Food Defense Initiatives Can Safeguard Your Company

When most people think of product contamination and recalls, the first thing that comes to mind is food poisoning cases from bacteria such as e-coli and listeria. Food and drug companies, however, are experiencing malicious and intentional product tampering that can be equally deadly and dangerous. Many of us can’t forget the 1982 cyanide Tylenol crisis, Johnson & Johnson’s worst nightmare as reported cases of death from their products came pouring in, causing recalls nationwide.

The Tylenol case was long ago, but unfortunately, decades later and despite modern day advancements in packaging and processes, there is still a steady flow of cases globally, where bad actors contaminate products. This can lead to possible danger for customers, recalls, lasting reputational damage and potentially huge financial losses.

For example, in 2013, unsafe levels of the insecticide malathion was found in a Japanese frozen food company’s product after customers reported a chemical smell coming from the products and almost 3,000 incidences of sickness from consuming them. As a result, the products were recalled and the company shut down, causing its stock to plummet.

Why does it happen?
The main motive for tampering with food products is to make a statement. Bad actors aim to cause injury or economic and reputational harm to companies, especially since news of these acts can go viral, creating the negative impact on companies they hope to achieve.

As with cases of cybercrime, these companies are in a sense being “hacked” and need protection. Like with the mysterious hacker, manufacturers and retailers are facing this threat from both inside and outside the organization.

Oftentimes an employee within the company is the culprit, such as in the case of Just Bare Whole Chicken. A recall of 55,608 pounds of chicken sold nationwide went into effect last June, after black sand and soil was found in some Gold’n Plump and Just Bare branded poultry. The employee responsible was identified and terminated, but the effects of the disruption were lasting.

Taking Preventative Measures
Food companies should have a full understanding of the risks they face, the insurance available, and the regulations associated with product tampering.

Insurance: Malicious Product Tampering (MPT) insurance addresses deliberate contamination, or the threat of such contamination of products when a company or the public has a reasonable belief that the products might cause bodily injury if consumed. MPT insurance should be considered as part of a total product recall risk management solution. Many of these insurance programs provide experienced crisis management consultants to help a company manage and recover from such incidents efficiently and effectively in order to minimize loss. When putting together a risk management program, make sure to have first and third party coverage for product recall, including malicious contamination, business interruption, product extortion, product recall costs, rehabilitation expenses, replacement costs and consultant costs.

Defense initiatives: There is a difference between food safety processes, which protect food from unintentional contamination by products that are present in the production plant, and food defense initiatives, which protect from intentional tampering by unknown substances. Some people use the terms interchangeably, but food defense is key to protecting against tampering.

In 2016, the FDA issued a final rule on Mitigation Strategies to Protect Food Against Intentional Adulteration and, as part of this initiative, released the Food Defense Plan Builder program, which assists food facility owners and operators with developing personalized food defense plans. This user-friendly tool should be quite valuable to your food defense strategy.

Regulation: The Food Safety and Modernization Act aims to ensure that the U.S. food supply is safe by focusing on preventing contamination before it happens rather than simply responding to it. It requires mitigation strategies to be put in place in certain food facilities.

With these risk management strategies and the right insurance plan in place, companies can protect themselves and help mitigate their risks of food or product tampering.

Costs Climb as Companies Move to Mitigate Supply Chain Interruptions

Some 70% of companies have experienced at least one supply chain interruption during the past year, with an unplanned IT or telecommunications outage the leading cause, according to the eighth edition of the Business Continuity Institute’s (BCI) Supply Chain Resiliency Report, produced in association with Zurich Insurance Group.

Covering 526 respondents in 64 countries, the report studies the causes, costs, and frequency of such events while also looking at companies’ progress in responding to supply chain interruptions and mitigating further occurrences.

While 70% of respondents reported at least one supply chain interruption during the past 12 months, only 17% said they have had no supply chain disruptions, with 13% saying they did not know. Perhaps more alarming is the increase to 13%—from 3% previously—of respondents reporting more than 20 such incidents.

Also alarming is the upward trajectory of costs associated with supply chain disruptions. The portion of respondents reporting cumulative losses of more than € 1 million ($1,058,171.30) resulting from supply chain interruptions jumped to 34% in this year’s survey from just 14% previously.

