets that reach some level of excellence thanks to their long-time tradition of public and private partnership in agriculture. However, they do not work in most cases for Central and Eastern Europe … We hear very often from European insurers about their “low risk appetite”!
 
Our checklist to investigate your coverage is as follows:

  • Is the sum insured high enough to cover potential loss? 
  • How is the yield to be insured defined?
  • When does the coverage incept and end?
  • How fast will my crops be admitted for insurance?
  • Are there any additional indemnity limits?
  • How is the yield loss estimated?
  • What is the methodology of calculating the predicted harvested yield?
  • Are all my production perils covered? 
  • How high is the deductible?
  • How is the deductible applied (per field, per loss, per crop, per farm)?
  • Are there any additional franchises or deductibles?
  • Are all my crops covered?

If you are just starting with crop insurance, we also advise to make historical simulations of pay-outs – how much indemnity would you have received if you had had this crop insurance contract in the past, i.e. when your loss had really occurred?
 
However, please be aware that in a short-time perspective you always pay for insurance more than you may get back in loss payments. But think of the fact that the insurance premium has to contain reserves for the probability of catastrophes and a possible deviation from short-term (10-15 years) statistics.  Some new losses might occur on your farm, that you did not experience in your past farming history. Moreover, the climate change trend is not quite optimistic and, as a rule, does not lead to expectations of better yields…
 
If something is not possible to insure (lower deductible, higher limit, a specific peril, early risk period etc.), keep in mind that some gaps in the coverage can be eliminated by alternative risk transfer solutions, like parametric insurance, weather derivatives and captives.

Mind the insurance wording

You are definitely right that insurance wordings are boring and difficult to read, but “the devil is in the details”. When it comes to the big loss, all such details will be relevant.
 
Please, be careful with the following clauses of insurance wording:

  • Is your insurance contract really complete with all wordings? It may happen that some insurance terms & conditions are not provided to you for your consideration. They might contain additional exclusions from insurance coverage, as well as other clauses of significance, like special warranties.
  • There should be no contradiction between single wordings. Otherwise you need an additional clause that clarifies which stipulation is the right one in a given situation.
  • Is there a right of the insurer to terminate the contract unilaterally during the contract period?
  • What are the definitions of the insured risks?
  • How is the stipulation in respect of change in risk during the policy period?
  • Is the methodology of loss estimation fully documented and clear? 
  • Are all documents and additions related to the insurance contract (incl. crop survey protocols) signed by the authorized people?
  • Is the insurance company obliged to leave an original copy of any crop/loss survey report at once on the farm?
  • Is there any deadline stipulated for crop surveys after the loss has occurred?
  • Is the farmer allowed to leave some samples for an alternative expert opinion?
  • How does the “gross negligence clause” look like?
  • What are the deadlines for the insurer’s right to postpone their decision on claims payment?

Find the right partner to help

And last but not least: Never be alone! Find the third party who can help you in case of any problem with insurance products or insurance companies. You can ask for the help of the professional broker, as he is highly skilled and experienced in respect of insurance wordings, he thoroughly knows the insurance markets and he has developed good working relationships with crop insurance risk carriers.

Related Insights

Adriana Cavescuone

Adriana Cavescuone

Account Manager
Food & Agriculture

T+40 21 302 24 09

Product Contamination Insurance – Risks and Liabilities

Food and Production Contamination Insurance

Product Contamination Insurance offers a much broader range of cover than classic recall insurance and provides cover for a catalogue of costs.

Companies operating in the food industry can face many problems leading to significant losses due to incidents of product contamination. The topic is important, particularly for those businesses that operate outside their local market.

Exporters need additional organisational and financial support when reacting quickly to a real or potential threat to property or the life or health of consumers in various parts of the world caused by their product.
According to several studies, as many as 58% of companies have been affected by events involving food recalls.

