Stock Throughput Cover in Macadamia Processing

Finding a niche insurance solution for a niche market

South Africa’s macadamia export industry is booming at present, with agricultural exports of macadamia nuts increasing by 68%[1] In quarter three of 2023. It has been a long road for producers to get to this point given the long-tailed nature of establishing a macadamia plantation, making it essential to understand and plan for the many unique challenges that macadamia producers are faced with.

According to Werner Bezuidenhout, branch manager at Aon South Africa, it is a sector that requires a niche and specialised insurance solution that protects the integrity and the quality of South African macadamia nuts from cradle to consumption. One such insurance solution comes in the form of Stock Throughput (STP) Cover which is a specialised insurance policy tailored for businesses involved in importing, distributing or exporting products and merchandise.

“Unlike basic transit coverage in a property "all-risk" insurance policy, an STP policy provides comprehensive coverage for all movable goods involved in macadamia processing activities, including raw materials, semi-finished and finished products – in this case macadamia nuts - and provides cover from the moment the macadamias are loaded at the farm and extends to goods in transit, undergoing processes or in storage at owned or third-party premises, offering seamless protection throughout the supply chain,” Werner explains.

“Traditionally, insurance coverage for cargo involved separate policies handled by freight forwarders for international transport and local insurers for transit within a country's borders and storage. However, STP policies address the gaps and complexities inherent in these traditional arrangements, offering integrated coverage for the entire journey of the macadamia nuts, from origin to destination. This eliminates disputes among insurers regarding liability during critical transition points, such as loading, offloading or movement between storage and transit,” Werner highlights.

In today's volatile supply chain landscape, characterised by global outsourcing, economic uncertainties and regulatory complexities, macadamia processors seek greater control over their goods in transit. An STP policy provides this control by offering flexibility in choosing distribution channels and managing insurance premium expenses. This flexibility allows the processors to optimise their supply chain operations, control shipment volumes and potentially negotiate better premiums with their insurer based on their loss experience,” says Werner.

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An STP policy typically comprises three components: ocean cargo, inland transit coverage and storage or property protection. It covers the movement of macadamia nuts in raw format, work-in-progress and the finished product globally, encompassing various locations such as processing facilities, ports and harbours, owned and third-party distributors and warehouses. “It provides an all-encompassing insurance solution for macadamia processors that covers the nuts from the moment they are loaded at the farm right through to the end point of consumer consumption,” says Werner.

While STP policies include coverage for loss or damage during the processing stages, there are added risks that macadamia processors need to consider plugging all the gaps in the value chain:

1. Public liability: Public liability insurance shields macadamia processors from claims made against them from a third party relating to the macadamia product produced at the factory.
2. Product Recall and Contamination Insurance: This covers legal risks associated with the recall of products in the food industry, or a component of a final product, due to material risks posed to consumer health and safety. The cover becomes more paramount when the product, such as macadamia nuts, is exported to foreign countries which could lead to claims in foreign jurisdictions and currencies.
3. Professional Indemnity (PI) insurance: PI insurance provides the insured party with indemnity in respect of legal liability arising out of the practice of their profession.  Indemnity cover will include the professional’s own legal costs, as well as any compensation to the claimant and/or legal costs that are up to the limit of indemnity of the policy, providing all parties with peace of mind and financial protection in the event of a claim. An example would be a consultant advising a macadamia farmer to spray its trees with a specific diluted solution to address pests; but instead of achieving the desired result, the trees are compromised, leading to a claim of negligence.
4. Cyber risk: Companies in the food value chain are prime targets for hackers, particularly ransomware strikes and data-extortion threats. Food production, processing, packaging and logistics, has become more technologically sophisticated. Macadamia processors use distributed networks, remote sensors and computing to increase automation and efficiency, while keeping tabs on equipment and the maintenance thereof. An inter-connected and cloud-based system, such as this, creates a large potential cyber-attack surface.
5. Directors and officers liability: Despite not being corporate entities, macadamia processors face similar management liability exposures. Directors and officers require this coverage to protect against wrongful acts, ensuring their personal interests are safeguarded.

“While the risk management efforts incorporated in running macadamia processors are vast and well-advanced, it is nothing less than what is required in the food processing industry that is reliant on the successful processing and distribution of a significant inventory of nuts and its inherent transit exposures. The role of a knowledgeable broker, well-versed in agricultural and food production and processing risks, becomes invaluable for macadamia processors that find themselves in an evolving landscape where tailored risk management strategies need to seamlessly integrate with insurance solutions that work for a very specialised market,” Werner concludes.

[1] https://www.namc.co.za/wp-content/uploads/2024/01/SOUTH-AFRICAS-AGRICULTURAL-EXPORT-PERFORMANCE-QUARTER-THREE-2023-003.pdf - Page 3

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