Organisations that undertake hazardous operations can be challenging for brokers and underwriters. A greater level of skill and specialisation is required to help these clients change their approach to the management of risk.
When it comes to insuring complex businesses, a large chemical manufacturer stands out as a particularly hazardous risk. The company operates across multiple sites and countries, with billions of dollars of assets and they process high volumes of natural gas and explosive material.
The first challenge for an insurer is of course in the underwriting: how do you go about estimating the maximum loss of the business if something goes wrong and do you accept the risk?
Understand the risk
Chemical plants are usually ‘single-train’ operations, meaning that the production line is sequential and if one part fails, the entire operation has to stop and could cost millions perday. Therefore there is a heavy reliance on plant and equipment and there’s a risk of total business interruption while equipment is being repaired or replaced. If machinery requires parts from overseas, it might be weeks or months (or in the worst cases – years) before the business is back up and running.
Manufacturing chemicals also involves natural gas, chemicals and large combustible oil sources. The danger for employees is high, and it follows that safety and liability is high in the minds of the managing directors of the company.
For complex clients like these, a detailed risk assessment is crucial for underwriters to properly determine the likelihood and consequence of any losses. This is a highly specialised role. It necessitates the skills of a risk engineer who not only understands insurance, but knows the complexity of the equipment, products and processes involved.
The role of the risk engineer
More and more, insurers are looking to qualified and experienced engineers with backgrounds in mechanical, chemical and electrical engineering to properly analyse these risks.
With this greater level of skill and specialisation in underwriting comes the ability to work with brokers and clients to further understand the risk and provide risk improvement advice. Clearly it’s in everyone’s best interests for a business to reduce the impact of a major loss or minimise the chances of it occurring in the first place.
Often, the first step is to understand the client’s overall concept of risk. While the majority of companies have a great understanding of Occupational Health and Safety initiatives, it is common to find that property preservation recommendations are not met with as much organisational support, unless they can be aligned with the company’s risk management strategy.
A common issue for insurers is the fire detection and protection systems. These systems are often governed by different standards and, as a result, companies contract the maintenance to third parties. Unfortunately, unless these fire protection systems are ‘owned’ by a company staff member, they can often be neglected.
The prevention of fire and major equipment failure at these complex risks also involves assessing the integrity of vessels and pipe work which contain flammable liquids and gases. Risk engineers will spend time onsite to understand how the company’s engineers inspect this equipment, how metallurgical (steel) faults are found and how they are repaired to reduce this exposure.
Add value for clients
Having specialists who can ‘speak the same language’ as the engineers and technical experts of the organisation goes a long way in helping them understand the specific risks being faced, and how they can be avoided. It also helps to provide these clients with examples of companies in similar industries and situations which have had major claims, or major wins from risk mitigation. For a broker, the most important thing is always going to be securing a broad cover at the right price. Being able to work with these complex clients to continually improve their risks is a valuable addition.
There is a natural reluctance of companies to adopt any recommendation that involves added cost, but when they understand the true value to their people and organisation, the “it will never happen to me” mentality seems to disappear.
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