Better Pork - April 2004
BEHIND THE LINES
by ROBERT IRWINThis month's Better Pork cover story is entitled: "It's All About Risk." It might as well be headed: "How to Avoid Becoming an Insurance Horror Story." There are certainly lots of those around.
Horror stories are what one hears when the topic of insurance is brought up. The issues are so troublesome that those who feel wronged often are either unclear as to what the exact problem is or were unable to make sense of it with their insurance agent or carrier.
We hope that this month's story will help clarify the conversations that take place between insurance agents and farmers. Carriers are in the business of reducing risk, and often that means inspecting premises to be certain that they meet all of the building codes in force, that the buildings and sites are kept clean, and that routine maintenance is being kept up.
Certainly, the climate of the insurance industry has changed. In 2002, for example, underwriting losses for Ontario's farm mutuals was $36 million greater than proceeds from investment income and premiums combined. "There is a general trend towards putting prices up and being more selective in who they insure," Ontario Mutual Insurance Association president Glen Johnson told us nearly a year ago.
Prior to that, farm mutual companies had been trying to keep up their numbers of farm clients, even though the number of farmers was declining in the province. Johnson said that mutuals had been cutting premiums so much in order to retain business that their income from premiums didn't cover claims. Claims were being covered at least partly by income from investments. But investment income was drying up early in 2001 and sank even lower after the huge insurance losses of Sept. 11.
For suppliers of insurance, it's a seller's market. The tremendous competition that was the hallmark of the insurance industry here in Ontario is still there, as newcomers to the marketplace are finding out. Still, once you are deemed a poor risk by one business, there is still a tendency for other companies to follow suit.
Who or what constitutes a poor risk? Insurance underwriters have this down to a fine science. They know, for example, that customers who pay quarterly are 35 per cent more likely to file a claim than those who pay annually. Customers who have a third mortgage on a property are also deemed to be a poor risk and consequently pay higher premiums.
For the mutuals here in Ontario, the business is different than it used to be. At one time, a company knew every single customer. Not any more.
Since most barn operators must have insurance in order to keep their lenders happy insurance problems have become as threatening for many operations as low pork prices or hog farm protesters.BP
© copyright 2004 AgMedia Inc..
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IT'S ALL ABOUT RISK: Insurance crackdown on hog barn coverage is coming to Ontario
Much of the pressure on risk management practices is taking place in Western Canada, where very large pig barns are being built and carriers are taking on big and complex risks. But already Ontario pork operations are starting to feel the pinchby DON STONEMAN
Last year, crisis followed calamity for genetics provider Danbred North America. In August, a fire destroyed Danbred's boar nucleus unit at Beiseker, Alta. Three hundred sows and their top genetic offspring perished.Then the other shoe dropped. At the end of 2003, the AI stud's insurance carrier, The Co-operators, announced that it would not renew its policy covering Danbred's barns, including Ontario boar studs located at Drumbo and Varna.
Dave Riach, the manager of Danbred operations in Ontario (since consolidated at its 400-boar capacity, 17,400-square foot building near Varna), called "four or five agents" who made inquiries with a number of insurance companies. Only one company sent an inspector to look at the Danbred buildings, and only one company came through with a quote -- Lombard Canada.
Lombard provided Danbred's Ontario operation with insurance and "a list of recommendations that they strongly suggest we do," says Riach. The list includes placing fire extinguishers in specific locations, upgrading wiring and alarm systems and following a systematic inspection timetable of risk management systems, such as standby power generation and rodent control.
"They (Lombard) are big on alarm systems," says Riach. "The rate is good for the coverage we get. I would say it is competitive. But how can I really know that when I could only get one quote?"
Lombard is a new player on the farm insurance scene, having opened up an agribusiness division just three years ago in Cambridge, Ont., but doing most of its $18 million in agribusiness insurance on the Prairies, according to division manager Don Cruickshank. It has a long history as an insurance company in Canada and its general insurance business is worth about $700 million.
"We insure anyone who sells to the farm or buys from the farm," including fleet insurance for trucking and also smaller abattoirs, says risk management officer Paul Wigood, a former electrician who has worked in the insurance industry for 17 years, mostly with mutual companies here in Ontario.
Lombard claims to be leading in shaking up the farm insurance industry. In Western Canada, it is asking its clients to build to standards higher than the building code for farm buildings in order to reduce the possibilities of losses. Its first target is to increase standards in pig barns. Then other farm commodities will be brought along as well.