An unplanned IT or telecommunications outage was the leading cause of a supply chain disruption for the fifth consecutive year, followed by a loss of talent or skills, which jumped to second place from fifth, and then cyberattack or data breach, which dropped to third place from second. Despite this drop, the portion of respondents which said that cyberattacks and data breach had a ‘high impact’ on their supply chains increased from 14% to 17%.

Reaching the top 10 for the first time was terrorism, which moved to ninth from eleventh, while currency exchange rate volatility had the largest move up the list of event causes, jumping to seventh from 20th last year and cracking the top 10 for the first time since 2012. Insolvency in a company’s supply chain also reentered the top 10 for the first time since 2012, moving from 14th to 10th.

Lost productivity (68%), increased cost of working (53%), and customer complaints received (40%) were listed as the top three consequences of a supply chain interruption by respondents. The perception of such incidents can also hurt a company, with damage to brand reputation/image (38%), shareholder/stakeholder concern (30%), and share price fall (7%) all named by respondents as consequences of a supply chain disruption.

“It is crucial to note that the percentage of organizations reporting reputational damage as a result of supply chain disruption is at its highest level since the survey began. As this coincides with greater media scrutiny and social media discussions related to organizations, this result might be a good opportunity to reflect on reputation management and how supply chain disruptions might translate into adverse publicity for a given organization,” said the report.

As threats and costs grow, there appears to have been at least some progress in more closely addressing the issue.

While the percentage of respondents without firm-wide reporting of supply-chain incidents remains high at 66%, the portion of those using firm-wide reporting has grown steadily across the past five reports, rising from just 25% of respondents in 2012 to 34% in the 2016 report, the latest. Similarly, the portion of respondents which employ no reporting has declined steadily from 39% in 2012 to 28% in 2016.

As reporting is on the rise, so too is the complexity of interruption incidents as external supply chains cause more incidents. The portion of respondents which said the majority of their interruptions came from external supply chains jumped to 24% from 9% previously, and the portion attributing at least a quarter of interruptions to external suppliers more than doubled to 34% from just 15% previously.

Even with reporting on the increase, however, insurance uptake appears to be declining. Just 4% of respondents said they were fully insured against supply chain losses, down from 10% previously, with small and medium-sized enterprises more likely to be uninsured, at just 39%, than large organizations at 62%.

“These variations in insurance uptake may indicate a need to revisit business continuity arrangements and risk transfer strategies pertaining to supply chain disruptions,” according to the report.

Examining U.S. Immigration’s Economic Impact

In last night’s third and final presidential debate of the 2016 election cycle, immigration again emerged as a defining topic in discussion of both regulatory reform and the economy. With an increasing amount of immigration by highly skilled laborers—and, of course, the potential reputation impact on companies seen as giving more jobs to non-citizens or moving out of the country in pursuit of labor—changes in such policy have clear implications for risk professionals.

Last month, the National Academies of Sciences, Engineering and Medicine released one of the most comprehensive studies to date on the economic impact of immigration in the United States. Overall, the researchers found that immigration over the past couple of decades has done more good than harm, creating positive impacts on the national economy and causing little lasting impact on the wages or employment levels of native-born Americans. “Immigration enlarges the economy while leaving the native population slightly better off on average,” the study said, also pointing out increases in innovation, entrepreneurship and technological change across the economy. “The prospects for long run economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants,” the researchers reported.

Some of the study’s key findings and conclusions include:

  • When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small. To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.
  • There is little evidence that immigration significantly affects the overall employment levels of native-born workers. As with wage impacts, there is some evidence that recent immigrants reduce the employment rate of prior immigrants. In addition, recent research finds that immigration reduces the number of hours worked by native teens (but not their employment levels).
  • Some evidence on inflow of skilled immigrants suggests that there may be positive wage effects for some subgroups of native-born workers, and other benefits to the economy more broadly.
  • Immigration has an overall positive impact on long-run economic growth in the U.S.
  • In terms of fiscal impacts, first-generation immigrants are more costly to governments, mainly at the state and local levels, than are the native-born, in large part due to the costs of educating their children. However, as adults, the children of immigrants (the second generation) are among the strongest economic and fiscal contributors in the U.S. population, contributing more in taxes than either their parents or the rest of the native-born population.
  • Over the long term, the impacts of immigrants on government budgets are generally positive at the federal level but remain negative at the state and local level — but these generalizations are subject to a number of important assumptions. Immigration’s fiscal effects vary tremendously across states.

