FALL Inside this newsletter

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1 FALL 2016 Inside this newsletter FDA Food Facility Registration: Renewal, Suspension And Fines... 2 Environmental Liability Coverage... 3 Heat Map... 4 Risk Management for the Middle Market Food Industry... 6 Welcome to the Fall edition of Field to Fork. This communication authored by various members of the Arthur J. Gallagher & Co. Food & Agribusiness Practice and is designed to be a tool for sharing industry information, new regulations, Gallagher Food & Agribusiness products and much more. For over 75 years, Gallagher Food and Agribusiness specialists have worked with clients in the farming, agribusiness, food processing, breweries/wineries and grocery industries to provide in-depth expertise, specialized knowledge and responsiveness for insurance and risk-financing alternatives. So, our team understands industry issues and needs. Consider the following By 2030 global food demand is expected to rise 35 percent and only 1 in 7 people will be consuming less than 2,500 calories per day. What does that mean for those of us that work in the food and agribusiness sector? It means that technological and efficiency advances will be needed to meet those projected needs. With those changes will come risk. The Food and Agribusiness Practice at Arthur J. Gallagher & Co. will be with you to meet those challenges. Please give our team a call if we can help you with your risk management needs. Our team of specialists is ready to partner with you! The information contained in this report was obtained from sources, which to the best of the writer s knowledge, are authentic and reliable. Arthur J. Gallagher Risk Management Services, Inc. makes no guarantee of results, and assumes no liability in connection with either the information herein contained, or the safety suggestions herein made. Moreover, it cannot be assumed that every acceptable safety procedure is contained herein, or that abnormal or unusual circumstances not warrant or require further or additional procedures. Glenn Drees CSP, CPCU Managing Director Food & Agribusiness Practice glenn_drees@ajg.com We hope that the information in this edition is valuable to you and your colleagues. If you have suggestions for future issues, feel free to Heather Hughes at heather_hughes@ajg.com Arthur J. Gallagher & Co. All rights reserved 16BSD30062B

2 FDA Food Facility Registration: Renewal, Suspension And Fines Steve Kluting, Esq., Midwest Regional Director It s that time again. In the last three months of every even-ended year, all food facilities registered with the FDA are required to renew their registration. This must be done prior to December 31, 2016; failure to do so will result in the illegal sale of adulterated food, and would subject the facility to enforcement by the FDA. So, please take notice and timely renew your registration As background, the Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act ) required that food facilities register with the FDA; these requirements became effective in December, This registration requirement was subsequently changed by the Food Safety Modernization Act (FSMA) in Additional information must be provided as part of the registration AND each registration must be renewed during the last three months of every even-ended year. FSMA also granted FDA the authority to suspend the registration of a food facility in certain circumstances essentially, meaning that the FDA can effectively shut down a facility as part of its enforcement activity. This sort of enforcement has been rarely used but it does provide FDA with a significant enforcement tool. Most notably, this enforcement tool has been utilized against Sunland, the largest organic peanut butter manufacturer in the U.S. at the time, who allegedly was knowingly selling tainted peanut butter in the marketplace. So, who is required to register in the first place? Domestic and foreign facilities that manufacture, process, pack, or hold food for human or animal consumption in the U.S. must register. However, there are several exemptions and exceptions. Determining whether you need to register can be a complex analysis. If you are required to register then, as mentioned above, you are now also required to renew that registration before year-end. Go to GuidanceRegulation/FoodFacilityRegistration/ ucm htm to begin the online renewal process. Companies that work with foreign food facilities may have additional concerns to consider. Because of new rules imposed under FSMA, U.S.-based operations may be exposed to new liabilities arising from relationships with foreign food facilities as discussed below. As part of the registration process, each foreign facility must appoint a U.S. Agent a person or company located in the U.S. that acts as a communications liaison between the foreign facility and the FDA. Prior to FSMA, it was common for brokers, freight forwarders, U.S.-based operations with foreign affiliates, or customers with foreign suppliers to be appointed as U.S. Agent because there was no liability associated with doing so. FSMA HAS CHANGED THAT. Now, a U.S. Agent appointed by a foreign facility is primarily liable for any facility re-inspection charges incurred by the FDA (capped at $25 million). The fees could be substantial and entirely outside of your control. If your company previously agreed to act as U.S. Agent on behalf of a supplier, affiliate, grower, cooperative member or client, we encourage you to consider moving this liability off your balance sheet. 2

