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Effective risk management through loss control.

J.A. Tony Bridger, until recently risk and insurance manager for Canada Packers inc. in Tornto, is risk manager for the Bank of Montreal in Toronto. He also serves as vice resident-business and industry liaison for RIMS.

Historically, corporations have purchased insurance to protect themselves against disaster-related losses. Although insurance remains one method of financing losses, during the past 30 years risk management, encompassing risk financing and loss control, has emerged as an integral part of the corporate decision-making process. Today, risk managers who effectively use loss control measures can become valuable members of the management team by reducing the frequency and severity of losses.

Much of the increased interest in loss or risk control results from public opinion on such moral issues as environmental pollution and employee well-being which have influenced federal and state legislation. In addition, several well-publicized disasters, including Union Carbide's Bhopal gas release, J.H. Robbins' $2 billion Dalkon Shield-related bankruptcy and the Exxon Valdez oil spill, have focused corporate attention on the need for disaster planning and sound loss control programs.

The downtime and loss resulting from such incidents can be extremely costly and can lead to lost market share as well as, in some cases, loss of business. Disaster losses also seriously impact a company's loss experience and, in turn, its insurance premiums. If a company is self-insured, the losses will surely come off its bottom line.

By applying proper risk control measures to property, liability, personnel and net income exposures, an organization's operating costs can be reduced and its profits increased. That was the goal at Canada Packers.

Start With Avoidance

One method of risk control is avoiding risky types of business whenever possible. For example, during a liability crisis several years ago, I briefed Canada Packers' senior management on the risk potential of some company operations. My comments, along with those of other managers and some unfavorable operating results, convinced senior managers that it was time to sell the company's pharmaceutical and chemical operations.

After eliminating risky types of business, loss prevention measures should be considered. At Canada Packers we tried to prevent losses by engineering our operations to Factory Mutual standards. We operated in highly protected environments where we locked sprinkler valves and utilized valve shut notification procedures, monthly inspections and welding permits. We also maintained plant emergency organizations whose members were trained to detect hazards. In addition, we met with employees at all levels to emphasize good housekeeping and fire prevention and to point out the importance of product quality and prompt handling of customer complaints.

The next step is to try to reduce the magnitude of losses. Loss reduction measures included installing sprinkler systems and training members of the plant emergency organizations to suppress fires and respond to other types of emergencies.

Another important risk control measure includes segregating exposure units by duplicating facilities or separating production processes to ensure that operations continue even if production ceased at one location. Because Canada Packers had 25 feed mills, five distribution centers, four packing plants and five poultry plants, we could duplicate production processes at different locations. In addition, if computers broke down, we had access to a shared off-site computer facility.

A company can also contractually transfer risk control by making another organization responsible for its losses. Canada Packers' risk management department reviewed all contracts and leases and, when appropriate, made changes to limit company risk through these instruments. In some cases the risk transfer was made simply by purchasing a component from a supplier rather than producing it ourselves. For example, Canada Packers used edible oils that are produced through hydrogenation. Rather than make our own highly flammable hydrogen for the process as we once did, we purchased the gas from a supplier.


Throughout this process, a risk manager must communicate his or her ideas to motivate others within the company to implement a risk control program. Appealing to managers' desire to maximize profits is often the best way to motivate them. We tried to show them that operating safely results in satisfactory profits.

After the program is in place, communication is important. On a regular basis, we issued bulletins to our plants that illustrated loss experience and lessons. Often we asked for a signed acknowledgement that the manager read the bulletin.

The communication system is two-way. It includes procedures for managers to report fire, theft, product liability and motor vehicle losses to risk management. Other ways to communicate established standards and, concurrently, monitor risk control activities include plant visits and training programs, among other things.

We visited each Canada Packers location at least once a year to complete an audit. We also required monthly completion of fire inspection reports and, as mentioned, asked for sign-backs on specified loss prevention bulletins.

Training Programs

For more than 25 years, Canada Packers self-insured its motor vehicle third-party liability up to $250,000 and provided company drivers with a high-caliber training program. The program, instituted by the risk management department, included the use of a professional driver trainer and plant supervisory personnel to provide safe driving direction for drivers of our 1,500 vehicles. We devoted much time to driver evaluations, training, safety meetings and bulletins. We tried to instill professionalism and the belief that a safe driver helps maintain a good image for the company. The company also developed a driver's handbook, which had to be read and acknowledged, that included a warning that drug and alcohol use are grounds for dismissal.

Consequently, our accident record was commendable, and I made sure that this fact was recognized in the company magazine. I was also successful in getting my own department recognized in many of these articles. Furthermore, in our attempt to motivate supervisors and drivers, we instituted good claims experience retro rebates to plants and salesmen driver rebates and bestowed safety awards on company truck drivers at banquets.

