Food safety & petrochemical risk in focus as claims & exposures rise

The Chinese insurance market is growing fast but there is a feeling among local and international risk and insurance experts that loss prevention and risk management standards need to be improved in China or big, market-wide losses could ensue. Swiss Re has published two reports recently on key areas of concern that it sees. The first is the storage and production of highly flammable and explosive chemicals such as petrochemicals and the second is food safety. Swiss Re points out that there has been ‘strong expansion’ in the chemical and petrochemical industries in China in recent times that has transformed the country into one of the world’s largest producers of chemical products. But the reinsurance group said that this growth has been accompanied by ‘severe safety issues’, with industrial accidents now a ‘constant occurrence’.hide“Since the beginning of the year, there have been numerous large-scale industrial fires and explosions, causing widespread public concern and significantly impacting prospects for further development of the chemical industry,” said Swiss Re. “The scale and intensity of explosions at Fujian Zhangzhou Dragon Aromatics Company on 6 April, Shandong Rizhao Shida Technology Company on 16 July, and Tianjin Ruihai Hazardous Chemicals Warehouse on 12 August have shocked the nation and garnered widespread media coverage. However, there have been many lesser-known accidents that caused severe property damages and casualties,” continued the reinsurer. Swiss Re said that the most serious accidents occurred at petrochemical companies with complex operations, liquefied hydrocarbon tank areas, ammonium nitrate factories and warehouses. The reinsurer said that these accidents have set alarm bells ringing for insurance companies and have made the proper assessment of the risks of production, storage and transportation of petrochemical products and reducing insured losses an important focus for these companies. Food-safety scandals and food safety has also become an important topic for many people and organisations in China, points out Swiss Re. The Chinese government has revised the law on food safety and has included this topic in the ten most important missions in the state derivatives, it said. The regulators are also making efforts to look for more effective supervision methods and, as in many other areas that carry a risk to the public, the role of insurance in food-safety supervision has become a ‘key topic’ for the government, the regulators and the insurance industry. “Today, you probably hear about ‘food safety liability insurance’ as much as you hear about ‘food safety’. If you think about it, there is nothing fancy about ‘food safety liability insurance’: it is a fairly standard product-liability and product-recall insurance that covers liability risks in the food industry. In fact, in developed countries product-liability insurance has deeply penetrated the food industry for many years, as product recall is becoming increasingly important in those countries,” stated Swiss Re. “However, the situation in China is different. The penetration of product liability insurance into the food industry, along with the level of product recall, is extremely low. In spite of the countless efforts made by insurance companies, the food industry still doesn’t see the value of this insurance; this is simply because of the low claim costs the market has seen in the past,” continued the reinsurer. Swiss Re has therefore attempted to understand the reasons for these low claim costs to help it develop an appropriate insurance solution. Because legal and regulatory environments are often seen to be the key drivers for liability insurance, the company carried out thorough research on the legal and regulatory environment vs insurance buying behaviour in the respective markets. In a report published by the Swiss Re Centre for Global Dialogue the company tried to find a connection between insurance penetration and the legal environment. “We were hoping to find a magic bullet—a specific action, such as the enactment of a specific law or the introduction of stricter monitoring procedures—that simulates the number and the size of claims relating to food safety and, therefore, creates a need for insurance,” explained the reinsurer. “But it is never as simple as that. From the study, we realised that insurance-buying behaviour in the food-industry value chain is determined by a complex combination of factors, including cultural norms, the role of the courts, nationalistic impulses and laws and regulations. Based on the countries and regions surveyed, it is market pressure rather than law that drives purchase decisions,” continued the company. It is consumers who create market pressure and so in May Swiss Re posted a survey on its official WeChat account to try and find an answer from consumers. More than four hundred answers were collected from ordinary consumers and the survey found that, while safety is, not surprisingly, on the list of consumers’ biggest concerns, ‘freshness’ came out on top. “Although the government has selected dairy products as a high-risk category, consumers seem to be more concerned about whether the food is fresh. In terms of food safety, consumers were most concerned about illegal additives. Are insurance companies ready to cover the introduction of these illegal additives? Last but not least, there does seem to be a long way to go before consumers begin thinking about insurance as a form of protection against food safety incidents,” explained Swiss Re. “We have done the research, but it is still too early to draw any conclusions about the demand for insurance. What we have learnt is that consumers may be the key to increasing that demand. However, to unleash the value of insurance on risk management and match insurance products to the interests of consumers and the food industry, more work needs to be done,” concluded the reinsurance group in its report published at the end of September.

Food safety & petrochemical risk in focus as claims & exposures rise

Want to read this article?

Read Next

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Premium increases continue to slow down in US commercial P&C market

Berkshire Hathaway discloses minority $6.72bn stake in Chubb

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Premium increases continue to slow down in US commercial P&C market

Berkshire Hathaway discloses minority $6.72bn stake in Chubb

Want to read this article?

Read Next

International SOS warns of ‘burnout epidemic’

Strebel to replace Gonzalez as head of Swiss Re China

Risk managers want software providers to integrate more AI tools

Premium increases continue to slow down in US commercial P&C market

Berkshire Hathaway discloses minority $6.72bn stake in Chubb

Related Articles