RISK MANAGEMENT IN HSE HOW TO DEVELOP AND IMPLEMENT A SUCCESSFUL SERVICE PLAN

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RISK MANAGEMENT IN HSEHOW TO DEVELOP AND
IMPLEMENT A SUCCESSFUL SERVICE PLAN

• Presented By Dwayne Pack, CXLT
• Chubb Insurance Co. of Canada

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RISK MANAGEMENT IN HSE HOW TO DEVELOP AND
IMPLEMENT A SUCCESSFUL SERVICE PLAN
Agenda

• Insurance Loss Control
• Loss Example - Human Element
• Risk Exposure vs. RM/Underwriting Strategy
• Communication Plans
• Client Service Proposals
• Client Service Program Cycle
• Account Coordination - Multiple Locations
• Measuring Success

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INSURANCE LOSS CONTROL
PRIMARY FUNCTIONS

• Analyze a customers overall approach to
• risk management
• Develop recommendations propose goals/programs
• to further minimize exposure
• Quality risk selection to improve bottom line
• (reduce loss ratio)

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INSURANCE LOSS CONTROL
SURVEY VS. INSPECTION

• Survey To examine with reference to condition,
  situation, value, etc. to examine and ascertain
  the state of as, to survey a building in order
  to determine its value and exposure to loss by
  fire
• (Websters Revised Unabridged Dictionary)
• Inspection Official examination or review
• (The American Heritage Dictionary of the English
  Language, Fourth Edition)

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INSURANCE LOSS CONTROL
RECOMMENDATION OR GOAL?

• Recommendation Something, such as a course of
  action, that is recommended.
• (Websters Revised Unabridged Dictionary)
• Goal The final purpose or aim the end to which
  a design tends, or which a person aims to reach
  or attain
• (The American Heritage Dictionary of the
  English Language, Fourth Edition)

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INSURANCE LOSS CONTROL
LOSS CONTROL DIVERSITY

• Property
• Boiler Machinery
• Liability (Product, General Liability, Completed
  Operations, Environmental Impairment, Errors
  Omissions)
  
  
• Business Interruption
• Crime/Security
• Commercial Fleets
• Workers Compensation (primarily USA)

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LOSS EXAMPLE - HUMAN ELEMENT
HUMAN ELEMENT DEFINITION

• Planned human intervention to reduce frequency
  and severity of losses

LOSS SCENARIO
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LOSS EXAMPLE - HUMAN ELEMENT

• One-location account
• Manufacturing plant
• Industrial area
• Sprinkler protection
• Booster pump
• No-smoking policy

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LOSS EXAMPLE - HUMAN ELEMENT

• Smoking in storage area
• Discards cigarette butt
• Fire starts in racks
• Fire grows / noticed
• Fire extinguisher empty
• Flam. Liq. rm. door open

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LOSS EXAMPLE - HUMAN ELEMENT

• Sprinklers operate
• Sprinkler alarm sounds
• Pump auto-start switch off
• Fire grows uncontrolled
• Employees evacuate
• Neighbor calls FD

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LOSS EXAMPLE - HUMAN ELEMENT

• FD trucks arrive
• Connect to hydrant
• Connect to pumper con.
• Break doors / walls open
• Roof openings for venting
• Manual fire fighting

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LOSS EXAMPLE - HUMAN ELEMENT

• NEXT DAY

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LOSS EXAMPLE - HUMAN ELEMENT

• 70 Property Damage
• By-laws 100 loss
• No back-up facility
• 100 BI loss
• Loss of market share
• loss of jobs

Damaged area
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LOSS EXAMPLE - HUMAN ELEMENT

• WHAT WENT WRONG?

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LOSS EXAMPLE - HUMAN ELEMENT
SMOKING POLICY

• Designated smoking areas were not used/enforced

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LOSS EXAMPLE - HUMAN ELEMENT
IMPAIRMENT NOTIFICATION

• Pump auto-start switch was being repaired
• Pump was not operational for days
• No one notified the broker / insurer / FD
• Upper management was not aware of situation

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LOSS EXAMPLE - HUMAN ELEMENT
RECORDED INSPECTIONS

• Fire extinguishers only checked annually
• General housekeeping (smoking control,
• flammable liquid room door)
• Booster pump room not visited regularly

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LOSS EXAMPLE - HUMAN ELEMENT
EMERGENCY ORGANIZATION

• No one directed the emergency response operations
• No one notified the FD when alarm sounded
• No one trained in fighting fires in incipient
  stage
• No one directed the FD to the fire area
• No one checked the sprinkler control valve
• No one checked the pump
• No salvage done