Why pigs? There have been some very big claims in Western Canada, says Wigood. The standards range from the basics of construction down to the details of maintenance. He wants to see these standards adopted in Ontario as well.
Lombard divides farm buildings into three categories. At the top of the list is its "superior category" or class one buildings, constructed in the last 10 years, with wiring enclosed in PVC conduit to ward off moisture and rodents, and CSA and Underwriters Laboratory-approved heaters that are inspected annually by a certified serviceman.
Then there are class two buildings, deemed an "average risk" if they are well-maintained and with no concealed wiring but more expensive to insure if between 10 and years of age. The only real difference is the age of the building. Wigood explains that recessed (concealed) wiring is more of a fire threat than wiring enclosed in a conduit.
In most barns, says Wigood, upgrading the wiring will pay for itself in lower insurance premiums within three years and, after that, "you are making money."
And then there are the class three risks, buildings that don't meet all of the criteria required for classes one and two. Lombard really isn't interested in those buildings, says Wigood. "The farm mutuals do a tremendous job of looking after the smaller farms," he notes.
Firewalls becoming a standard?
Wigood and Cruickshank say the company is leading the way in pushing for tougher requirements for barns, though competitors such as The Cooperators say their inspection procedures and standards are about the same. Regardless of who is leading the drive to raise the standards in pig barns, it's clear that things are changing in the farm insurance industry. Much of the pressure on risk management practices is taking place in Western Canada, where very large pig barns are being built and carriers are taking on big and complex risks.In the biggest piggeries that it insures on the Prairies, some of which house 7,000 sows, Lombard Canada demands that fire walls with a two-hour fire resistant rating be included in the new buildings. These walls are made of eight-inch cinder blocks and extend into the attic, and a parapet is visible outside the barn sides and roof. The purpose of the parapet is to prevent flames from licking from the burning side of the wall to the protected side. These firewalls cost $25-30,000 each, depending on the height and width of the barn. Some of the biggest barns in Western Canada have three of these firewalls, Wigood says, dividing the farrowing room, gestation area and nursery.
A barn of this size may cost $5 million, but that is only part of the cost of operation, industry observers note. With equipment, livestock, feed and employee time, startup costs on a big sow barn may total $12 million before a single baby pig is sold. But, with a firewall in place, the damage from a fire can be contained to half of a structure. A farmer will lose half of his livestock but "you are still in business," Wigood says.
Will these firewalls become a standard in Ontario as well? Wigood says he would like to see them here. On the Prairies, he notes that when Lombard introduced the two-hour firewall concept, "four or five other companies" followed suit. However, Ontario is a different insurance market. "There are 50 other companies here in Ontario that we have to fight for market share," Wigood says.
For another perspective, Better Pork spoke to Ward Henderson, Calgary-based loss control manager with The Cooperators. Most of his experience is with pig barns on the Prairies, including the "super barn" concept, where various aspects of production are linked by walkways, a natural path for a fire to follow and spread to other parts of a barn.
"My department inspects buildings that we insure," Henderson says. Like Lombard's Paul Wigood, he sees some barns that are five to 10 years old where "the wiring is shot." It depends on the management, he says. As for the big new firewalls in barns, Henderson asserts that The Cooperators has been advocating this for a couple of years. "We've asked for that in the planning stages. It's very hard to get them to do that. It's a cost of construction. It's just frustrating getting the support of all the parties involved."
Reducing the risk
One of the differences between Prairie barns and modern Ontario barns is concrete. "Concrete works," says Wigood.Modern, single-storey barns in Ontario tend to feature concrete walls and frame construction upstairs. Frame walls are very susceptible to rodents that tunnel through insulation and eat the insulation off of electrical wiring, a recipe for a fire.
Recessed Romex wire also raises a flag for Wigood. Romex is acceptable when it is outside of walls, but not when it is closed into a wall, and he wants to see it replaced.
Wigood also wants to see PVC-type conduit, which is both rodent-resistant and waterproof, around wires that are in the walls. One of the problems with the older electrical wiring is that the plastic coating was made with soya oil. "Mice just love soybeans," he observes.
Wigood cites heating as a major issue and advocates a log indicating that fossil fuel heating systems are inspected annually by a qualified technician. Other things that Lombard looks for include monthly testing of generators, alarm systems and rodent protection programs, along with annual servicing of heating systems by a contractor.