The risk of a product recall is always present

The product recall insurance offer is designed for any client who places food on the commercial market, including both unprocessed products (e.g. meat or seafood) and highly processed finished products (e.g. cold cuts pasta, confectionery, beverages).

Due to the nature of the products sold and their storage requirements, great care should be taken by those who distribute, for example, fruit and vegetables. These products are sensitive to storage conditions. Improper storage of eggs and dairy products can even lead to health problems and illnesses for consumers. It is also crucial for manufacturers who use nuts, grains or spices in their plants to be mindful of the risks associated with possible contamination of their product by these allergenic agents.

Product withdrawal from the market can happen for multiple reasons. It could be microbiological contamination, i.e. contamination of the product with bacteria; it could also be physical or chemical contamination. Mislabeling, use of unapproved ingredients, or even failure to observe the proportions between individual ingredients may cause the claim and the need to recall the product. These circumstances lead to the product being considered non-compliant or even dangerous for consumers and a recall for the entire batches of finished products.

One example is a German company with a turnover of EUR 100 million that had to incur additional recall costs in the US and UK after listeria bacteria was found in its meat products. In the end, the loss amounted to EUR 90 million.

A bottle manufacturer from Poland received a $10 million claim related to having to recall several million bottles of beer. Only three bottles had cracks, but all of the bottles placed on the market were recalled for customer safety reasons. Insurance covered the loss.

What are the reasons for liability?

Liability reasons can be multiple. Accidental contamination means ingestion of the insured product has led or may lead to bodily harm. Examples of contamination include listeria, E. coli, salmonella or foreign bodies (e.g. plastic/metal in the product).

Malicious product contamination is the actual or likely deliberate alteration/contamination of a product. Often it is done by disgruntled employees who have access to the facility or product.

Product-related extortion happens when a person or group threatens to extort money by deliberately tampering with a product, e.g. contaminating it. Government withdrawal represents a forced or ordered withdrawal by a government or regulatory body. It often includes suspension of operations and applies whether or not contamination is present. Finally, adverse publicity is any reduction in sales caused by alleged, but not actual, contamination.

What can you expect with Product Contamination Insurance?

Product Contamination Insurance offers a much broader range of cover than classic recall insurance and provides cover for a catalogue of costs:

  • Recall replacement costs (including product value), damage-owned and third party costs and expenses.
  • Interruption of the insured’s business and loss of profit – inter alia if the facility is closed due to contamination and needs professional services to survey and disinfect the facility. Even one day of downtime generates a loss, and prolonging it increases costs.
  • Increased labour costs – the cost of staff working overtime or employing extra people to clean up the contamination/recall or disinfect the plant.
  • Reputation restoration costs refer to the cost of bringing the brand back to its pre-recall condition. Includes sales and marketing costs, like giving a discount on your next product purchase or promotion where if you buy one product and get another one for free.
  • Product recall liability damages are any damages that the insured is legally obliged to pay to its customer in the event of contamination. Damages may include loss of client profits, rehabilitation expenses or reimbursement of purchase costs.
  • Consultant costs refer to the expenses of expert consultants who will guide the insured through the crisis. A pre-incident fund is also available in the policies, and it may include reviewing crisis management plans and providing food safety training.

This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.

Related Insights

Stephan Eberlein

Group Practice Leader Financial Lines

T +43 664 962 40 60

Creating confidence in livestock production and supply-chain

The livestock supply-chain is one of the three major concerns and areas of activity of the Food & Agriculture Organization of the United Nations (FAO), aimed at increasing resilience in respect of threats and crises that affect agriculture, food and nutrition.

Epizootics are the global concern

So called epizootics – animal diseases – are of more and more concern not only for the farming society, but also for whole countries and regions, as they even can cause problems to human health. Therefore, this topic has become part of the general food protection policy.

The need to fight against animal diseases at global level led to the creation of the Office International des Epizooties through the international Agreement signed on January 25th, 1924. In May 2003, the Office became the World Organization for Animal Health, but kept its historical acronym OIE.

