Risk Scenario

Caught Out

A typhoon exposes the inadequacies of a U.S. pharmacy company's local insurance policies and hinders its move to Asia.
By: | October 1, 2014 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Good Morning Shah Alam

From his perspective in the third row, John Treme could make out the colorful costumes and motions of the dancers below him.

RiskScenario_CaughtOut

Treme, the risk manager for Vitalex, a pharmaceutical manufacturer based in Pennsylvania, was attending a performance of Joget Lambak, a traditional dance of Malaysia. The occasion was the grand opening of a Vitalex factory in Shah Alam, one of Malaysia’s manufacturing cities.

Normally, Treme wouldn’t be at an event like this. But he’d been conducting some business with a local insurance partner and happened to be in country on the event date: In other words, the timing was right for him to get a ticket.

Treme might’ve been feeling kind of lucky — but he didn’t.

To a focused, open observer, the movements of the assembled dancers and the music of their accompanying musicians were mesmerizing. John Treme, however, was a man easily distracted by his vivid imagination, combined with a razor-sharp memory that wouldn’t leave him alone.

Scenario Partner

Scenario Partner

As Treme watched the dancers, a strong, steady breeze, laden with moisture, passed through the performance space.

“Breeze … storm … tropical storm … typhoon.” Treme’s overactive mind skipped through the severity escalations unbidden. It was just what his brain did.

His brain also harassed him with the memory of his instructions from treasury when he’d been sent to bind the property coverage for the factory in Shah Alam.

“Just get us some basic property coverage with a local partner, we’ll let the global master property program handle the overflow if there ever is any,” the company treasurer told Treme at the time.

That put Treme in a tough spot. It went against his nature to not do as he was bidden. Still, the idea of “basic” coverage in typhoon country gave him the willy-nillies.

“What if something happens?” he asked himself when he couldn’t sleep at night.

“What if we get hit?”

“What are we doing in Malaysia in the first place?” he asked himself in his weaker moments.

He very well knew what Vitalex was doing in Malaysia.

The company had the right specialty with its focus on products in oncological medicine.

Pharmaceutical products in that area were high-growth. But sales in the mature markets like the U.S. and Europe were flat. If Vitalex was going to succeed in the highly competitive world of global pharmacy sales, it needed to move aggressively into high-growth markets like Asia and Southeast Asia.

It also needed to keep costs down, hence the treasurers’ concerns about what he perceived as duplicative or redundant insurance coverages.

A colorful flourish by one of the dancers and a particularly loud sequence from the Malaysian drummers brought Treme back into the moment; somewhat. He reassured himself by counting the offshore layers of reinsurance that Vitalex had on its master global program.

“We’re going to be okay,” he said softly, but still out loud. One of his co-executives looked over at him with concern.

As it turned out, John Treme’s worries were justified. It was really just a matter of time.

Eighteen months after the Vitalex factory in Shah Alam began production, Typhoon Ahayan roared up the Straits of Johor, packing wind speeds of more than 100 miles per hour. The typhoon slammed directly into Shah Alam, causing substantial wind and water damage to Vitalex’s new factory.

“How bad is it?” John Treme asked the plant’s manager, when power was restored sufficiently for phone service, two days after the storm.

“You better get over here,” said Smitty Fields, the plant manager.

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A Mortal Blow

Due to a nice run of luck, Vitalex thought of themselves as the chosen ones due to their long string of uninterrupted business with no major property losses.

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In placing the coverage for the Shah Alam factory, John Treme engaged in some fairly tense discussions with Terra Firma Ltd., a U.S.-based carrier with an A + rating, which had been on Vitalex’s program for years, long before John Treme came to work for the company.

The Vitalex facility in Shah Alam cost $250 million to build. Against some rather stiff resistance from the underwriters with Terra Firma and Vitalex’s broker, Treme prevailed in placing a $5 million property policy to cover the facility.

The reasoning from the Vitalex C-suite was that the company’s layers of reinsurance on its master global program were robust enough to pick up any slack should the Shah Alam factory suffer a sizable loss. And there was that aforementioned shield of good fortune the company deluded themselves into thinking would last forever.

John Treme was two hours back in country and in his hotel, preparing to visit the typhoon-ravaged Shah Alam factory when he got a disturbing text message.

“Please get here ASAP, I have bureaucrats on my back.”

It was from Smitty Fields.