Box heaters need to be serviced as well as hot water pressure washers fueled either by diesel or kerosene. Unapproved heating systems are a major concern. That includes 4,800 watt "construction heaters" or "milkhouse heaters" that are either plugged into 220-volt connections or "hard wired" into the electrical system by cutting the end off the cord. Each connection has its drawbacks, says Wigood, who is trained as an electrician. The plugs have a tendency to melt and cause a fire. Cutting off the plug and hardwiring it into the electrical system is also unacceptable. "As soon as you do that, you've lost your CSA approval," Wigood says.
The Prairie Loss Prevention League wants CSA approval removed from these construction heaters. Manitoba Hydro is onside with this effort, Wigood says. The elements are a concern also. These standards that Lombard is enforcing are being rolled into a program that the insurance carrier calls PIGSAFE. It's in a trial stage, Wigood stresses, and is being conducted by one agent on several farms in Manitoba. "We hope to have it to our policy holders by the first of July."
Wigood describes PIGSAFE as a long check list: generator and switches, rodent control program set up by a qualified operator, welding procedures for inside a barn, and wiring requirements. It's a paper trail, he says. "It's all of this stuff rolled into a program."
Every month, alarm systems, the backup generator and the rodent program should be checked.
Typically, big barns aren't inspected by trained technicians as often as they should be and Wigood admits that biosecurity is an issue. "Some technicians don't like showering in and out of barns. "They don't like to put somebody else's clothes on," he says.
Lombard wants a barn owner to put a professionally developed rodent control program in place but it doesn't insist that the pest removal company run it, because that is an ongoing expense that informed producers can handle. The program should be set up by an outside contractor who has a license to use pesticides and knows what to do.
Tougher on $3-million buildings
At Shakespeare, Mike Lantz manages pest control systems for agricultural and industrial buildings. A traditional part of his business is dealing with farms that already have rodents, but he says that every year more and more farmers are coming to him to set up rodent control programs before they have put pigs in the barn.Barns require a lot of work, he says, because there are so many sources of feed there and access is relatively easy. Lower-quality baits that would work if you are killing rats and mice "in a bumper factory" won't get their attention in a barn, he says.
Sebringville builder Fred Groenestege says he is amazed by the number of clients who have told him that they obtained insurance for a new building without an inspector even coming to look at the barn. And he isn't surprised that insurers are getting tougher about who they cover.
"We aren't talking about an $80,000 building or a $100,000 building any more," he says. Some buildings cost $1.5 million, others cost $3 million. "I don't think there is any other industry where an insurance company would insure a $3 million manufacturing facility and not look inside the door."
What is the impact of these measures going to be? "It's going to force our customers hands," Groenestege says. "They are going to have to make sure that this stuff is done up to code and that it is maintained."
He predicts that, in the long term, this will be a good thing. "Looses will be less and there will be more economical insurance. If you think these insurance companies are going to pay out $1.5 and $3 million losses and collect $3-4,000 in premiums, it's just not going to happen."
But there is going to be "a transition period" and Groenestege thinks some farmers will be unable to obtain insurance "through no fault of their own. "There are going to be people left out of the loop," he says. Insurance companies "sometimes look at a sector, they'll have a couple of losses and then they'll paint all of agriculture with a broad brush. That's going to be the downside to it. But, in the long term, if we can prove to insurance companies that we are doing the job and doing it right, we'll be better off in the end."
Back at Danbred, Dave Riach is now tuned into insurance risk factors as he goes through his own and his clients' barns. He doesn't mind sharing his experiences with them. "I learned a lot from Paul (Wigood), as much as I hated to go through the experience," Riach told Better Pork. Ironically, the same afternoon he had a cheque in his pocket to take to his insurance agent.
Better to hear it from me than from your insurance company, Riach says. If an insurance agent is coming through your barn "he is looking for something," Riach says. BP
"Line Seizure" important feature for today's alarm systems
All barn alarm systems are not equal. Nick Stevens, an agricultural alarm system specialist based in Port Perry, says one of the critical characteristics of a top alarm system is a feature called "line seizure."In the event of the failure of a barn's ventilation, heating or water systems, the alarm system calls the barn manager's pager, cell phone or home phone to alter him. Line seizure lets the alarm interrupt a current call that is taking place.
