The LCBO Strike: Is It a Wake-Up Call for Commercial Insurance?

The recent 14-day strike at the Liquor Control Board of Ontario (LCBO) wasn’t just a headache for Ontarians.

It was also a reminder of the complex risks that businesses face in today’s interconnected economy.

As an insurance professional, I couldn’t help but see this through the lens of commercial insurance, particularly business interruption coverage.

The Domino Effect of a Strike

When the LCBO’s 10,000 workers walked out, it wasn’t just the crown corporation that felt the pinch.

The entire ecosystem around alcohol distribution in Ontario was disrupted:

1. LCBO itself: With 669 retail stores closed, the LCBO’s revenue stream took a significant hit. In the previous fiscal year, LCBO posted revenue of C$7.4bn. A back-of-the-envelope calculation suggests they could have lost over C$280 million in revenue over the 14-day strike period.
2. Suppliers: Wineries, breweries, and distilleries suddenly lost their primary distribution channel in Ontario.
3. Restaurants and bars: Many establishments had to scramble to secure alternative supply chains or risk running dry. A few restaurant managers I talked to in the downtown Toronto area were furious.
4. Delivery services: Companies that partner with LCBO for home delivery saw a portion of their business evaporate overnight.

What is the LCBO?

The government selling alcohol in Canada was not on my 2016 Bingo card, so this might also surprise my non-Canadian readers.

In Canada, across its ten provinces and three territories, there are 13 authorities that are tasked with regulating alcohol sales and distribution.

LCBO is one of them.

The LCBO has 669 retail stores in the province of Ontario. It is also the wholesale supplier for on-trade and hospitality venues.

The Insurance Angle

This cascade of disruptions highlights the critical importance of robust commercial insurance coverage, particularly business interruption insurance.

Here are some key considerations:

1. Business Interruption Insurance

Standard business interruption policies typically cover losses due to physical damage (like fire or flood). But what about strikes? This is where things get tricky.

Some policies include coverage for “civil authority” interruptions, which might cover strikes.

However, many policies specifically exclude labour disputes.

The lesson?

Read the fine print, or talk to your broker, and consider adding strike coverage if it’s not included.

2. Contingent Business Interruption

This coverage protects against losses resulting from disruptions to your suppliers or customers.

In the LCBO case, this could have been crucial for businesses heavily dependent on LCBO’s distribution network.

3. Supply Chain Insurance

Given the complex nature of modern supply chains, some insurers now offer specialized supply chain coverage.

This can protect against a broader range of disruptions, including strikes at key suppliers.

The Broader Ecosystem Impact

The LCBO strike illustrates how a disruption in one part of the economy can ripple outwards.

Consider these potential insurance implications:

1. Liquor liability: With the primary legal source of alcohol shut down, did this lead to an increase in illegal or unregulated alcohol sales? This could have implications for liquor liability insurance.
2. Cyber risk: As consumers shifted to online ordering, did this increase the cyber risk exposure for LCBO and its partners?
3. Reputational risk: How might the strike impact LCBO’s brand in the long term? Is this something that can (or should) be insured against?

Lessons for Businesses and Insurers

1. Review your coverage: Ensure your business interruption insurance adequately covers labor disputes if this is a significant risk for your business.
2. Consider the ecosystem: Look beyond your immediate operations. How might disruptions to key partners or suppliers impact you?
3. Stress test your policies: Run scenarios like the LCBO strike against your current coverage. Where are the gaps?
4. Communication is key: Clear communication with employees, customers, and partners can mitigate some of the reputational damage from such events.

The LCBO strike serves as a timely reminder that in our interconnected world, disruptions rarely occur in isolation.

As insurance professionals, it’s our job to help businesses navigate these complex risks. Are we up to the challenge?

What do you think?

How can the insurance industry better prepare businesses for these types of multi-faceted disruptions?

Let’s discuss in the comments below.

References

1. LCBO Website accessed as of July 23, 2024. Link: https://www.lcbo.com/en/potential-strike
2. “Strike/Lockout Q & A for OPSEU/SEFPO LCBO members.” Link: https://opseu.org/news/strike-lockout-q-a-for-opseu-sefpo-lcbo-members/229218/
3. “LCBO workers ratify tentative agreement, strike ends Monday.” Link: https://toronto.ctvnews.ca/lcbo-workers-ratify-tentative-agreement-strike-ends-monday-1.6972207
4. “Explainer: The LCBO strike and Ontario’s changing monopoly.” Link: https://www.just-drinks.com/explainer/explainer-the-lcbo-strike-and-ontarios-changing-monopoly/?cf-view
5. “Memorandum of Understanding Between Minister of Finance and Chair of the Liquor Control Board of Ontario.” Link: https://www.lcbo.com/content/dam/lcbo/corporate-pages/about/pdf/MOF-LCBO-2020-en.pdf
6. “The 2022-23 Annual Report of the Liquor Control Board of Ontario.” Link: https://aem.lcbo.com/content/dam/lcbo/corporate-pages/about/annual-report/LCBO-FY2023-Annual-Report-ENGLISH.pdf

Disclaimer

Remember, excessive consumption of alcoholic products is harmful to your health.

The third-party companies and products mentioned in this post are referenced solely based on their utility and relevance to the topic. I am not affiliated with, endorsed by, or receiving any compensation from these companies. These mentions are personal recommendations based on my experience and are not paid promotions. Readers should conduct their own research before using any products or services.

The blog image is by Simon Lee on Unsplash.