Risk Insider Steve Simmons

3 Risks That Can Cripple a Food Production Company

By: Steve Simmons | 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

More from Risk & Insurance

High Net Worth

To the High Net Worth Homeowner: Build a Disaster Resiliency Plan You Can Be Proud Of

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]