In an industry with tight operating margins, FAB organisations face significant challenges in managing spend and protecting their financial health — requiring industry leaders to adopt a sophisticated approach to risk capital optimisation.
Commodity price fluctuations, geopolitical risks, cyber threats, supply chain disruptions and weather-related events have created a perfect storm of risks for food, agribusiness and beverage (FAB) organisations. As a result, less than a quarter of these businesses feel adequately prepared to handle the pressing threats they face. However, by leveraging a combination of solutions, such as captives, parametric insurance, alternative risk transfer (ART) tools and advanced analytics, FAB organisations can build resilience and safeguard their balance sheets.
The 4 Families of External Capital in Risk Financing
- Direct (Retail) Market:While this is ideal for traditional risks, it is increasingly selective regarding natural catastrophes and social inflation, as these factors continue to drive up claim costs. Recent trends show volatility in appetite and pricing for many core operational risks
- Facultative Reinsurance: This provides access to competitive pricing and abundant capacity for short-tail risks. This option creates greater flexibility by facilitating tailored risk transfer strategies for specific challenges.
- Treaty Reinsurance: This coverage ensures large, unobtrusive capacity for portfolios of risks. Its success requires collaboration with lead direct insurers to secure optimal terms.
- Alternative Risk Transfer: This includes structured reinsurance solutions, parametric solutions, catastrophe bonds and insurance-linked securities. These solutions can offer greater flexibility to address emerging and uninsurable risks efficiently.
Future-Proofing the FAB Industry
Meeting the food security needs of a growing global population is getting harder, and businesses must now set new standards in agility and innovation to capitalise on opportunities.
These interconnected challenges are contributing to rising costs and operational disruptions, with 30 percent of Aon survey industry respondents indicating they suffered losses as a result of increasing risks. Looking ahead, future risks like cyber threats, climate change and talent shortages are also emerging as critical concerns. However, despite being a key risk both now and in the future, only 13 percent of FAB respondents stated they had quantified the risk that climate change poses to their organisation.
Rapidly reevaluating operations and strategies around established and clearly defined risks, as well as newer evolving and emerging risks, will help organisations better prepare for future uncertainty, and at the same time, strengthen their ability to capture growth opportunities. Specifically, captives, parametric insurance and ART tools help ensure resilience in the face of risk, while advanced analytics provide the clarity needed to make better, more informed decisions.
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