One of the main missions of the OIE is to collect information from its member countries on the presence and distribution of animal diseases and the methods used to control them, the purpose being to avoid the spread of epizootic diseases at international level.

At the moment 16 diseases are monitored monthly and contained in the o called OIE List A, namely:

  • Foot and mouth disease
  • Swine vesicular disease
  • Peste des petits ruminants
  • Lumpy skin disease
  • Bluetongue
  • African horse sickness
  • Classical swine fever
  • Newcastle disease
  • Vesicular stomatitis
  • Rinderpest
  • Contagious bovine pleuropneumonia
  • Rift Valley fever
  • Sheep pox and goat pox
  • African swine fever (ASF)
  • Highly pathogenic avian influenza

These are classified as “Transmissible diseases that have the potential for very serious and rapid spread, irrespective of national borders, that are of serious socio-economic or public health consequence and that are of major importance in the international trade of animals and animal products.”

Development of African Swine Fever and avian influenza during last decade

The best-known epidemics, that are treated in plenty of mass media, are African Swine Fever and Avian Influenza (“Bird Flue”). For example, a massive outbreak in China wiped out at least 40% of China’s pigs in 2019. In some countries of Central and Eastern Europe ASF has been present since 2014 and is not over yet, as the human factor and the presence of infected wild boars spread this disease significantly.

African swine fever (ASF) is a devastating infectious disease of pigs, usually deadly. No vaccine exists to combat this virus. It does not affect humans nor does it affect other animal species other than pigs and wild boars. It can be transmitted either via direct animal contact or via dissemination of contaminated food (e.g. sausages or uncooked meat).

The ASF virus spread to Europe for the first time in 2007 through the Trans Caucasus Countries and the Russian Federation. The next massive outbreak occurred in 2014 affecting Russia, Ukraine and Baltic countries and is lasting until now and moving to the West of Europe.

Dynamics of number of ASF on farms in some countries of Europe (data from the EU Animal Disease Notification System).

20142015201620172018201920202021(till Feb.21)
Bulgaria14419
Estonia18613
Greece1
Italy40162317101
Latvia3210381013
Lithuania613193051193
Moldova2
Poland21208110948103
Serbia18161
Romania2116317241053112
Slovakia1117
Ukraine12410542231

In addition to the cases mentioned above, ASF was found in wild boars in Germany, Belgium, Hungary and Czechia.

Avian Influenza (AI) or “Bird Flu” is a highly contagious viral infection which can affect all species of birds and can manifest itself in different ways depending mainly on the ability of the virus to cause disease (pathogenicity) and on the species affected.

Influenza infections in birds are divided into two groups based on their pathogenicity:

  • Highly Pathogenic Avian Influenza (HPAI): spreads rapidly causing serious disease with high mortality (up to 100% within 48 hours) in most poultry species (except domestic waterfowl)
  • Low Pathogenic Avian Influenza (LPAI): causing generally a mild disease, may easily go undetected

While the risk from Asian H5N1 is low for most people, sporadic human infections with Asian H5N1 virus have occurred in some Asian countries. Most human infections with Asian H5N1 viruses in other countries have occurred after prolonged and close contact with infected sick or dead birds.

We can witness a new wave of Avian Influenza in Europe, which started at the end of December 2019 in the Netherlands and Poland and spread for the next 12-15 months over whole Europe.

Dynamics of spread can be seen on the pictures below (data from EU Animal Disease Notification System):

Risks in supply-chain and how they are managed

Usually, if an epizootic disease occurs in a part of the farm’s premises, all animals of the farm will die or will be slaughtered upon order by the state authorities. It leads to the total loss of animals on a farm. Moreover, besides material damage related to animals, the farm suffers losses caused by the interruption of activities, as it takes time to slaughter, transport and utilize animals, disinfect premises and keep them closed for enforced quarantine time (3-12 months), then implement an additional 1-3 month testing period and fill in the full production cycle. Therefore, business interruption loss of gross profit can be a much more substantial loss than just the loss of culled livestock.

