property risk and insurance solutions for a complex world
EIGHT GREAT RISK
MANAGEMENT
PRACTICES
ISSUE 2 : 2015
MCCORMICK
Shares its recipe
for global success
ESTERLINE
Success
with a little
help from
its friends
Monitor All of Your Facilities
from Anywhere in the World
Your business is your world—and for many—your facilities are
located around the world. MyRisk®, FM Global’s extranet web
portal, provides you with essential risk management tools and
solutions to keep your business running smoothly, no matter where
your business is located.
NEW FOR 2016! Harness the power of MyRisk right from
the palm of your hand, with the MyRisk Mobile app. In January,
registered MyRisk users can download the app from the
App Store, Google Play and Windows Phone Store.
contents : ISSUE 2 2015
features
28 Currying Flavor with McCormick
McCormick's seasoned leadership team has emerged from a
turbulent period of intense expansion with phenomenal success
and just the right ingredients for good risk management.
40 8 Great Risk Management Practices
At a recent forum, we asked nearly 200 of our clients to
assemble an essential list of best practices for risk management.
After a few days of intense debate, we are proud to present the
fruits of all that labor.
50 On the Road Again with Esterline
Risk management is not exactly appealing. The hours are
long, the pressure is high, and risk managers rarely get credit
when everything goes right. But the job does get a little easier
when you have a client service team on the ground who is there
when you need them.
departments
05 Editor's Note
06 Partnering with the World
08 The Metrics System 10 Equipment Loss: Turbine Troubles
14 Big Innovations in In-Rack Sprinklers
18 The Hidden Risks of 3-D Printing
22 Voices: Marsh's Caroline Woolley
25 Voices: Samsung Electronics' EJ Park
WATCH THIS!
on fmglobal.com/reason
EXECUTIVE DIRECTOR Johanna Hetherton
MANAGING EDITOR Bob Gulla
robert.gulla@fmglobal.com
FM GLOBAL AROUND THE WORLD
FM Global products and services are available around
the world. The countries listed below represent those
where we regularly serve our clients.
ART DIRECTOR Jennifer Cournoyer
jennifer.cournoyer@fmglobal.com
EDITORIAL
deputy editor
Jonas Gustavsson
PRESIDENT, SANDVIK MACHINING SOLUTIONS
FROM WORKING TOGETHER: SANDVIK
AND FM GLOBAL
“Sandvik Machining Solutions is the
biggest business area in Sandvik,
and we have been able to develop
products and services over the
years that have, in some ways,
revolutionized the business. We
have a fantastic competence, and
we are investing heavily in both risk
management and sales.”
senior editors
Alicia Kamm
Kerri Germani, Patricia Iannotti, John Rufo
editors
Christian Campbell, Amy Carbone
contributing writers
Alan Earls, Hank Giles
Stephanie Van Ness, Steve Turgeon
technical editor
John C. Harrington
ART
creative director
Rebecca Marino
associate art director
designers
Nicole Caddell
Elizabeth Picillo
design intern
contributing photographers
contributing illustrators
Josh Grab
Lou Bopp, Devlo Media
Shawn Nielsen, Rick Shiers
John Thomas
production manager
asia pacific
Australia Bangladesh Brunei Cambodia China
Hong Kong India Indonesia Japan Laos Macau
Malaysia New Zealand Pakistan Philippines
Singapore South Korea Sri Lanka Taiwan
Thailand Vietnam
europe, middle east and africa
Albania Algeria Angola Armenia Austria
Azerbaijan Bahrain Belgium Bosnia-Herzegovina
Botswana Bulgaria Burkina Faso Cameroon Croatia
Cyprus Czech Republic Denmark Egypt Estonia
Finland France Gabon Georgia Germany Ghana
Greece Hungary Iceland Ireland Israel Italy
Jordan Kazakhstan Kenya Kuwait Kyrgyzstan
Latvia Lebanon Liechtenstein Lithuania
Luxembourg Macedonia Madagascar Malta
Montenegro Morocco Mozambique Namibia
PRODUCTION
Netherlands Norway Oman Poland Portugal
Sheena Carter
Qatar Romania Russia Saudi Arabia Senegal
Ashley Kuhar
Serbia Slovakia Slovenia South Africa Spain
production coordinator
Sweden Switzerland Tanzania Tunisia Turkey
VIDEO PRODUCTION
producers
Ukraine United Arab Emirates United Kingdom
Bob Gulla, Stephen Pine
contributing video direction
Lou Bopp, Devlo Media
Jon Ryan
north america
Bahamas Barbados Canada Costa Rica Dominican
Republic El Salvador Guatemala Honduras
CUSTOMER SERVICE AND SUBSCRIPTIONS
Jamaica Mexico Nicaragua Panama United States
270 Central Ave., P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 477 7010, phone: +1 (1)401 477 7744
(1)877 364 6726 (toll-free in Canada and United States)
Marifrances McGinn
VICE PRESIDENT, GENERAL COUNSEL AND RISK MANAGER
PROVIDENCE COLLEGE
“In the next couple of years, there
are several buildings we will be
renovating and we will be incorporating some of the initiatives that
FM Global has shared with us.
