Christopher McKevitt looks at the state of the food industry
Ireland's agrifood sector is in crisis following a series of shocks to the insurance market that has left many food processing and food storage facilities extremely difficult or hugely expensive to insure.
Within the sector, stories abound of insurers refusing renewals or quoting premium hikes and excesses that are multiples of what was previously in place.
A number of brokers have had to tell their clients that their premiums will increase by anything between 100% and 600%. Meanwhile, there have also been massive hikes in the level of self-insurance being sought at renewal - in some cases by up to seven figures. While the problem is most acute at cold storage and chilled food facilities, it appears the entire industry has been black-marked by the insurance and reinsurance sectors.
A relatively poor claims experience in the UK and to a lesser extent in Ireland, together with unease among insurers about the materials and style of building used for some food processing and storage units, has seen the industry viewed with an especially critical eye.
Critics question the fire safety of composite panels. These are metal-backed panels that sandwich a layer of polystyrene insulation. They are energy-efficient and easy to keep clean. But it is claimed that when a fire starts, the insulation melts and the panels lose structural strength. Manufacturers of the panels dispute the argument.
Another risk is that warehouses are necessarily open plan. This lack of compartmentation means fire can spread unhindered unless the warehouse is sprinklered.
FBD Insurance Brokers, which handles a considerable chunk of Ireland's food industry, has been at the forefront of efforts to find cover during the current crisis.
"It would not be unusual for the larger corporate client in the food industry sector to be self insuring in excess of E1.3m (£778,000)," says a spokesman. "And for the small to medium-sized company in the food and agribusiness sectors to be accepting self-insurance of between E31,750 (£19,500) and E317,500 (£195,000)."
The reasons for the crisis are many.
The collapse of Independent Insurance dramatically reduced capacity in the sector. Reinsurance rates and terms have hardened considerably since 11 September. The agrifood sector's loss ratio is regarded as high and its risks as having been underpriced.
Hibernian is just one of the many insurers pulling away from the sector. Seamus O'Hare, executive manager broker, development and underwriting with CGNU-owned Hibernian Insurance, confirms the company had decided against renewing a number of property risks in the agribusiness sector. The company is also closed to new business in the sector, following a review of CGNU's global positioning.
Even when clients find insurers willing to offer cover, rates are very high. A leading non-life insurance industry figure comments to Insurance Ireland: "I think you will find that there wouldn't be one of the co-ops that has not had to search through their panel of insurers and pay more expensive insurance." He adds that while there were different solutions for different people, rate hikes of up to 600% were being applied in some cases. "And it doesn't even matter if you've had a good exposure or a bad exposure."
Publicly-quoted Glanbia, one of Ireland's largest agrifood brands, has seen its insurance costs rise significantly after it went off-cover at Independent. Spokesman Michael Patten says: "What is changing is the cost of cover and the increase in costs is quite significant. We had no refusals, but the cost of cover has increased quite significantly."
Patten says risk management has become a much more compelling issue for Glanbia. "We have an active internal programme to manage down our risks."
He adds that companies like Glanbia are in a far healthier position to absorb the excesses being demanded by insurers than the huge number of agrifood businesses in the SME sector.
One food sector risk manager says it was not only Independent's collapse that hardened the market. He says Generalli, which announced its intention to leave the market last year, had pledged to build up a portfolio of large property accounts.
It is understood that just three insurers, FBD Insurance, Allianz and Royal & SunAlliance are prepared to consider covering the businesses that make up Ireland's food industry.
The issue of cover, and who is running without it, is a matter of great secrecy. For the most part, insurance buyers and their representative associations have remained silent on the matter, saying it is not yet in their own best interests to discuss their difficulties openly.
Cold storage operations are among the worst hit. And people are unwilling to talk. However, the director of the Irish Cold Storage Association, William Maher, said he would need the permission of his membership before issuing any comment. A public relations spokesman for a senior figure in Ireland's agribusiness sector said that his client welcomed the matter being highlighted, though he could not comment himself. One leading broker invited Insurance Ireland to its office only to tell us it could not assist with the article because the issue was too sensitive.
Reinsurance contract renewals have been negotiated on far stricter terms than those that had just lapsed.
Some observers put this down to a post-11 September mindset, while others say rates have been on the up for some time in an effort to improve underwriting margins. But it is probably fair to say the commercial insurance market has been too soft for too long, in a period during which returns on premium income invested were poor. Brokers' problem is trying to explain this to their clients, especially given the lack of media attention on the subject. Very little business coverage is traditionally given to commercial insurance issues, although this has changed in recent weeks.
As part of the drive towards improving margins, reinsurers have been looking to their insurer customers to get to know their clients' risk in far more detail and to excise anything that they are unhappy with. This in turn has prompted reviews of a number of sectors.
Meanwhile, clients and brokers say they are hoping to ride out the current rough patch in the insurance cycle in the hope of better times in the not too distant future. For their part, brokers refuse to give on-the-record comment for fear of offending the ever-diminishing number of insurers prepared to quote for the business.
But commercial insurance, never considered a sexy subject, is beginning to cause concern for the powerful employers organisation, Irish Business and Employers Confederation.
And with food production the traditional cornerstone of Ireland's rural economy, it will be interesting to see just how much patience Ireland's food executives have before the issue spills over into the political arena.