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Risk Insider Steve Simmons

3 Risks That Can Cripple a Food Production Company

By: | June 20, 2018 • 3 min read
Steve Simmons is the Associate Vice President of Risk Management for Nationwide’s agribusiness and food operations. Steve has been with Nationwide for 32 years and has served as the leader of agribusiness loss control for over 12 years. He can be reached at [email protected]

There are no small losses in the food industry. Food production losses are one of the most detrimental issues an agribusiness can face.

In 2017, food production losses were among the top five most common agribusiness insurance claims received by our company. While insurance can cover the damage caused to food-related equipment and products, it doesn’t guarantee that a food production business will survive the aftereffects. A business’s reputation can face major scrutiny if a simple product mistake affects the production of a major food brand with which it does business.

The key to avoiding these reputational risks is to identify the possible causes of food loss before they happen. The following are scenarios that can cripple a food production business and the risk management methods that businesses can take to prevent them:

1) Quality Assurance/Quality Control (QA/QC)

The specifics of food quality have evolved in recent history and companies must adapt to new categories that may not have existed years ago. With classifications such as organic or non-GMO, it’s important for food distribution businesses to heavily monitor their products.

A simple mix-up, such as providing beet sugar instead of cane sugar as an ingredient to a large company, can lead to mammoth losses for the sugar distributor. Furthermore, if a business is relying on one major brand as their main client, a quality control mistake could ruin that relationship and put the business’s future at risk.

It’s critical for agribusiness owners to assess the supply chain of their product from beginning to end. All food production programs need thorough documentation, verification and testing of products or ingredients. Ingredients must have exact specifications before being incorporated into any product.

The processes should be analyzed for gaps and employee training should be conducted on a regular basis to avoid hidden damages.

Most underwriters’ and engineers’ eyes light up when buildings have quality fire suppression, security and monitoring systems.

Employees need to understand that minor impurities or incorrect packaging can lead to significant damage to property upstream. Agribusiness professionals need to know how a buyer brands itself and how their product will be used in order to devise the best QA/QC programs. Large food entities have top-notch QA/QC programs and will most likely find the impurity before it hits the shelves.

2) Fire

Even a small fire can be crushing in the food production industry. While structures, machines and products can be reproduced, the amount of time necessary to pass inspections and accelerate production can create a large loss.

Traditional property underwriting and thought processes must deviate for this scenario. Most underwriters’ and engineers’ eyes light up when buildings have quality fire suppression, security and monitoring systems. However in the food industry, a fire with significant smoke damage may require replacement of electrical, plumbing and processing equipment.

While the shell of the building may remain, the fire will lead to a significant period of restoration, rendering finished goods unsaleable and ingredients useless.

Although insurance can pay for tangible items and provide income for expense during the period of restoration, another company can step in and fill the primary buyer’s contracts. Any fire could lead to new competition or loss of customers.

3) Contamination

Contamination comes in many forms in the food production industry: foreign matter in ingredients, non-organic material used in organic products, and genetically modified ingredients in products that are branded GMO-free. Damage to other company products from these events can lead to a substantial loss for a food production business.

Contamination can occur during different phases of distribution, which is why it is imperative for food and agribusiness professionals to have in-depth knowledge of the processes employed by companies they contract with.

If a shipment of contaminated seasonings from an international vendor is incorporated into your buyer’s product, the entire purchase can be rendered useless once it is packaged.

Most contamination exposures will be mitigated with good QA/QC procedures. Good contractual arrangements outline responsibilities to prevent cross litigation and finger pointing with vendors or clients.

Pay attention to transportation processes both in and out of the facility; many contamination losses begin in transportation and snowball. Rail cars and trailers that are not adequately sanitized from prior loads can easily contaminate other products. There are no minor contaminations in food-grade products.

More from Risk & Insurance

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The Profession

Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

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I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

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Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

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A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]