When Treme got to the factory, the damage the facility suffered was clearly visible. Siding was torn off three quarters of the manufacturing space and parts of the roof appeared to be missing. And that was just on a cursory glimpse. Happily, or perhaps unhappily, some of the office space appeared to be functional.




There were two matching black SUV’s parked conspicuously near the front entrance. When Treme got to Smitty Field’s office, the men who drove those SUV’s were waiting.

“The cavalry’s here,” Smitty said with something resembling a smile when John walked into the office.

John barely had time to shoot Smitty a questioning look before Mr. Yei spoke.

“You are Mr. Treme, correct?” Mr. Yei said.

“Yes, I am,” Treme said. “How can I help you gentlemen?”

Mr. Razak consulted a file briefly before speaking.

“We work for Bank Negara Malaysia, the insurance regulator in this country,” Mr. Razak said. “We have questions about your coverage of this factory.”

“Like what?” Treme said, again shooting Smitty a look, which Smitty ducked.

“Who is your local carrier?” Yei said.

“Ungku Assurance,” Treme said.

“And your carrier in the United States?” Mr. Yei said.

“Terra Firma Ltd.,” John Treme said.

“If I may, gentleman, may I ask what’s going on here? We’ve got a severely damaged factory here and I need to get to work on the assessment and claims process,” Treme said.

“Yes, we think that is highly advisable,” Mr Razak said.

“We only have one question of substance for you today,” Mr. Yei said. “Although I think we are going to have more later,” he said unsmilingly.

“And that is …” Treme began.

“And that is …” Mr. Razak continued for him, holding out a document.

“Why did you arrange for only $5 million in coverage for a $250 million operation, that is, if your valuations can be believed,” Mr. Razak said.

“Gentlemen, we are very well capitalized company with substantial reinsurance protection on our global program,” Treme said.

“I don’t think there’s going to be a problem drawing down from our reinsurers to get this plant back up, if that’s what your concern is,” Treme said.

“I hope that’s the case because it’s of great concern that you have a gap in the tens of millions in your local coverage in all probability,” Mr. Yei said.

Mr. Razak jerked his head in the direction of the factory.

“The good people and the government of Shah Alam trusted that your company came here with good intentions, to do business and create local jobs,” Mr. Razak said.

“Your company’s failure to place adequate local coverage brings that premise substantially into question,” he said.

Minutes later, Treme stood with Smitty Fields, watching the two black SUVs wheel out of the storm-damaged parking lot.

“What do you think all of this means?” Smitty said to Treme.

“I’m not sure, I’m not sure,” Treme said. “I don’t want to think it, but we might be a little bit screwed,” he said.

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Busted

Six months later, John Treme was on a conference call with his broker, Fred Tallex, and a vice president with Terra Firma, Suzette Pines.

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“Okay Fred, do you want to take us through this?” John said to start things off.

“Sure,” Fred said, sounding like he was already mentally finished with the topic.

“Bank Negara Malaysia informed us yesterday that we are free to draw down the $40 million from Vitalex’s reinsurers to complete the factory restoration,” Fred said. “That’s the good news.”

“You all saw the email this morning,” Fred continued.

“Yes,” said Suzette Pines, somewhat tersely.

John didn’t say anything, yet.

“No one got fined, but the local regulators have got our brokerage and Terra Firma in their cross-hairs now,” Fred said.

“Sure looks like it,” Suzette said.

There was a long, awkward pause, which John attempted to fill.

“Well, we’ve only got a month or two to firm up the coverage on the renovated plant,” Treme said. “Can we get going on that?”

“Who’s we?” Suzette Pines said.

“Well, you’re our carrier in Asia,” Treme said.

“John, not any more we’re not. We have lost our appetite for this risk. A regulator that’s going to be in our grill all day long now will do that.”

“So you’re not …” Treme began.

“Sorry John, sorry but no way,” Suzette said. “No way if I want to keep my job and I do want to keep my job, such as it is,” she said ruefully.

“Guys, I’ve got to go, I need to pick up another call,” Suzette said.

“ ‘Bye Suzette,” Fred said.

Treme was too nonplussed to say goodbye.

“Now what?” Treme said to Fred after Suzette hung up.

“I really don’t know,” Fred said. “This project has so much stink on it I don’t know who we’re going to find and that’s not even bringing up price.”

“Well, can you …” Treme began.

“Yep, I’ll get started today John. You know we got reprimanded too,” Fred said, barely veiling his impatience.

“I know Fred, I know,” John said.

