Dr. Alfons Maier

Large losses in the food industry – Familiar loss patterns

Fire is repeatedly the cause of major losses in the food industry. It is not a new phenomenon for insurers, but a costly one. But why was 2006 a record year for losses in Germany?

Highly combustible foam plastic insulation material was already identified by Schadenspiegel in 1995 as one of the main factors contributing to large losses and the rapid spread of fires in the food industry. This kind of foam insulation is very common in milk-processing facilities, abattoirs and meat-processing plants, pasta factories, and large bakeries. What is more, pollutants from burning plastics usually cause serious contamination of buildings, operating equipment, and goods.

2006: A record year for losses

A total of 23 major losses (each exceeding €500,000) made 2006 a dramatic year for the food industry in Germany and resulted in claims expenditure of €256m. In one particular case, a single event caused a loss of some €110m, which is in the range otherwise encountered only in the context of fire and fire business interruption in other industries like steel, chemicals, and energy.

The ten largest losses in the period 1987–2006 accounted for property and business interruption losses exceeding half a billion euros. The average loss was around €30m in property and €20m in business interruption, the latter accounting for a substantial 20–55% of the losses and, on average, no less than roughly 40% of total claims expenditure. Five of the largest losses occurred in the meat-processing sector, four at bakeries, and one at a drinks producer. In around 20% of the cases, electrical factors were identified as the main cause of loss.

International risk

The position in other markets is similar to that in Germany. The British food industry, for example, recorded losses amounting to some £403m (€600m) between January 2004 and June 2005.

In Australia, 17 fires between 1995 and 2002 involving loss amounts of A$ 0.6–125m generated total claims expenditure of some A$ 300m (€180m).

How did the high claims expenditure come about in Germany in 2006?

An analysis of two losses from the "record" loss year:

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