Food system shock: the insurance impacts of acute disruption to global food supply
Published by Lloyd's in June 2015, this Lloyd’s Emerging Risk Report considers the insurance and risk implications of a severe shock to the global food system. The systemic production shock to the world’s staple food crops described in the scenario generates widespread economic, political and social impacts. It could trigger significant claims across multiple classes of insurance, including (but not limited to) terrorism and political violence, political risk, business interruption, marine and aviation, agriculture, environmental liability, and product liability and recall. These losses could be compounded by the potential for a food system shock to last for many years; and the ability of insurers to pay claims quickly is expected to be an important factor in post-shock recovery. These losses could be compounded by the potential for a food system shock to last for many years; and the ability of insurers to pay claims quickly is expected to be an important factor in post-shock recovery. More broadly, the insurance industry may also be affected by impacts on investment income and the global regulatory and business environment.
Sudden disruptions to the supply chain could reduce the global food supply and trigger a spike in food prices, leading to substantial knock-on effects for businesses and societies. The food system’s existing vulnerability to systemic shocks is being exacerbated by factors such as climate change, water stress, ongoing globalisation, and heightening political instability.
Experts in the field of food security and the economics of sustainable development developed this scenario describing a plausible, relatively severe production shock affecting multiple agricultural commodities and regions, and to describe the cascade of events that could result. There are uncertainties in the scenario, arising from the difficulty of obtaining key data, the applicability of historical data to modern food trade networks, and the uncertainty surrounding future impacts of climate change.