The business restoration delays suffered by Vitalex in getting the reinsurance draw down amidst the ongoing distraction of the investigation by Malaysian insurance regulators had severe impacts on Vitalex’s ambitions in Asia.

Vitalex suffered 14 months of business interruption due to the storm damage and the time needed to jump through regulatory hoops while trying to get the plant rebuilt.

A Munich-based competitor, Mayer Corp., which has a nimble, efficient manufacturing facility in Vietnam, was successful in taking substantial portions of the Asian oncology drug market that Vitalex was counting on as a difference maker.

Other markets might pay out like Asia had the potential too, but it would be years before Vitalex would be in a position to take advantage of them.

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Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

Six Dimensions of a Successful Global Risk Management Program

1. Breadth and depth of a network: Risk managers want a consistent level of products and hands-on services delivered as well as the ability to offer broad, compliant, on-the-ground coverage. They need to settle claims locally and they want their carrier to offer consistent performance in terms of policy documentation and contract certainty.

2. State-of-the-art global master form combined with broad “standard” local underlyers: The ideal global program matches local coverage and master coverage as closely as possible. This maximizes coverage in the local territory and the local loss payment. Should a loss occur, it can be paid with certainty at the local level.

3. Balanced global and local service: Most risk managers value consistency when it comes to certain important aspects of their program, including capacity, coverage, claims and the level and quality of key services they choose. Yet keeping local constituencies and decision-makers engaged (and happy) can be an equally important element of a successful global program.

4. Consistent loss prevention engineering service, protocols and deliverables: As companies expand their footprints overseas, they often find the challenges they face in understanding hazards and managing risks grow disproportionately.

Companies often discover the prevailing standards of protection and construction differ significantly from what they may be used to at home. Local codes may be lax or non-existent, often in regions that may be more prone to natural hazards.

5. Claims control and settlement via in-house claims adjustment network: One way of ensuring prompt claims service anywhere in the world, is by insurers recruiting, training and retaining well-qualified claims professionals with on-the-spot authority, who are located around the globe.

6. Success in the global arena: A successful risk management plan depends on a concerted effort from numerous parties, including underwriters, engineers, brokers, contractors and countless others who are integral to its success. Taking that same simple plan “global” means that extended communication lines, cultural differences, language barriers and time zones must be added to the list of challenges.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Workers' Comp

Keeping Workers on Their Feet

Slip and fall prevention programs must interweave all of the factors contributing to the risk.
By: | July 6, 2017 • 11 min read

If you peruse the last decade’s worth of literature from the CDC, NIOSH, or numerous other agencies or organizations, you’re bound to come across the “good news” that slips, trips and falls are largely preventable.

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So it’s frustrating, then, that slip, trip and fall injuries consistently account for more than a quarter of all nonfatal occupational injuries, and at least 65 percent of those injuries happen on same-level walking surfaces. And those figures just don’t budge all that much from year to year.

According to the “2016 Liberty Mutual Workplace Safety Index,” falls on same level currently rank as the second highest cause of disabling injuries in the U.S., with direct costs of $10.17 billion, accounting for 16.4 percent of the total national injury burden.

“Not only are they still happening often, but they tend to be very significant injuries,” said Mike Lampl, director of research at the Ohio Bureau of Workers’ Compensation.

“We’ve seen these trends grow over the years,” said Wayne Maynard, product director, risk control, with Liberty Mutual. “Bottom line is, it’s a real, real big problem.”

So why are preventable falls so hard to prevent? This stubborn status quo, say experts, is that the causes of slips and trips are typically far more complex than they seem. There are nearly always multiple factors in play, from footwear and flooring and the interplay of both, to cleaning procedures, lighting, housekeeping, weather, and workers’ mental or physical conditions as well as overall awareness.

And all of these factors are being exacerbated by the fact that incidents often go unreported.

“Slips, falls — people get up, move on, they don’t report it,” said Maynard.

“When somebody’s injured and files a claim — in the workers’ arena, how many are behind the scenes that may have happened that are not reportable? …. The unreported number is considerable in my opinion.”

The key to making any headway in reducing slips and falls on the same surface, say experts, is to have a comprehensive fall prevention plan that addresses all possible factors. No small task.

Engineering Solutions

Flooring conditions are often the most obvious starting point. Ideally, said Maynard, all the right choices are made at the planning and design stage. But sometimes mistakes are made, and in other cases, a business may be inheriting an older space with floor chosen for a different purpose.