3 Environmental Liability Coverage Andrew Fereday, Sr. Vice President Since its introduction in the late 1970s, environmental insurance has significantly evolved. This coverage option is no longer just for oil industry giants and radioactive waste depositories. Nearly every business in every industry is exposed to some form of environmental risk. Because environmental issues have increasingly become a major, global concern, insurance professionals are constantly asked by clients and prospects if they should insure environmental exposures. The answer to the question depends upon how much risk a company is willing to take on, how many environmental controls are in place and what kind of financial toll a significant loss would inflict on an organization. It also depends on the extent of the exposures versus transferring the risks, and on the business owner s comfort level with leaving certain risks uninsured. Before a business owner can comfortably commit to an environmental insurance policy, it is important that they know the basics about this evolving coverage. Below are answers to some of the most frequently asked questions we receive when presenting information about environmental liability insurance. What are the basic pieces of environmental insurance? Environmental insurance was established to bridge the coverage gap created by pollution exclusions in general liability, automobile liability and property insurance policies. While policies can be customized to meet individualized needs; environmental insurance should provide, at a minimum, coverage for: Clean-up costs Third party bodily injury Legal defense Third party property damage What types of insurance coverage are available? Because every business faces a different set of environmental risks, there are a number of coverage alternatives available to address this wide range of exposures. It is important to weigh a number of factors before deciding on the right environmental insurance such as location, operations, previous use, etc. Policy options can be broken down into three general categories: Historical provides coverage for liabilities associated with pre-existing contamination due to previous operations New conditions provides coverage for ongoing pollution risks related to business operations Operations provides coverage for liabilities associated with operations, whether from new incidents or the exacerbation of existing contamination Do environmental policies have to be renewed every year? For a one-off premium payment, it is currently possible to obtain policy periods of up to ten years for historical contamination coverage and up to five years for new conditions pollution coverage. Combined programs and liability buyout programs also offer the potential for longer policy periods. 3

4 Potential Loss Exposures Groundwater contamination Surface water contamination Odors Reduction of neighboring property values Public nuisance Operating or participating in manure digesters Damage to natural resources Bodily injury from exposure to bacteria Groundwater remediation Fuel storage tanks Fertilizer spills or releases Custom farming operations Transportation risks Storage of pesticides and herbicides Claims Scenarios A large dairy farm s generation of wastewater exceeded the farm s permit requirements. Over a million gallons of wastewater, containing animal waste, was accidentally released into the surrounding area. Cleanup costs and fines exceeded $300,000, with third party claims still pending. An ammonia gas leak was detected at a food processing and refrigeration warehouse which used the gas as a refrigerant. The release caused an evacuation of everyone within a one-mile radius of the warehouse. Seventy-five people suffered inhalation-related injuries to and damage to food products loaded on trains for delivery. Five people were sent to intensive care for complications related to lung damage. The property damage costs were $50,000, while bodily injury and defense costs exceeded $1 million. How is the premium calculated? Premium levels depend on a number of factors such as the limit of coverage, the policy deductible, the policy period and the nature of the risk. The environmental insurance market is currently very competitive. As environmental insurance continues to get the attention of the risk management industry, it is important for business owners to understand this coverage and explore policy options that might help protect their companies. We encourage clients and prospects to ask questions in order to make informed decisions about their risk management programs. There is no one-size-fits-all approach to addressing environmental liability, so it is important to find the right policy with the right carrier. Heat Map Drew Ahrold, Sr. Director drew_ahrold@ajg.com For the last several months, Gallagher Food & Agribusiness has been surveying our agribusiness clients and prospects on how they would rate risks as they are associated to their own operation. Each general manager, CEO or board member rated fifty individual risk issues. Some of these risks are insurable; some are not. The answer to each generates a graph that is referred to as a heat map. The heat map shows how each individual rated these risks based upon frequency of occurrence and business impact in three risk rating segments low risk (green), medium risk (yellow) and high risk (red) frequency/impact. Those risks shown in the upper right hand column are seen as having the potential for a high frequency of occurrence with a high impact to the operations if the risk event occurs. Perhaps the most interesting result from the survey is that the vast majority of those firms who have participated in the risk survey for the most part agree upon the top ten risks facing the agribusiness industry today. These risks from highest to lowest include: Fire or Explosion Talent Management Revenue Shortfall Inadequate Cyber Security Inadequate Margin Loss of Key Customer or Supplier Customer Relationship Generational Strategy Execution Regulatory Changes 4