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LOSS EXAMPLE - HUMAN ELEMENT
WHAT COULD HAVE BEEN DONE RIGHT?
?
?
?
?
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LOSS EXAMPLE - HUMAN ELEMENT

• Before the fire
• Insurer / FD advised of impairment
• Precautions taken / hoses connected to hydrants
• Frequent self-inspections initiated throughout
  plant
• Extinguishers checked for fullness
• Flammable Liquids room door is closed
• Emergency Organization aware/ready to respond

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LOSS EXAMPLE - HUMAN ELEMENT

• When the fire starts is detected
• Notifier calls the FD
• Pump operator puts the pump on manually
• AS control valve person makes sure valve is open
• E.O. initiates manual fire fighting
• FD directed to back of building for ease of
  access
• Salvage squad covers equipment to avoid damage

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LOSS EXAMPLE - HUMAN ELEMENT
RESULTS

• Fire is controlled
• Damage to few racks
• Production unaffected
• Minimum B.I.
• FD damage is minimized

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LOSS EXAMPLE - HUMAN ELEMENT
BENEFITS OF A H.E. PROGRAM

• Shows that management cares
• Easy to implement
• Cost effective loss prevention
• Helps reduce frequency severity of losses

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RISK EXPOSURE VS. RM/UNDERWRITING STRATEGY
RISK MANAGMENT - DEFINITION

• Risk management is the minimization (at a
  minimum cost) of the detrimental effects of risk
  by identifying the risk, measuring the risk, and
  controlling the risk
• Principles Practices of Insurance
• Insurance Institute of Canada

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RISK EXPOSURE VS. RM/UNDERWRITING STRATEGY
R/M ALTERNATIVES

• Reduce risk by preventative effort
• above beyond
• cost versus return (Asset Management)
• Assume or retain the risk
• Self insured retention
• Captive markets
• Risk Transfer

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RISK EXPOSURE VS. RM/UNDERWRITING STRATEGY
MARKET FACTS

• Fewer F/T Risk Managers due to expense
  constraints with higher reliance on outside
  services
• Hard market conditions may affect attraction,
  insurance placement, rates, deductibles, etc.

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RISK EXPOSURE VS. RM/UNDERWRITING STRATEGY
RISK MANAGEMENT MUSTS

• must be held accountable
• must have top management support
• must have autonomy
• must communicate at all levels of the company
• must follow-up on issues, etc. to ensure they are
  addressed in a timely manner

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RISK EXPOSURE VS. RM/UNDERWRITING STRATEGY
THE UNDERWRITING PROCESS

• Industry loss trends reputation
• Management/Company experience financials
• Formal safety programs/certifications
• Prior company loss history
• Loss frequency versus severity
• Exposure versus rate
• Deductible strategies
• participation
• Reinsurance

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COMMUNICATION PLANS

• Appointments
• timing
• scope of survey
• whos required
• estimated length of time

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COMMUNICATION PLANS

• Survey Preparation
• research
• pre-visit outline
• equipment needs

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COMMUNICATION PLANS

• Coordinated Correspondence
• transmittal format (paper, email, CD ROM .doc,
  .pdf)
• recommendation issuance feedback
• goal status updates

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CLIENT SERVICE PROPOSALS
GOAL DEVELOPMENT TOOLS

• Loss Trending
• Risk Management Program Reviews

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CLIENT SERVICE PROPOSALS
LOSS TRENDING
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CLIENT SERVICE PROPOSALS
LOSS TRENDING
ABC Ltd. - Losses by Type
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CLIENT SERVICE PROPOSALS
RISK MANAGEMENT PROGRAM REVIEWS

• Identifies strengths weaknesses
• Provides tangibility
• Can use scoring system for measurement
• Develop baseline for improvement
• Establish goals based on findings

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CLIENT SERVICE PROPOSALS
RISK MANAGEMENT PROGRAM REVIEWS
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CLIENT SERVICE PROPOSALS
RISK MANAGEMENT PROGRAM REVIEWS
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CLIENT SERVICE PROPOSALS

• Documented
• Convincing
• Prioritized

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CLIENT SERVICE PROPOSALS

• Incorporate service goals that include
• Objectives
• Benefits
• Action Plans
• Assigned Parties
• Target Dates

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CLIENT SERVICE PROPOSALS
PRIORITIZATION

• Prioritization of recommendations goals
• Probability vs. Severity

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CLIENT SERVICE PROPOSALS
GOAL DEVELOPMENT

• Mutually agreed upon
• Realistic timeframes
• Easily measured (Documentation)
• What doesnt get measured, doesnt get done

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CLIENT SERVICE PROPOSALS
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CLIENT SERVICE PROPOSALS
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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE
Need
No Need
Service Proposal
Review Results Reevaluate
Service
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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE
Need

• Client
• direct
• implied
• Underwriter

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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE
Service Proposal

• Goals
• Action Plan

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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE

• Surveys
• Consulting
• Technical

Service
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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE
Review Results Reevaluate

• Annual review
• Update service plan

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CLIENT SERVICE PROGRAM
CLIENT SERVICE CYCLE
No Need

• Objectives met

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ACCOUNT COORDINATIONMULTIPLE LOCATIONS
ACCOUNT COORDINATION BENEFITS

• Ensures consistent service is provided to all
  locations through an organized, programmed
  approach.