Several years ago, following a dust explosion in a company feed mill, the loss control engineer and I arranged loss prevention meetings at all company feed mills to show an excellent film on dust explosions and discuss how to prevent this occurrence. We coupled this film with slides of our own loss, which underscored the point to employees, who often entered our meetings asking "Where's the popcorn?" and left asking "Where are the brooms?"

Mergers and Acquisitions

During the past few years, we witnessed a rash of mergers and acquisitions, and as a result of attending a RIMS conference, 1 developed a questionnaire checklist to assist my senior management in making sure they covered potentially dangerous liability concerns during these negotiations. Existing loss prevention recommendations for plant facilities, environmental hazards, product liabilities and other long-tail liabilities must be carefully evaluated during the due diligence period in addition to the normal business aspects of the acquisition.

The checklist allowed me to expose the usefulness of the risk management department to senior management while addressing concerns that could affect the financial resources of the company. Once acquired, the challenge for the risk manager is to integrate his or her risk management program into the merged company.

Crisis Management

For many years, we operated with individual plant emergency organizations, but two years ago we established a formal crisis management team at the head office which was composed of the president, the public relations manager, myself and others.

The team came into play during a recent explosion at a plant where a worker was killed by the sudden release of ammonia refrigeration. Unfortunately, the newspapers found out that we had suffered a similar loss at the same plant seven years earlier. While the newspapers were out on the street early the next morning, the crisis management team met and formulated a press release which was sent to the publications that afternoon. The release publicly apologized for the mishap and assured the public that the plant would not start up again until every assurance of safety was given by the governmental regulatory authority. The apology and other important words from the president in the release seemed to calm public opinion, and since that time there has been no "Canada Packers bashing" in the newspapers.

Loss control efforts should also extend to security, for which I was responsible at Canada Packers. We had a security manager and a published security policy, which included dismissal for theft and subsequent prosecution. Many corporations refuse to believe that theft is a problem, but recent studies show that installing proper security controls, such as lighting, fencing, card access systems and video cameras, can reduce thefts of certain easily salable food products by as much as 75 percent.

Several years ago I spearheaded an environmental assessment of major company operations. Since then, this exposure has grown substantially important. Indeed, Canada Packers had two full-time environmental engineers at the head office and each plant had an environmental coordinator at each plant.

The proper handling of claims is another important element of loss control because it promotes a positive company image. Being a food company, we received claims from customers, and as a result, our policy was to restore the customer to where he or she was prior to the complaint. The company's general liability insurance program, which included products coverage, made divisions responsible for losses through a $250,000 per division deductible. Insurance above that amount protected the company against the massive inadvertent claim which could have threatened its financial stability.

We were well aware of the trend in the courts toward deep-pocket settlements. Thus, we maintained high quality standards and carefully analyzed raw materials, production processes and the handling of finished products. In most cases lawyers were retained after customers received unsatisfactory responses from companies to their product complaints. We used questionnaires to document and investigate complaints. Most were handled internally because, from a knowledge and customer philosophy standpoint; we were best equipped to bring them to a satisfactory conclusion.

The Future

As we begin the 1990s, the risk manager must be keenly attuned to loss prevention improvements, including innovations in explosion protection, ESFR sprinkler technology, engineering risk analysis, rack storage requirements and the like. He or she must be acutely aware of what is going on in the company by visiting locations and actively following up on loss prevention recommendations. Keeping abreast of recent loss prevention developments and working closely with loss prevention engineers is vital to controlling losses and will help the risk manager put the corporation in the best possible light for insurance underwriters.

A one-on-one interface with underwriters highlighting company loss prevention practices is essential for establishing solid relationships with insurers and is the best way for the risk manager to learn the intent and coverage of any policy. On more than one occasion I have enjoyed sipping coffee with marine cargo underwriters at Lloyd's of London and with property insurance underwriters in Toronto. It is essential that risk managers join brokers in presenting their company's risks to underwriters because risk managers are best qualified to talk about the positive aspects of their companies and their loss control programs.

Risk managers of the 90s will also face new risks. They will become more involved with the human element in the workplace. Right-to-know laws, drug and alcohol abuse and workplace stress are already becoming ingrained in the risk manager's vocabulary.

As markets and economic opportunities become more globalized, the risk manager will also have to be aware of the implications for his or her department. Knowledge of foreign insurance markets, as well as foreign loss control techniques and philosophy, will be essential.

At Canada Packers we used loss control effectively to contribute to the bottom line. For me, this resulted in personal satisfaction and a high level of respect and confidence from senior management. I was included in the decision-making process and consulted on changes within the company and potential acquisitions. Because my staff traveled to all our plants at least once a year and met with the responsible people, we gained the respect and trust that enabled us to implement programs we believed were essential to the long-term viability of the corporation.

Loss control is a never-ending, ever-changing discipline, and with the insurance market relatively stable and most corporate risk financing programs in place, this is now the area in which to concentrate risk management department resources. Increased visibility and recognition are sure to follow.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Canada Packers Inc.
Author:Bridger, J.A. Tony
Publication:Risk Management
Date:Nov 1, 1990
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