5 While insurance can be utilized to provide the funds needed to recover from the insured risk event for many hazard risks such as fire, explosion, weather related disasters, employee injury, vehicle accident, cyber hacks there are as many or more risks for which insurance is not available. This includes exposures such as revenue shortfall, generational issues, talent risk, succession readiness, reputation. This is where our team at Gallagher Food & Agribusiness can provide you with critical resources to help your company build the appropriate risk mitigation strategies and actions to address both the insurable and uninsurable risks encountered by your business. To learn more about controlling your entire spectrum of business risks please contact one of the team members at Gallagher Food & Agribusiness. Food & Agribusiness Heat Map Frequency of Occurrence HIGH MEDIUM LOW INSURABLE RISKS Fire or Explosion 2. Weather Related Risks 3. Workplace Safety; Employee Injury 4. Inadequate Cyber Security 5. Employment Practices Liability LOW MEDIUM HIGH 6. Directors & Officers Liability 7. Third Party Liability 8. Product Liability 9. Product Recall 10. Vehicle Accidents Business Impact PARTIALLY INSURABLE RISKS 11. Asset Management 12. Political Risk 13. Credit Risk 14. Supply Chain Disruption 15. Recruit and retain talent 16. Chemical Releases Pandemic Risk 18. Employment Law Compliance 19. Mergers & Acquisitions 20. Intellectual Property 21. Terrorism, Bioterrorism UNINSURABLE RISKS 22. Inadequate Margin 23. Product or Service Demand 24. Change in Market Condition 25. Corporate Governance 26. Lack of Innovation 27. Unclear or incorrect strategic direction 28. Inaccurate sales forecast 29. New competitors entering market 30. Corporate Reputational Damage 31. Technological Change 32. Negative impact of inflation 33. Ineffective Communication to key stakeholders 34. Inadequate Succession Planning 35. Shifts in Generational skills and preferences 36. Change Management 37. Fraudulent Acts 38. Customer Relationships 39. Loss of Key Customer or Supplier 40. Unplanned production shortfalls 41. Failure to produce new products or services 42. Emerging Social Media 43. Regulatory changes 44. Economic downturn 45. Transportation Availability / Costs 46. Ineffective Logistics 47. Commodity price fluctuations 48. Procurement restrictions 49. Currency exchange rate fluctuations 50. Climate change 5

6 Risk Management for the Middle Market Food Industry John Riley, Regional Director When it comes to protecting incomes and profits, many food importers and distributors have serious inadequacies in their insurance programs. While most do not discover this until a claim occurs, it can potentially leave them without coverage or minimal limits when a loss occurs. Not all insurance is the same. Because of the current soft market in the insurance industry, many companies are switching brokers for better pricing, with the same coverage. This can put you in a precarious position, if the initial program was not designed by a broker with a thorough understanding of the global food market as there may be deficiencies hiding within the current insurance program. A great example would be frozen shrimp, which is currently the number one seafood consumed in the United States. Shrimp is sourced from around the world; having a global supply chain will inevitably lead to a greater risk of loss. The propensity of a loss occurring while in transit or in storage may increase due to the length of time in transport. Food loss statistics show that the most frequent cause of loss is spoilage. This can occur during international and domestic transit or in the warehouse. Typically, spoilage is assumed to be included in the current insurance program by most in the food industry. However, we have discovered many clients with no coverage or very limited coverage. The typical transit voyage from a processor in Thailand to New York and thereafter to a local warehouse can take as long as 60 days. The product is then be distributed to the local markets. Throughout the voyage the product is vulnerable to temperature abuse at ten critical points: 3. Feeder vessel voyage to link with mother vessel 4. Terminal storage awaiting arrival of mother vessel 5. Ocean voyage to New York 6. Terminal storage at New York awaiting release to consignee 7. At a local public warehouse near port 8. Loading onto a truck for domestic shipment 9. Domestic transit to client 10. In local public/private warehouse 11. Transit to retailer (if required) With such long transit times, spoilage is a real threat. The most significant problem is determining where the loss occurred, and if the insurance policy will respond. Multinational companies have the benefit of having risk management departments that work with international brokers who understand this risk. Middle market companies are sometimes left in the lurch, when price is often the motivating factor in the insurance buying process. Until a company experiences a serious loss, clarity and understanding of the coverages, terms, limits and exclusions frequently seems to be secondary. Underwriters will not offer the best available terms and conditions unless a broker asks for it, so it is important to have an experienced broker negotiating with underwriters on behalf of your business. Arthur J. Gallagher & Co. s Food & Agribusiness team is a leader in the industry. Our team understands the complexities of the business, and the nuances of insurance for temperature- sensitive goods. It is all about knowing the business and what coverage is necessary to prevent uninsured losses. For more information about risk management for the middle market food industry, please contact John Riley (contact information is listed above). 1. During container stuffing 2. Awaiting loading onto feeder vessel 6