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ACCOUNT COORDINATIONMULTIPLE LOCATIONS
ACCOUNT COORDINATOR

• Improve effectiveness of Loss Control Program
  activities by providing for a Loss Control
  Service Coordinator.

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ACCOUNT COORDINATIONMULTIPLE LOCATIONS
ACCOUNT COORDINATOR

• Usually select based on the location of client's
  corporate office.
• Establishes the most effective communication
  channel since the coordinator is local.
• Other criteria include the accounts complexity,
  nature of exposures and servicing needs.

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ACCOUNT COORDINATIONMULTIPLE LOCATIONS
ACCOUNT COORDINATOR ROLE

• Conducts formal account reviews with the
  underwriter, producer and the client's corporate
  risk management.
• Reviews the status of all activities,
  recommendations, completion of goals, accident
  analysis and future plans.

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ACCOUNT COORDINATIONMULTIPLE LOCATIONS
ACCOUNT COORDINATOR ROLE

• Assists in developing corporate service program.
• Administers the program's goals, objectives and
  activities.
• Develops objectives necessary to meet program
  goals.
• Assists Corporate Management in establishing
  accountability for implementing the program.

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MEASURING SUCCESS

• Loss Ratio
• Frequency vs. Severity
• Goal Completion
• Annual Reviews

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MEASURING SUCCESS
LOSS RATIO

• What is the combined loss expense?
• of expenses/ pay out vs. premium
• 40 Loss Ratio
• 100,000 premium
• 40,000 in losses
• 1,000 average cost to process a claim
  (inside/outside costs)
• Dont forget home office charges!

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MEASURING SUCCESS
LOSS DEVELOPMENT
ABC Ltd.
Losses as at
Term
9/24/01
1/1/01
1/1/00
1/1/99
1/1/98
Development
of Claims
Still Open
1997
214,333
149,279
139,779
135,782
72,740
2.93
30
1
1998
188,732
186,907
190,592
50,520
3.74
40
2
1999
130,558
89,214
57,242
2.28
32
3
2000
175,138
63,679
2.75
19
8
2001
169,495
n.a.
13
10
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MEASURING SUCCESS
FREQUENCY vs. SEVERITY

• Should see less occurrences and smaller
  settlement figures over time.
• Complete a comparative analysis from time to time

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MEASURING SUCCESS
GOAL COMPLETION

• Can use a point system for goal activities that
  demonstrates improved control
• Complete risk management program review
  afterwards to identify accomplishments and new
  score

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MEASURING SUCCESS
ANNUAL REVIEWS

• Success or failure of program
• Summary of the goals and activities completed
  during the prior year
• Accident analysis and statistical reporting of
  accident rates
• Review new goals and objectives to be
  accomplished during the upcoming year

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THE LOSS CONTROL/RISK MANAGEMENT RELATIONSHIP
TEAM APPROACH
Broker/Producer
Underwriting
Reinsurance
Loss Control
Risk Managers
Claims
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THE LOSS CONTROL/RISK MANAGEMENT RELATIONSHIP
TEAM APPROACH
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RISK MANAGEMENT IN HSE HOW TO DEVELOP AND
IMPLEMENT A SUCCESSFUL SERVICE PLAN
Questions?
Dwayne Pack, CXLT Sr. Loss Control
Consultant Chubb Insurance Co. of Canada 333 - 7
Avenue S.W., Calgary, Alberta T2P 2Z1 Office
Direct 403-231-6461 Email dpack_at_chubb.com
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RISK MANAGEMENT IN HSE HOW TO DEVELOP AND
IMPLEMENT A SUCCESSFUL SERVICE PLAN
The views, information and content expressed
herein are those of the authors and do not
necessarily represent the views of any of the
insurers of The Chubb Group of Insurance
Companies. Chubb did not participate in and takes
no position on the nature, quality or accuracy of
such content. The information provided should not
be relied on as legal advice or a definitive
statement of law in any jurisdiction. For such
advice, an applicant, insured, listener or reader
should consult their own legal council.