Five years ago, this wasn't as critical, Stevens says, but the farming business has become increasingly complex and capital-intensive. Now, barns are often remote from the house. The barn manager may already be connected to his computer from his house changing feeds or transmitting information on weighings when a heating, cooling, or water system failure occurs. Because the operator is already on line "the alarm would not be able to go out, even though possibly he is already in contact with the farm," Stevens says. That's why line interruption is a critical service to have.
When insurance companies start telling farmers how to run their operations "it's a great awakening," Stevens says. BP
Attitude towards the environment can play a part in coverage decisions
There are wide criteria for refusing to offer a policy to a farm or barn owner, and attitude towards risk is one of those factors, says Sue Baker, manager of insurance services for the Ontario Mutual Insurance Association (OMIA), a trade association for mutuals here in Ontario. A farmer's attitude towards nutrient management and environmental farm plans is a risk factor."Every company will look at the risk. There are a whole bunch of factors that go into making a decision," Baker says. A recognition that an environmental farm plan is important "is indicative of a recognition of exposure," Baker says. He notes that if a farmer says "I don't have one" or "I'm not going to do one," that information is taken into consideration when evaluating coverage.
Randy Drysdale, insurance risk analyst for OMIA, points out that each of the mutuals has its own underwriting requirements, though some requirements will cross all companies. He cites a requirement for backup generators, for example, as likely one of those.
Each company will "pick and choose what they write and what they don't want to write," Drysdale says. One reason for refusal might be that a particular policy "is too big for us." Another might be that "We don't like the way the risk management is laid out for the barns."
One of Drysdale's responsibilities is the Ontario Mutual Loss Prevention League. It has a similar function to The Prairie Loss Prevention League but it is relatively low-key.
The Prairie Loss Prevention League "is a little more proactive" in lobbying on building codes than the Ontario mutual league, says Drysdale. In almost three years at OMIA, he hasn't seen the Ontario league lobbying for changes to building codes or for removal of CSA approval on certain types of heaters, as the Prairie league has done.
The mutual loss prevention league is made up of loss prevention officers from the members companies, who meet once every four months. Agents, company managers, claims adjustors all attend the training sessions. There are 46 mutual companies that are members of OMIA. The majority of mutual companies have a loss prevention officer, Drysdale says.
Do the mutual companies still have a strong role in Ontario's agricultural insurance business?
Lombard's Wigood thinks so. He would like to see those two-hour-rated firewalls in smaller barns here in Ontario and says it is "entirely possible" that they will become part of requirements here.
"There's 50 other companies here in Ontario that we have to fight for marketshare," Wigood says. BP
© copyright 2004 AgMedia Inc..
back Like the Emperor, maybe the pork industry has no clothes
As in the Hans Christian Anderson story, the pork industry maintains many illusions that it is not anxious to confront
by RICHARD SMELSKI
You could say that the Hans Christian Andersen story called "The Emperor's New Clothes" applies to today's fast-paced pork industry.Just to remind you of the story, a vain Emperor ordered his weavers to make him a garment that was the most remarkable ever. The two weavers spent a lot of time doing nothing, then claimed only the wise and loyal would be able to see what they were doing and thus see this unique garment. No one would admit to not being wise or loyal, even though they could not see the garment, until one day, when the King was on parade, a little boy broke ranks and shouted that "the Emperor has no clothes on."
Don't you want to sometimes stand up and, like the little boy in the story, shout:
Food safety is out of context. We spend millions of dollars on food inspections and then let the dog lick our face.
Does the consumer really care about storybook pork or are the food chain mandarins trying to justify their positions?
Can we afford to educate the public about pork production? Our total promotional budget would be used up in 56 seconds on the Super Bowl.
Why is independence promoted and admired in the pork industry? Do we realize that the stages of maturity move from independence to dependence to interdependence? Independence is the stage of immaturity.
The grade index is used to establish carcass value, yet pigs with the same grade index and weight can have a $16 difference in value when evaluated on their primals.
Hog farming now requires more land -- or is it just an excuse to buy land?
Millions of dollars are being spent to determine animal welfare guidelines, but no one can define animal welfare.
American agriculture is a free enterprise system -- supported by an $8 billion government agricultural policy.
Is the limiting factor in pork production shackle space or is it per capita pork consumption? Or is it labour, export markets or greed?
