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Regulatory Compliance Is Not Always Enough to Ensure That Critical Equipment Is Safe and Reliable

To go above and beyond compliance, risk managers should implement best practices specific to their industry and operations.
By: | October 24, 2017 • 7 min read

When it comes to equipment like boilers and pressure vessels, simply passing regulatory mechanical integrity inspections may not always be enough to assure their safety. Year after year, equipment in full compliance with local jurisdictional/statutory inspection requirements still fails in service. Losses involving boilers and pressure vessels not only often result in significant damage and business interruption, but in the worst cases jeopardize the safety of personnel.

In short, compliance with these regulations is just the minimum legal requirement to operate a plant. This compliance does not ensure that all failure mechanisms have been addressed, and more importantly, it can create a false sense of security.

“In most countries, there are jurisdictional requirements to inspect equipment like boilers and pressure vessels,” said Mike Wood, Regional Manager of Boiler & Machinery for Global Risk Consultants, based in the UK. “But, just relying on these requirements to assure the safety of your equipment can be a flawed decision in some cases.”

It is also important to acknowledge that the scope and frequency of these inspection requirements vary widely from country to country. A risk manager based out of a parent company’s U.S. location may assume that overseas facilities are following all of the same inspection requirements as the U.S. operations. However, this is not always the case.

Pitfalls of Compliance as Minimum Standard

Mike Wood, Regional Manager of Boiler & Machinery

The development and implementation of inspection requirements has historically been reactive by nature. Significant changes to such requirements are normally enacted after there has been a major property loss or even loss of life.

Wood described an experience early on in his career as a risk engineer involving a boiler explosion at a client’s manufacturing plant in the Netherlands. The root cause of the explosion was attributed to a crack in one of the major boiler weld seams which caused major property damage, significant business interruption and serious injuries to employees.

Despite the aforementioned defect, this particular boiler had indeed passed a local inspection and was deemed compliant and legally safe to operate at the time.

“That’s a perfect example of how compliance doesn’t always guarantee safety,” Wood said.

After this incident, Wood went on to discover that the U.K. had revised their legal inspection requirements over a decade earlier, specifically including identifying defects in weld seams. To this day, the U.K. remains one of the few countries where such specific tests are mandatory, even though similar boilers are fabricated in the same way and subject to the same failure mechanisms around the world.

In an incident earlier this year, a U.S.-based industrial processing plant suffered a major loss caused by a steam vessel explosion. The incident resulted in fatalities, several injuries and extensive property damage. At the time of the incident, the equipment was reported to be in full regulatory compliance under local requirements, though investigative reports available in the public domain appear to indicate that the vessel was in poor condition.

“These legal requirements are just the minimum standards needed to operate a plant, but facility managers shouldn’t assume that compliance with these requirements assures they are doing everything they can to maintain the safety and integrity of their equipment,” Wood said.

Seeking Best Practices

Some jurisdictional guidelines provide reference material with best practices that are transferable. In addition, several industry advisory boards and committees produce best practice standards that exceed local legal requirements.

Various associations such as the Technical Association of Pulp and Paper Industries (TAPPI) and The National Board Inspection Code (NBI), published by the National Board of Boiler and Pressure Vessel Inspectors provide standards and guidelines for equipment, and are recognized internationally.

“These are some of the international standards we reference when we make recommendations to clients,” Wood said. “By implementing new best practices, we ensure that they not only meet their legal requirements, but, where appropriate, exceed them, reducing the likelihood of failure based on lessons learned from losses in the industry.”

The GRC Approach

Naturally, there will be facility managers who will resist recommendations to implement additional, more rigorous inspections because they believe they have done their part already simply by being in full compliance.

“That’s why GRC takes the time to truly understand our clients’ businesses, know their cost constraints, educate them about the potential risks, and make recommendations that are economically justifiable,” Wood said.

This customized approach is the strong foundation of the partnerships that Global Risk Consultants forms with its clients, regardless of the size of their operation. GRC works with clients to create corporate standards that fit the characteristics of their specific equipment and operations and, most importantly, draw from existing best practices, their own well-rounded backgrounds and knowledge of equipment processes, strengths and weaknesses.

“Over time you develop a sixth sense for it. If you know what type of facility you’re dealing with, you know perhaps the top 20 pieces of equipment and why they can fail, and that’s what you’ll focus on when you conduct a site visit,” Wood said.

“A good risk engineer will know what the typical failure mechanisms are, what type of damage a failure could cause, as well as the replacement timeframe for that piece of equipment and impact on the business. Then, he can focus both on ways to reduce the likelihood and severity of losses and assist in the development of long-term maintenance plans, sparing decisions and contingency planning,” he said.

The Unbundled Advantage

Global Risk Consultants is the leading unbundled property loss control provider worldwide, offering a complete portfolio of services. GRC goes beyond the parameters of traditional property loss control services by providing clients with customized and comprehensive reports permitting them to make informed, practical business decisions. As an unbundled provider that operates independently of any insurance company, GRC engineers examine risks beyond their potential impact on an insurance policy.

“A risk engineer from an insurance company will typically focus on the exposures that could trigger a claim against their policy,” Wood said. “For example, if a client has a $50 million self-retention, the insurance engineer might have little interest in lower level exposures that do not expose his underwriters. At GRC, we do ‘bottom up’ risk engineering, which considers the total cost of risk including the clients’ retained exposures.”

Going unbundled also means that any changes in a facility’s insurer or policy conditions would not preclude GRC’s relationship with that client. This enables risk engineers to intimately understand their client’s business and track their progress over time.

Advancements in technology have also led to the creation of GRC Connect, GRC’s proprietary database. GRC Connect serves as an electronic “file cabinet” for all reports, diagrams and project reviews. It also organizes and correlates data to effectively and efficiently benchmark locations, evaluate trends, assemble marketing summaries, manage recommendations, and access documents from anywhere in the world.

“[GRC Connect] allows us to drill down and look for common deficiencies. If we see similar equipment risks at other facilities, we’ll compare to see what recommendations are in place, and if there’s anything we can do to improve the exposure,” Wood said. The clients also retain ownership of their data and can access it at any time.

Since being acquired by its parent company, TÜV SÜD, GRC has also been able to strengthen the relationship to provide expanded risk management capabilities like forensic investigation, root cause analysis, and non-destructive turbine testing.

“There’s good synergy there because while we can make recommendations, we can’t always provide resources for implementation. In some cases, now, we can introduce TÜV SÜD as the people who can bring those capabilities to the table where that adds value,” Wood said.

Expert risk management recommendations combined with access to data and implementation resources offer a comprehensive and unique service that many bundled providers can’t match.

To learn more, visit https://www.globalriskconsultants.com/services/boiler-machinery-engineering.html.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Global Risk Consultants. The editorial staff of Risk & Insurance had no role in its preparation.




The only unbundled property loss prevention company to offer a complete portfolio of in-house, site-specific services and risk management solutions.

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]