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HUB International 2021 Outlook

Agribusiness Industry

 

Transforming Uncertainty into Opportunity

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Reimagining Farm-to-Table

As farms and agribusinesses find new distribution avenues and deal with supply chain disruption, they face new risks that require more internal safeguards.

Survival is in the pivot

And it's what the agribusiness industry will have to do to thrive in 2021.

Family-owned farms and large agribusinesses are now challenged to find alternate routes from farm-to-table, due to overproduction and underselling of many products like milk and wheat. Industry executives will have to be creative, thinking out of the box to find new customers and/or ways to reach the consumer directly.

“Brokers are looking for creative options.”

Coverage lines will cost more in 2021 across the industry. Brokers are looking into creative options to minimize the effect on your business and shift in-house risk to prevent avoidable recalls and nuclear verdicts. And brokers will need to be creative in seeking out new avenues to offload risk among the rising tide of insurance costs, which in many cases are now anywhere from 15 to 50% more, based on needed coverages.

It will take intentionality and an understanding of how all market forces interconnect. Here’s what you can expect from Agribusiness in 2021:

“Unearthing new markets and opportunities will be critical to survival in the coming year.”

“If you have pivoted, your business’ risk profile is likely to shift creating additional exposures.”

1. Innovate in a disrupted supply chain.

Many farms and agribusinesses are seeing their demand dry up since the onset of the coronavirus pandemic. From dairies that traditionally contracted directly with restaurants or school districts to meat processing plants that have always sold to restaurants and vegetable and nut growers that distribute to small specialty shops, COVID-19 is impacting demand in a major way. Many farms need to find a new route to the table. Today’s farmer or agribusiness executive is looking for new and innovative ways to minimize overproduction by getting their food supply where it’s needed, even if traditional channels have been eliminated. Whether that means selling 1-kg bags of legumes on Amazon.ca or starting a local farmer’s market, unearthing new markets and opportunities will be critical to survival in the coming year.

If you have pivoted, or are looking into other avenues for product distribution, your business’ risk profile is likely to shift, maybe even creating additional exposures. Talk to your broker about additional markets or industries you’re considering. The agribusiness selling directly to thousands of consumers via Amazon.ca will have a totally different risk profile than the farmer selling to the wholesale hospitality market. This means policy terms and limits may shift. Work with your broker to create a narrative of your exposures and goals so your broker can ultimately right-size your coverage moving into your next renewal.

COVID-19 Impact

Many farms and agribusinesses are seeing their demand dry up since the onset of the coronavirus pandemic.

“Labor and inventory management will need to be handled with great agility.”

2. Personnel affect supply chain, too.

Farms and agribusinesses have suffered from a shortage of foreign workers who didn’t travel into Canada this season as they regularly do, and may not return until there’s a COVID-19 vaccine. For this reason, labour and inventory management will need to be handled with great agility. Until technology can fully automate farm labour, the Canadian market will continue to face this challenge.

Meat processing plants currently face personnel issues as well. COVID-19 outbreaks hit a number of plants where workers are refusing to return to the assembly line unless safety is assured. In the U.S., some are filing Employment Practices Liability (EPL) suits against the businesses for requiring them to do so – and Canadian courts are expecting copycat lawsuits on this side of the border as well. Make sure your meat plant or agribusiness is properly covered for potential EPL claims. Work with your broker to discuss every potential employee liability possible.

“Product Liability and Product Recall coverage are key to transferring liability in consumer recall cases as well as excess or umbrella coverage, the latter of which will cost as much as 25 to 50% more in 2021 due to rising claims and the draw of recent nuclear verdicts in the U.S.”

3. Mislabeled allergens still a major cause for recalls.

One of the leading causes of food recalls is mislabelled allergens. Sidestepping this avoidable pothole continues to be top of mind for food manufacturing everywhere because when a consumer gets sick, it can mean fatalities, plummeting stock values and a multi-million dollar class action lawsuit from consumers as well as investors and shareholders. Product Liability and Product Recall coverage are key to transferring liability in consumer recall cases as well as excess or umbrella coverage, the latter of which will cost as much as 25 to 50% more in 2021 due to rising claims and the draw of recent nuclear verdicts in the U.S. These policies cover costs associated with tracing the cause of contamination, identifying affected products, removing food from the shelves and consumer notification. Directors and Officers (D&O) insurance is also important to food recall scenarios, as the coverage protects a business and its executives from investor and shareholder claims. We are expecting D&O coverage costs to increase by as much as 20 to 50% more in the coming year, in response to higher than average claims.

Many agribusinesses have changed course in some way since the onset of the coronavirus pandemic, and therefore, it is important to discuss any and all changes to packaging, distribution, labelling and more with your broker. While each of these critical coverages will cost more in the coming year, work with your broker to right-size your coverage by updating your risk profile to eliminate past exposures with umbrella/excess and D&O coverage. These updates may result in a reduction of costs.

“CAT losses are currently taxing every market and agribusiness is no exception.”

4. CAT claims swell insurance costs.

Catastrophic or CAT losses are currently taxing every market and agribusiness is no exception. The result of severe weather — like wildfires and hail events — CAT losses have led to significant increases in coverage costs, including Property which is expected to increase by 10 to 15%, General Liability by 5% and Umbrella by 20 to 25%. In regional pockets more susceptible to CAT losses, these numbers may be even higher. While risk mitigation is possible, farms and agribusinesses will want to work with their broker on mid-term endorsements, or changing policy coverage to better align with current risks. For example, if your farm has recently retired vehicles, reduced its workforce or pivoted heavily into another area of work, there may be a chance to alter your coverage mid-year in an effort to reduce premium dollars.

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2021 Growth and Beyond

Farmers and agribusinesses are all navigating through a time of uncertainty, knowing that business models are evolving, and so are customer expectations and potentially our workforce. In many cases, innovation and disruption are leading the industry into 2021 and beyond.

All this change will create more questions around risk, a business’ impact on insurance, and more. A good broker will be navigating the coming year together with you, helping you to refine your business’ story in order to tell it to the insurance carriers to help right-size your coverage and reduce potentially high premium rates in the coming year and beyond.

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