The latest red flag from Mactavish concerns companies operating in the food and beverage sector. The consultant is warning that risk management process and operational changes made as a result of COVID-19 may place them in breach of their insurance policy terms and therefore render them unable to access cover in the event of a claim. The situation is exacerbated by a gradual worsening of hard market conditions.

Bruce Hepburn, CEO, Mactavish said it's already tough for the food and beverage sector. And for food and beverage managers who lived through the last insurance hard market in 2002-2004, today's situation will feel depressingly familiar.

“Few industries could claim to have suffered more at the hands of the hard insurance market than the food and beverage industry. Over the past two years, businesses have been particularly affected by insurers adopting a harsher attitude to property risk, resulting in reduced capacity, higher premiums, and stricter policy terms.

“During these tumultuous times it is easy to overlook some vital finer details in your insurance programmes. Failure to do so might pose existential challenges for your business as well as radically increasing cost. Considering the scale and the immediacy of these challenges, an expert, targeted response is required.”

Addressing the problem (Source: Mactavish)

Various practices have been implemented in different arenas, from processing plants to retail stores, including social distancing measures, the installation of protective screens, and the acquisition of PPE for employees and customers alike. Adherence to these measures will be crucial for the foreseeable future, as localised outbreaks of COVID-19 occur more frequently; in the past few weeks, food production sites in Germany, the UK and the US been identified as sources of outbreaks, leading to hundreds of workers needing to self-isolate.

All of this is leading to a significant increase in the risk environment perceived by insurers. Businesses will need to demonstrate that appropriate measures are in place to prevent the spread of Covid-19 at their premises. If, as has been discussed, it transpires that food processing facilities provide a particularly hospitable environment for the virus, much more widespread changes can be expected. In addition, executives can potentially be held liable if contingency planning is alleged to have been inadequate, or if managers are accused of poor decision making. This includes actions being raised either by shareholders for poor financial performance during the pandemic, or even for example by employees who have contracted COVID-19 at work or are suffering as a result of poor crisis management. Claims may also arise from discrimination allegations, if, for example, employees believe that the business has devoted more attention to risk management for different types of worker. It is for these reasons that sourcing sufficient D&O coverage, ensuring that its cover is not eroded by new incoming exclusions and considering EPL cover, can be crucial.

The combination of a difficult to manage working environment with a heavy dependence on new sources of temporary labour may present a real long-term challenge that would have a significant impact on insurance costs.

Policyholders will face numerous challenges in attempting to transfer these risks. The D&O market began to deteriorate severely in 2019 and has witnessed ongoing capacity contraction even before the advent of the pandemic threw this market into genuine turmoil. The consumer staples sector saw a year-on-year premium change of 123% in Q4 2019, and we expect this figure to continue to rise. This isn’t simply a question of cost, with recent renewals also witnessing severe restrictions in coverage. The impact of COVID-19 could also see the, currently more benign, public and employer’s liability markets become much more problematic.

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