Supply chain disruptions have become a critical issue for the food and beverage industry in recent years, particularly following the pandemic, which exposed major vulnerabilities. Tyler Tisdale (pictured), an account executive at Firstbrook Cassie & Anderson, said that these challenges require manufacturers to rethink their risk management strategies.
"Disruption in supply chains has been a critical issue for the food and beverage manufacturing industry as a whole," Tisdale said. The landscape for midsize and large companies has shifted drastically, and the most immediate response has been to ensure the right insurance solutions are in place. Chief among these is contingent business interruption insurance, a type of coverage that protects manufacturers when a key supplier faces a loss that disrupts production.
“All manufacturers need to ensure that their policy is going to respond to cover their losses stemming from not being able to receive product from one of their critical suppliers, not every type of business interruption insurance will provide this type of contingent coverage,” Tisdale said.
Beyond the immediate need for insurance solutions, manufacturers are also reevaluating their relationships with suppliers. Tisdale explains that companies are increasingly diversifying their supplier bases to mitigate risk.
"There is less confidence in the supply chain as a whole. Therefore, manufacturers are diversifying their suppliers in order to have access to more suppliers in the event that there is some sort of disruption in the chain," he said.
This shift in strategy has brought trade credit insurance to the forefront, especially when working with new suppliers. "If they’re working with a new business to receive their product, having trade credit coverage in place is critical to make sure that our insured is protected in the event that a new business partner doesn’t actually have the funds to pay them for the product that they are supplying."
Product recall insurance is another area that has gained renewed focus as companies expand their supplier networks. Tisdale emphasized that, "proper product recall coverage is critical," particularly when dealing with new suppliers whose products may not meet regulatory standards.
"A pivotal misunderstanding by some food and beverage manufacturers is what degree of coverage is provided by the product recall expense coverage typically embedded in their policy. As the name implies, expenses associated with product recall are picked up, but the totality of the coverage is insufficient to cover broader financial losses associated with the recall and to get the manufacturers product back into the marketplace," he said, noting that many manufacturers are underinsured in this area.
One of the more nuanced risks arising from supply chain issues is linked to cargo insurance. Geopolitical risks are increasingly affecting shipping routes, and manufacturers must ensure their policies do not exclude coverage in high-risk areas. Tisdale said that with "geopolitical risk throughout the world, it is vitally important to ensure that shipments are not flowing through territories that are not covered under a cargo policy," highlighting how a shipment lost in an excluded area could amount to hundreds of thousands of dollars in losses.
Cyberattacks are also a growing concern in today's risk landscape.
"If a cyber-related attack creates any issues in the supply chain, it is crucial for the resulting business interruption loss to be picked up by the manufacturer’s cyber insurance policy," Tisdale said. As food and beverage companies become more reliant on digital technologies, the potential for a cyberattack to disrupt supply chains has increased, making this form of coverage essential.
The impact of supply chain disruptions isn’t limited to food ingredients; it also affects the equipment used in production. "What I have seen repeatedly over the last three and a half years, let’s say, is a client of mine sustains an Equipment Breakdown, loss, nothing really out of the ordinary seems standard at first. Then it turns out there’s a shortage of parts, or there’s going to be severe delays in the delivery of parts," Tisdale said. Equipment breakdown insurance, therefore, plays a critical role in ensuring that manufacturers can continue operations when their machinery fails, especially by having a proactive plan in place crafted with an insurer to respond to equipment breakdown loss as quickly as possible.
Tisdale also underscored the importance of understanding pandemic-related risks and how they are covered under existing policies. He advises that manufacturers should be clear about what is covered and what is not, to avoid surprises should another global health crisis arise.
"Hopefully for us all, there is not another pandemic at some point in the near or long-term future but it is certainly possible" he said, emphasizing the need for a proactive rather than reactive approach to risk management.
The food and beverage sector is also facing increasing regulatory pressures, particularly around environmental and pollution controls. Tisdale highlights the need for comprehensive environmental liability insurance, which can protect manufacturers in the event of a contamination issue or violation of environmental regulations.
"We push for all our clients now [to ensure] they have comprehensive pollution and environmental liability insurance," he said.
With the industry's growing reliance on new suppliers, Tisdale also stressed the importance of having robust business interruption coverage that aligns with local regulatory requirements.
"We proactively discuss with insurance companies, if there is damage at our client’s facility, will their business interruption coverage respond to ensure that they’re being made whole, while also being in compliance with whatever regulations exist in that particular area," he said.
