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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.

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]