The average cost of production only matters to the one person who is average. Everyone else is above or below average and 80 per cent think they are above average.
Forming an alliance is documented in a business journal as the first step in a takeover.
A niche market is a niche for about as long as it takes you to get into production.
A family farm is really a farm family that might be incorporated, so it really could be a corporate farm.
Big farms are only big if they are bigger than your own, but they are usually not as good. The general philosophy is: "I don't want to get bigger; I just want to own my neighbor's land."
Most costs of production are the same as appear in Pork News and Views so if we want a lower cost of production, we should just change the figures in Pork News and Views.
Why have we made pigs so lean that we have to add fat to the frying pan on some pork?
It's OK for humans to eat meat, but not the meat-producing animals. Duh!
Again, we seem to be following the philosophy that maybe it was true that only the wise and loyal could see the Emperor's clothes. BP
Richard Smelski is general manager of Ontario Swine Improvement Inc. and a former Ontario government swine specialist.
© copyright 2004 AgMedia Inc..
back What to do if your nutrient management plan fails
From time to time, you may need to spread manure when you don't want to because of poor nutrient management or because it might have an environmental impact. Some tips to help prevent this or deal with it if it happensby MURRAY BLACKIE
To quote my favorite poet Robert Burns in his "Ode To a Mouse," "The best laid schemes o' mice an' men, Gang aft agley." At times, we all experience this and, in the case of farming, sometimes "manure happens." A nutrient management plan (NMP) can be described as an appropriate, detailed strategy for manure and fertilizer management at your farm. You plan applications to optimize the benefit to your crops or to a neighbour's crop. You size your manure storage to provide adequate flexibility in the timing and location of spreading. But sometimes things just do not go as planned.Your well-intentioned and thought out plans may be compromised by legitimate events and contingencies as outlined in the following scenarios.
Even though it may be legitimate to consider spreading manure at times which may impact water quality, the spreading must be done in a way, at a time and in a location which will not cause environmental problems. The following are some DOs and DON'Ts to follow when you're faced with these contingencies.
- Due to weather conditions, such as an unusually wet autumn or early winter, you may not have been able to land-apply manure in the autumn according to your custom or to your NMP and you are now caught in late winter or early spring with a full manure tank and the need to apply some manure, in as controlled a manner as possible, to get you through until spring spreading time.
- Your storage has become prematurely full due to the sudden inflow of uncontaminated water, as with a broken water pipe, and is on the verge of overflowing.
- Due to changes in the plans of neighbours who take some of your manure, you are left with excess in storage over the winter or at other times which do not fit your plan and you feel obliged to spread some.
DO:
- Consider alternatives to spreading. What would happen if the manure tank just overflowed? Do you have excess storage at another farm or at the farm of someone who will be taking you manure later? Should you consider a secondary or overflow storage on-site rather than spread on unsuitable lands or at unsuitable times?
- If you do decide to go ahead and spread, choose a location that is not prone to run-off (flat), with a good monitoring and emergency response capability, without catch-basins or other point of easy entry to tile drains -- generally an environmentally benign or controllable site.
- Spread only enough manure to tide you over and put you back in your plan or customary spreading practice.
- Check the weather to try and pick the best timing.
- Be prepared for the worst in case of a spill or discharge. That is, be prepared to respond effectively and quickly.
- Monitor effectively to anticipate and permit effective response to spills or discharges.
- Consider contacting the Ministry of the Environment (MOE) or the Ontario Ministry of Agriculture and Food to inform them of your predicament and departure from your NMP.
- Keep complete records of the spread amount, acreage size and location, implementation of contingency plan and remedial measures and contacts made.
- Contact the MOE or the Spills Action Centre (1-800-2686060) if a discharge or spill occurs following the application.
DON'T:
This column may seem to be focusing on the need to spread or partially empty your manure tank in early spring or winter, but the above considerations relate to other times of the year as well -- times when the timing and location of spreading might endanger water quality. Should this column come too late for you and an incident has taken place that may lead to enforcement action from MOE, consider the above points in preparation for MOE questioning and analysis of your particular set of circumstances.BP
- Empty the tank at this inappropriate time or location.
- Fail to notify the MOE or the municipality in case of a spill.
- Do it unless you have to.
Murray Blackie is the former agricultural specialist with the Ministry of the Environment and is now a consultant, expert witness and writer on agro-environmental issues.
© copyright 2004 AgMedia Inc..
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