“The panel’s comprehensive examination revealed many important benefits of immigration—including on economic growth, innovation, and entrepreneurship—with little to no negative effects on the overall wages or employment of native-born workers in the long term,” said Francine D. Blau, Frances Perkins Professor of Industrial and Labor Relations and professor of economics at Cornell University, and chair of the panel that conducted the study and wrote the report. “Where negative wage impacts have been detected, native-born high school dropouts and prior immigrants are most likely to be affected.”

Check out the April cover story from Risk Management, “Welcome to America: Why Immigration Matters for Business,” for more on the risk management implications of immigration into the United States.

Hidden Exposure: Protecting Your Business with Third-Party EPLI

Coffee shop
In today’s increasingly litigious society, harassment and discrimination are trending upward. To protect your business from workers’ claims, including wrongful termination, breach of employment contract, wrongful discipline, failure to employ or promote, sexual harassment and discrimination, you likely have employment practices liability insurance (EPLI) in place.

But if your employees frequently deal directly with the public, there may be a glaring gap in your coverage. Your business and workers may also be at risk for harassment or discrimination claims from a customer, client, supplier, vendor or visitor. The bad news: these types of claims are not covered by commercial general liability insurance or standard first-party EPLI.

To protect your business from customer or client allegations, third-party EPLI is the answer.

The types of wrongful acts typically covered by third-party EPLI are discrimination and harassment. Discrimination can include claims based on nationality, sex, disability, age, race, religion, pregnancy or sexual orientation. Harassment can take on many forms, such as unwelcomed sexual advances, requests for sexual favors, and other types of verbal or physical abuse. Third-party EPLI reimburses your company for court and legal fees, as well as any settlements between the business and the accuser.

Third-party EPLI may be appropriate if you frequently meet with clients or deal with vendors. And it is absolutely essential for businesses that interact with the public. Examples include large customer service teams, cable television installers, contractors, restaurant, hotel and transportation workers, and real estate agents.

For example, a customer sued a New Jersey gas station after being sexually assaulted by an attendant who was filling up her car. The woman claimed the station attendant made inappropriate advances, performed a lewd act and touched her while she was buying gas, according to NJ.com. The woman also claimed that another employee at the gas station did nothing to prevent the incident or intervene during it.

In another example that made national headlines, thousands of African American patrons of Denny’s restaurants claimed they were refused service, were forced to wait longer, had to prepay for food, or pay more for food compared to white customers, the New York Times reported. These claims, which totaled 4,300 and spanned several years across multiple states, culminated in a class-action lawsuit against the national restaurant chain. Denny’s settled the suit in federal court, and members of the class-action suit were awarded $54 million for damages.

Starbucks was sued in federal court by a group of 12 deaf customers who said they were mocked and mistreated at a coffee shop in New York City. The group claimed being harassed multiple times because of their disability. During one instance, a Starbucks employee called the police in response to a group of deaf patrons who met at a Starbucks to hold their monthly Deaf Chat Group, although the patrons were paying customers, according to USA Today. The police apologized to the patrons and reprimanded the employee for calling the police when there was no illegal conduct.

As you can see, the level of interaction a company has with those who might claim a wrongful act, and the industry in which you operate, can affect the cost of third-party EPLI. Other factors come into play as well, like whether you’ve been sued in the past over employment practices.

While third-party EPLI helps defray the cost of lawsuits and judgments brought against your business, one thing it doesn’t protect is your reputation. Therefore, forward-thinking employers are doing more than just purchasing a third-party EPLI policy; they’re also taking steps to make it less likely they will have to use that policy. Effective training and education, no matter your level of exposure, can help prevent claims of wrongful acts against your business or employees. Creating training programs to educate employees on what constitutes harassment and discrimination, as well as putting processes in place about what to do in the event of an allegation, are good starting points.

When screening and hiring new employees, it is essential to create programs that help your hiring team vet candidates solely on their qualification for the job. Documenting your process helps everyone understand the requirements and will provide backup should issues arise.

It’s also a good practice to display all corporate policies as they relate to hiring and worker conduct in employee handbooks so the policy is available to everyone and can be reviewed when necessary. Many companies also ask employees to sign a document affirming they have read the employee handbook.

Unfortunately, all of the education and training in the world can’t stop a customer or vendor from claiming harassment or discrimination by one of your employees. But a carefully developed third-party EPLI plan that assesses your exposure and helps you completely cover your business can minimize your risk.