WEF Agenda Blog – China 2017
Insurance – China's path to advancing a clean energy future, food security and city resilience
By Jayne Plunkett, CEO Reinsurance Asia, Swiss Re
Social media is raising public awareness of food-safety scandals, and food safety has become an important topic for many people and organisations in China. The government has revised the law on food safety and has included this topic in the ten most important missions in the state derivatives. The regulators are making continued 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.
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.
Therefore, we have attempted to understand the reasons for these low claim costs in the hope that this insight will help us to develop an appropriate insurance solution. As legal and regulatory environments are often seen to be the key drivers for liability insurance, Swiss Re carried out thorough research on the legal and regulatory environment vs insurance buying behaviour in the respective markets. In this report published by the Swiss Re Centre for Global Dialogue, we 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.
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.
So, who creates market pressure in the food industry? Although we keep hearing about how keen the government is to solve the problem, we must not forget that it is the consumers who are most interested in safe food! Consumers’ attitudes to food-safety problems should be important enough to the food industry to create market pressure.
What concerns do consumers have? On 26 May 2015 Swiss Re posted a survey on its official WeChat account to answer that question.
More than four hundred answers were collected from ordinary consumers, and the results from some of the questions asked are shown below.
The survey certainly provided some interesting indications: 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 the 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.
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.
Published 24 September 2015