Patricia Showerman, senior loss control consultant, Arthur J. Gallagher & Co.

So even flooring in good condition may be the wrong type of material and may not have the necessary coefficient of friction (slip resistance) needed for the work being done.

If companies want to drill down into all the details of the surfaces in their facilities, a friction coefficient study is always an option, said Patricia Showerman, senior loss control consultant at Arthur J. Gallagher & Co.

But if a company doesn’t want to take that step, she said, it may be a simpler matter of saying, “Let’s look at what you’ve got. Let’s look at your floor surfaces and how you’re maintaining them.”

A lot of people want that “shiny grocery store glam look,” she said. “And if you can do it properly, and maintain it properly and keep that coefficient of friction and have the shiny look, that’s great. That’s what everybody wants but how do they get there?”

Certain surfaces may start out with an adequate coefficient of friction when they’re clean and dry. But add even an invisible layer of dust or debris, “and it’s like microscopic little BBs that you slide across,” said Showerman. “So if you have dust on your floor, you are dramatically reducing your slip coefficient.”

For companies that do have flooring surfaces in need of improvement, ripping up the floor and replacing it isn’t typically a feasible option. Fortunately there are more budget-friendly ways to get the maximum slip resistance from existing flooring, such as coatings and etchings.

A coating adds a microscopic layer on top of the flooring that creates a grip surface while maintaining the shine. Showerman likened the effect to the way that Velcro fasteners work.

“You want that hook effect … sharp points are going to microscopically stick into the soles of your shoes, rather than rolling off the top.”

Etching can work in a similar way, chemically altering the existing surface to make it imperceptibly gritty. Etching can also be used to create pores in an existing surface, which is useful for areas such as machine shops, she said.

Be Smart With Surfactants

While keeping floor surfaces clean is one of the best ways to remove slip and fall hazards, cleaning them the wrong way can actually do more harm than good.

Failure to follow appropriate cleaning procedures can severely diminish a surface’s coefficient of friction.

Experts suggest that companies engage with their chemical suppliers, and discuss their flooring as well as the types of dirt or grease removal and disinfectant needs. Detergents – which can contain different types of surfactants — aren’t a one size fits all solution.

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Sometimes purchasers might be inclined to try to cover all their bases by buying the strongest product on the market, but that might mean adding unnecessary surfactants that make surfaces less slip resistant.

“Clearly identify the types of surfaces you’re using it for, the type of oil or dirt or debris you have, and whether or not you need a sanitizing step,” said Showerman.

“You’ve got to find the right balance.”

But that’s only half the battle. A significant problem experts see time and time again is that companies don’t understand how their flooring is being maintained on a day-to-day basis by front-line employees. Failure to follow appropriate cleaning procedures can severely diminish a surface’s coefficient of friction.

“This is where you’re seeing someone with a mop and bucket and they are just re-smearing that grease from one place to another. They put the dirty mop in the dirty bucket, the mop gets full of that emulsified grease and you’re smearing it across the room. In high grease areas, you have to replace with clean water consistently.”

In other cases, a worker without the proper training may grab the first detergent he finds, even if it’s meant for the equipment rather than the floor. Or perhaps he mixes equal parts detergent and water when he was supposed to only use 8 oz. of detergent for every five gallons of water.
Sometimes people will even over-concentrate the detergent on purpose, she added.

Peter Koch, safety management specialist, The MEMIC Group

“I see that in the food industry frequently,” said Showerman. “They find that the more detergent they leave on the floor, the easier it is to clean up next time … but then everyone’s slipping and falling like in a cartoon.”

A company could invest a significant amount in flooring improvements, only to have the benefits undone by improper detergent use or failure to follow recommended rinsing procedures.

It’s incumbent upon safety managers to reinforce that maintaining floor surfaces isn’t just a matter of housekeeping, but a key part of the company’s workplace safety program.

The Human Factor

When you’ve done everything possible to address hazards in the physical work environment, workers themselves remain the wildcard. Most employers routinely include slip and fall hazards in their safety awareness training or toolbox talk programs. But that training should go well beyond a general “watch where you walk” message, say experts.

“One of the most overlooked parts for employee safety is actually employee training,” said Peter Koch, safety management specialist at  The MEMIC Group.

“How do you train an employee to not slip and fall? I think many times that is wrapped in a “you have to be more careful” message, which is valid but nebulous and not very helpful — it means something different to everyone based on your risk tolerance as an individual.”

