AI-powered raw material market intelligence company ChAI has launched a first-of-its-kind insurance product to protect fmcg companies from commodity-based pricing risk at a fraction of the cost of normal hedging mechanisms.
ChAI Protect offered food manufacturers and grocery brands price risk protection “at a time of unprecedented commodity pricing volatility” said company co-founder and CEO Tristan Fletcher, when “cost-base uncertainty can be existential for businesses”.
Large fmcg players are able to act on price forecasts “because they’re big enough to have price making power with suppliers”, Fletcher told The Grocer. They could also can act on the forecasts to “hedge out price risk if they see the price of something moving against them” through “esoteric derivatives and options and futures” and complex financial products. But these options were “completely out of reach for anything other than the largest companies” Fletcher explained.
Most companies “don’t want to go near those products” Fletcher said, but insurance as a price mitigation tool was “very familiar” and more palatable to CFOs.
“We can get rid of price risk in any market there is, which is a particular interest to a lot of food production and fmcg companies,” Fletcher said.
Uniquely in the market, that extends to recycled materials, packaging materials and the circular economy. ChAI Protect creates pricing insurance for materials where no price mitigation currently exists, typically because there are no markets with which to hedge, the company says.
The product was born from ChAI’s AI-powered raw material market intelligence platform, which is used by several major fmcg firms. The company was founded six years ago by a group of former hedge fund and investment bankers who tired of “making rich people richer, quite frankly” and sought to take the data sources at their disposal – such as ship movement tracking and satellite imagery of open cast mines – to assist “the companies that make the products we enjoy as consumers”.
The company is backed by venture capital fund Seraphim Space with participation from Insurtech Gateway, Passion Capital, Primo Space, 2050 Capital, MMC, Dynamo and Portfolio Ventures.
Protection against volatile prices of materials was becoming increasingly pertinent in a era of ‘black swan’ pricing events, tariffs and climate change, Fletcher said.
“Insurance buys peace of mind,” he said. At present many companies were “doing nothing”. “They’re just sort of wearing the risk right now. They’re self-insuring. But they’re worried because uncertainty is higher than it used to be.”
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