Changes are expensive but, in the
long run, will mitigate cost.”
email: customerservices@fmglobal.com
south america
Argentina Bolivia Brazil Chile Colombia Ecuador
Paraguay Peru Trinidad and Tobago Uruguay
Venezuela
REPRINTS
Address inquiries to:
Niki Swaby, intellectual property and localization
TO REACH THE FM GLOBAL OFFICE NEAREST YOU,
VISIT FMGLOBAL.COM/CONTACT.
phone: +1 (1)401 275 3000, ext. 1670
email: nicole.swaby@fmglobal.com
CORRESPONDENCE
Send to Reason, FM Global Communications
270 Central Avenue, P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 464 9031, phone: +1 (1)401 275 3000
ext. 2185
ADVISORY BOARD
Nick Batten (Client Service and Sales)
Jeffrey Beauman (Underwriting)
Chris Boston (Client Service and Sales)
Karen Freedman (Enterprise Learning)
Ronald Gibson (Engineering), Louis Gritzo (Research)
John C. Harrington (Engineering)
Belinda Oliver (Marketing)
Duncan Reid (Client Service and Sales)
Burton Wright (Claims), Martha Young (Marketing)
This publication is made available for informational
purposes only in support of the insurance relationship
between FM Global and its clients. This information
does not change or supplement policy terms or
conditions. The liability of FM Global is limited to
that contained in its insurance policies.
P07001 © 2015 FM Global. All rights reserved.
In the United Kingdom: FM Insurance Company
Limited, 1 Windsor Dials, Windsor, Berkshire, SL4 1RS.
Regulated by the Financial Services Authority.
READ THIS!
editor’s note
on fmglobal.com/reason
Congratulations!
The word you don't hear when
everything is going well
As you are likely well aware, risk management and safety
can be challenging and often unsexy business. When
things go south, you are the first to get a phone call. But
when business is humming along nicely, or you managed
to weather one storm or another, well, no one calls you to
say, "Congratulations, nothing is happening!"
It might sound counterintuitive, but if your work isn't
noticed, that's probably a good thing, especially in the
business of property insurance. Compare it to being the referee of a big sports match. Spectators only notice you if you are doing a lousy job. In that case, wouldn't we rather be the ref on
the field who nobody notices?
Both Esterline, a multifaceted electronics and advanced technology firm, and McCormick,
profiled here, do the lion's share of their best work behind the scenes, in places few people
notice. In partnership with FM Global, these elite companies have fanned out around the globe,
while their risk management departments march alongside like good soldiers to keep up with
all the growth.
In this issue we follow Esterline through the California desert and watch them, in conjunction with their client service team, do just that. It's grunt work, time-consuming and grueling.
But no one is arguing that it doesn't need doing. Esterline faces risk every day and that risk
needs to be addressed. Another client we paid a visit to, McCormick, has a global, far-reaching
business model, as well. We sat down to discuss issues of sourcing, safety and supply chain with
their global team. If you weren't paying attention, you could overlook the important work this
group does to help the organization maintain its market dominance.
So much of what our clients accomplish happens under the radar. Without a doubt, it's
critical work. Those of us in the business understand full well that without good risk management, economic success is precarious at best, short-lived at worst. So, while it would be nice to
get a congratulatory pat once in a while or an appreciative text for a job well done, it's not why
we are in this business and it doesn't diminish the value of such important work.
Hershey: Kiss & Tell
With the announcement of a major
new manufacturing facility in Malaysia, The Hershey Company unwraps
its strategy for global growth.
USG: A Best-Laid Plan
USG, a pioneering building products
giant, beats back a 500-year flood,
saving millions of dollars.
Stemming the Tide
Bob Gulla, managing editor
reason@fmglobal.com
New abatement equipment and systems, when combined with a sound
flood emergency response plan, help
property owners reduce or eliminate
business interruption in the face of
flooding.
UNIQUE COLLABORATIONS
WorldReach partnerships, in critical locations everywhere, make global expansion an easy street for
clients. Here’s a tribute to a trio of those partnerships commemorating important milestones.
FM Global has relationships around the
world—with clients, broker partners and
WorldReach partners. Each relationship is
unique and ultimately serves to benefit our
policyholder-owners and keep them resilient
in an uncertain world. When a client builds
a facility in an area where FM Global is not
licensed to do business, we partner with the
highest caliber of property insurers and they
provide locally admitted coverage on our
behalf.
