Industry insights

Food, Agribusiness and Beverage

Significant volatility

The current environment for Food, Agribusiness and Beverage (FAB) organizations is extremely challenging and the COVID-19 pandemic has highlighted a number of fundamental issues facing this supply chain-critical sector. Traditionally a resilient and essential industry, it has faced huge fluctuations in demand, with some organizations such as those supplying retailers experiencing an increased need for their products, whereas those supplying food services, for example, have in many cases seen sharp reductions in demand. Additionally, supply chain disruption, cyber attacks, labor shortages and climate change are all causing significant volatility in the industry.

Rates are continuing to harden, particularly for Property and Liability lines, and now increasingly for Cyber, Directors’ & Officers’ (D&O) and Crime. This is placing pressure on the budgets of risk managers to keep their Total Cost of Risk down, causing many to turn towards captives in an attempt to absorb some of the cost pressures. Indeed overall net aggregate retention for captives we manage in this sector has increased by 60% since 2018, with notable increases in General/Public Liability (454%), Marine (536%) and Property Damage/Business Interruption (31%).1

Taking a longer-term view

The volatility and hard market conditions currently being felt across the industry are beginning to cause a change in mindset among some organizations, with many now taking a longer-term strategic approach to risk management, including the consideration of captives. Using a captive can make companies less susceptible to the ups and downs of the traditional insurance market as those companies can have more control over their own insurance program - an attractive prospect in a sector that can be unpredictable.

And with the FAB industry particularly at risk from the impact of climate change, many Boards are discussing their Environmental, Social, and Governance (ESG) credentials and how ‘green captives’ can be used to support that agenda – from financing the risks associated with ESG to helping to align a parent company’s values with that of its captive.

Footnotes

1 Aon's 2021 Captive Benchmarking Survey