the impact of trends in the food industry on risk management

Underestimated Fire Risk in the Food Industry in Europe

The food and beverage industry is one of the largest sectors in the world.

The total volume of world food exports was close to

$1.5Tin 2014

Source: The World Trade Organization (WTO), International Trade Statistics 2014

Production costs are

Profit margins are while

Incr

easin

gdecreasing

Manufacturers are facing increased pressure

Faster Production

Larger Facilities

Just-in-Time Delivery

New Production Methods

– to stay competitive

Manufacturers are facing increased pressure

New, More Diverse and Exotic Products

Lower Prices

– to meet the expectations of consumers who want

Manufacturers are facing increased pressure

For Hygiene On Ingredient Transparency on Packaging

– to adhere to regulatory requirements

Even well-known brands use suppliers/manufacturing facilities in countries with varying degrees of safety standards in place,

leaving them vulnerable to unknown exposures and often leading to large losses.

Despite the industry’s focus on growth and innovation,

most production units have major deficiencies or are inadequately protected against fire.

In Germany

only 2% of food production facilities at risk of fire are equipped with sprinklers.

Source: The German Insurance Association (GDV)

What are leading causes

of fires in

production facilities?

Human Error Working Processes Production Facility Defects

Sometimes new hygiene regulations contradict fire protection measures in food production.

Leading Causes of Fire

7 24 18 18 26 31 26 34 15 34 33 29 36 34

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

12

2015

Total Loss in Million Euro

Number of Losses

Average Loss in Single Claim

€124.6

€283.6

€707.9

€1,159.8

€552.9

€220.2€183.4

€533.5

€304.2

€983.9

€557.8€557.5

€459.9

€257.0

€104.6

Large losses are increasing.

Single claims are getting larger.

Note: Based on claims from January 2001 to September 2015 Source: Gen Re Research

What should insureds do?

Ensure fire resistant separation of

hazardous facilities(e.g. deep frying,

storage of flammable liquids, etc.)

Divide facilities into fire compartments

(e.g. production, storage, packaging)

Construct buildings using non-flammable

materials

Fire Prevention Steps

Risk Management

Test business continuity plans, including alternative production locations

Install fire extinguishing

systems in hazardous facilities

Monitor the facility with an automatic

fire alarm linked to the fire department

Equip the facility with an automatic sprinkler system

What are the implications

for insurers?

Equipment cannot be cleaned or repaired, in part due to regulatory requirements.

Due to the just-in-time nature of the food industry’s supply chain,

small losses cause BIs that are longer than anticipated.

No possibility to outsource. Production is halted while rebuilding takes place.

Production alternatives are restricted, especially for businesses that require on-site production, mineral water, for example, and regional specialties such as Koelsch, Champagne, Nuernberger Rostbratwuerstchen, etc.

What insurers need to

keep in mind :

As facilities become more industrialized, and involve higher values, insurers should regard these risks as industrial, rather than commercial.

Industry and underwriting knowledge are essential and should include regular site visits by insurers’ risk engineers.

Careful examination of wordings/special policies, as well as adjusted sub limits and total policy limits, are also critical.

To learn more, contact

your Gen Re

Account Executive.

© 2016 General Re Corporation | This presentation is intended to provide background information for our clients and professional staff. It is time sensitive and may need to be revised and updated periodically.

+49 221 9738 939

leo.ronken@genre.com

Leo Ronken