Besides the risk of having the virus inside the farm, there is also the risk of government restrictions for animal transportation, if the farm is trapped into a risk control or surveillance zone, which can reach a radius of up to 20 km from the epicenter of the outbreak.

In addition, according to EU legislation, there is special zoning of infected areas, where additional limitations are imposed and its derogation requires some compliance with veterinary rules, if the farm wants to proceed transporting live pigs to non-affected areas of the same country or of another EU member state. Such necessary measures can lead to additional increased cost of working for a long period of time.

It can be said that in respect of epizootic scenarios slaughterhouses and meat processors are not the less vulnerable. On the one hand they are dependent on stable supply of live pigs or fresh meat, and on the other hand export markets can be unexpectedly closed as long as epizootics occur in the country where they are located. The latest story of this sort happened in Germany, when the Chinese government immediately closed the border for producers of German pork after the first infected wild boar was found on German territory. In terms of disruption of the supply-chain, the main sources of risk of a slaughterhouse and a meat processor are as follows:

  • Virus found on premises of a slaughterhouse or a meat processor.
  • Virus found on premises of a farming supplier.
  • A large number of farming suppliers are trapped in control or surveillance zones, which leads to constraints in the movements of finishers for slaughter and further processing.
  • The slaughterhouse or meat processor is trapped in control or surveillance zones.

Moreover, events associated with epizootic outbreaks can make farmers or slaughterhouses liable to compensate claims, brought against them as consequence of the 3rd party’s product recall and product contamination costs and direct damage to the contingents.

In order to prevent the spread of epizootic diseases and to compensate for the financial consequences of events occurred, governments deploy legislation in relation to:

  • basics of strict bio-security measures on farms;
  • measures taken by authorities regarding the destruction of affected or suspected animals and the prevention of further spread of the disease;
  • long-term zoning in order to regulate movement of livestock and meat products;
  • financial compensation for the value of killed and culled animals.

On a microlevel, the farmers and meat processors implement special bio-security audits, put additional investments into the improvement of bio-protection and prevention measures against the occurrence of diseases on farm premises, develop business continuity plans in order to be ready to react and modify their business model in the event of a disease. Based on the GrECo Food&Agri practice, our cooperation with farmers and breeders’ associations in several countries, we count about 100 factors of bio-security that can be analyzed and afterwards implemented in order to reduce this risk.

Insurance solutions to mitigate financial losses

The ultimate parachute each livestock breeder and meat processor should definitely possess is a livestock insurance policy. We can witness that even the modern farms, that invested a lot in biosecurity, have suffered the emergence of African swine fever or bird flu on their grounds.

When designing a livestock insurance program, one should take into account the following:

  • we need to avoid an overlap with government compensation of the value of the killed and culled livestock, which is usually financed by authorities (e.g. in EU);
  • on the other hand, in many countries the government usually does not fully compensate 100% of animal value;
  • for vertically integrated meat producers, it is recommended to consider business interruption insurance coverage rather than pure material damage;
  • meat processors can be offered a livestock contingency BI program, which covers loss of gross profit as a result of disruption of livestock supply.

GrECo works with up to 20 international markets who can offer standard or bespoke livestock insurance solutions. Unfortunately, livestock material damage coverage is getting harder and harder to be placed, as insurers’ appetites in respect of CEE/SEE regions are quite low. Insurance and reinsurance companies are aware of the ongoing epizootic situation in this area, especially regarding ASF and HPAI. However, some innovative solutions and schemes have been developed by our Food&Agri practice to partially overcome such challenges. One should also not forget that any insurance of exposed risks should go alongside with risk management services consisting of bio-security audits and business continuity plans, that can be provided by our special GrECo Risk engineering department.

Related Insights