Koch’s employee training regimen revolves around four elements: surfaces, awareness, footwear and environment (SAFE).

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The first goal of the surface portion is just to get employees to start thinking about the different types of surfaces they walk on and how it can change throughout the work day. Koch said he likes to ask: “How many different types of surfaces did you have to walk on the get to this training room?”

The footwear piece of it is the most straightforward. Are your shoes designed for the work that you’re doing and the surfaces you’re walking on? Are they in good condition? Are the soles worn out?

There is no ASTM standard for measuring the performance of slip-resistant footwear, added Gallagher’s Showerman. So workers should be reminded that wearing the right shoe isn’t a guarantee — it’s just one piece of the solution.

Awareness, said Koch, may be the most challenging piece of the puzzle — helping people to think about their gait, what they’re carrying, what they’re doing, and simply where their heads are at any given moment.

“If you’re thinking about 15 things you have to get done by the end of the day, or you have a particularly challenging employee interaction coming up that day, or you had a fight with your girlfriend last night— or whatever it is — you’re not focused. Then you take that step through the icy patch, and now it relies completely on your athletic ability and luck to stay upright.”

Workers may not necessarily make the connection between personal factors and fall risk. Someone who has an ear infection or is taking certain medications, for example, may not even be aware that their balance might be compromised, putting them at higher risk for a fall.

Employees also should be reminded of how even normal daily stressors can contribute to risk. Everyone is under pressure to deliver more in less time. Everyone is rushing, everyone is stretched to their limits. Add the ever-present cellphone beeping and buzzing and demanding our attention and perhaps it’s a wonder slips and falls don’t happen even more often than they already do.

We’re so conditioned to react when the vibration goes off or the tone chimes in our pockets that we just grab it without thinking, Koch said.

“If you knowingly put yourself at risk by knowingly going quickly through an area with slip and fall exposures, it’s just Russian roulette – at some point you’re going to get broken.” — Peter Koch, safety management specialist, The MEMIC Group.

“Even that, in certain conditions, is going to be enough to put you on the ground.”

Awareness of environmental factors should also be part of the training, Koch said, especially in terms of what workers can’t control, like inclement weather.  He said the main thing he tries to impress upon people is to slow down in a high-risk environment.

“If you knowingly put yourself at risk by knowingly going quickly through an area with slip and fall exposures, it’s just Russian roulette – at some point you’re going to get broken.”

Koch says that getting people to put all of these facets of awareness together is where the training can really click.

The goal is that when they approach an area with a higher-risk surface, employees are thinking “for those few seconds or minutes that I’m going to be walking through it, I need to have a greater sense of awareness, I need to put away the mental [distractions] and focus on what I’m doing – don’t answer your phone, don’t answer your texts.”

Some employers are looking to address the human piece of the slip and fall puzzle by using training that goes far beyond hazard awareness. Active slip-prevention training focuses on body mechanics and teaches workers how to respond when they feel themselves begin to slip.

One such program revolves around the Slip Simulator, technology born of a research partnership between Virginia Tech researchers and UPS. The simulator that creates slippery and hazardous conditions in a controlled environment while participants walk in a harness so they can slip safely. An instructor offers real-time guidance on how to alter their movements to avoid falling.

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After mastering the initial technique, trainees face additional challenges related to their specific work environments, such as walking up ramps or turning wheels. A New Mexico security team practiced drawing firearms while standing on the simulator, which led to a change in how they wear their weapons. Workers at an Ohio refinery practiced stepping over pipes and turning large valves.

Clients of the program are reporting 60 to 80 percent reductions in accident rates.

The Road Ahead

A comprehensive slip and fall prevention plan is a must for employers, experts agreed, with clear, consistent procedures that empower employees to be a part of the solution.

“Employees play a very critical role,” said Liberty Mutual’s Maynard. “If they see a slip risk or a slipperiness issue, they need to be able to report it and they need to be able to get that corrected immediately. They have an important role in maintaining a safe facility and reducing risk themselves — be proactive, don’t walk by, clean it up.

“Any time you can involve the employee in solutions …. the likelihood of success of that intervention is higher.”

Maynard added that the best prevention plans will also be forward-looking.

“Understand where current safety performance is. Then make a roadmap to get better,” he said. “Emphasize where you’re doing well,” then identify opportunities to effect improvement, now and over the next three, four or five years.

“Prevention is too often reactive,” Maynard said. “We’ve got an issue and now what do we do? The goal is for companies to be proactive.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]