These WorldReach partners are among
the finest local and regional insurers worldwide and our relationship with many of them
spans decades. In this issue we highlight
three of these partnerships: Etiqa, Ping An
and Sompo, and commemorate the anniversary of our partnership in providing clients
protection and resilience.
WorldReach
Partner: ETIQA
For more than 50 years,
Etiqa has provided
general insurance solutions along with a personalized touch to the
Singapore market. Etiqa’s chief operations officer, Fukhairudin Bin Mohd Yusof, describes
the relationship between WorldReach partner,
FM Global and the client.
How long have Etiqa and FM Global been
partners?
This year we celebrate a decade of unique
collaboration.
How do both companies work together?
FM Global provides significant business
opportunities and growth in the fire and
property segment—our target market. We
entered a strategic partnership with them
6
REASON ISSUE 2 : 2015
as a WorldReach member to service clients
in the Malaysian market. This partnership
enables us to further expand our brand presence and provide solutions and risk consultation services to more than 100 multinational companies.
What benefits do your clients realize as a
result of this partnership?
Our clients appreciate the FM Global mutual
ownership structure, as well as the company’s core values, risk engineering services
and the importance placed on long-term
relationships. We are committed to full
compliance with local, legal and regulatory
requirements, and continuously strive to
deliver excellent services and assistance to
local clients and brokers.
How does this partnership work?
I’ll give you an example. Recently, Etiqa and
FM Global partnered to provide a competitive and total insurance solution to secure a
local client in a specialized industry. This
well-known local client required a terrorism
cover which local insurers have limitations
on, in terms of capacity. Moreover, they were
seeking a local carrier that could cover all
classes of the insurance program.
Through a joint effort, FM Global was
able to customize a property policy that
addressed the specific needs of the client and
obtain the local authority’s clearance to this
cover. Etiqa also provided competitive terms
on other policies to provide a total insurance
solution.
WorldReach
Partner:
PING AN
Ping An Insurance
(Group) Company of
China, Ltd. has developed into a personal
financial services group with three core businesses of insurance, banking and investment.
In this interview, Marcy Mao, senior vice
president, International Broker Department, discusses the WorldReach partner relationship.
How long have Ping An and FM Global
been partners?
Our partnership spans more than 20 years.
How long has Sompo and FM Global been
partners?
The partnership dates back nearly 40 years.
How do both companies work together?
Ping An issues the local policies and provides local services in the China market on
behalf of FM Global. To provide a comprehensive and highly efficient program, Ping
An sets up an FM Global business team with
members coming from the local branches
where FM Global clients are heavily located,
including Shanghai, Beijing, Shenzhen,
Suzhou and Guangdong.
How do both companies work together?
Together, our companies strengthen the relationships with our clients through claims
handling, policy consultation and general
property risk management. What benefits do your clients realize as a
result of this partnership?
Clients benefit from a locally admitted policy and officially filed insurance coverage.
It’s convenient, local and officially encouraged premium/claim payment/collection. It
involves direct and localized communication
and coordination with the Ping An brand
image, network and capacity.
How does this partnership work?
As an example, in 2013, a severe fire accident occurred that exceeded US$4 million in property loss. As soon as Ping An
received notification of the accident, the
head manager and claims department of
the Ping An Suzhou Branch rushed to the
loss site and an emergency response team
was set up for loss estimation and claiming service. After careful consideration and
discussion, Ping An arranged an immediate
advance payment of US$2.4 million.
What benefits do your clients realize as a
result of this partnership?
Clients benefit from the availability of additional capacity, expert knowledge about the
local standards, ease in communicating in
their local language and culture, provision
of other lines of insurances, and additional
risk management services.
Can you give an example of how this partnership works?
About three years ago, a multinational client
had a flood loss due to a damaged machine.
Understandably, they wanted to remove
the machine as soon as possible, but were
required to wait for the claims adjuster.
They were anxious about claims handling
because they had difficulties communicating
in English. Sompo handled the local communication and initial loss adjustment and
FM Global handled the main loss adjustment. The client was able to recover from
the loss quickly, with minimal business
interruption.
WorldReach
Partner: SOMPO
Sompo Japan Nipponkoa Insurance Inc.
is among the largest
property and casualty
insurers in the world
and the second-largest in Japan. Hiroshi Kida,
general manager of Sompo’s International Brokers’ Department, discusses how Sompo and
FM Global partner together to benefit clients.
ISSUE 2 : 2015 REASON
7
A NUMBERS GAME
Big data can drive down
supply chain costs, but beware:
It can also cut revenue.
8
REASON ISSUE 2 : 2015
A
lthough good CFOs never take
their eyes off spending, you need
to be very careful about trying to
wring too much cost out of your supply chain.
This is where big data analytics can go
awry. Many CFOs deploy big data analytics
to drive down supply chain costs, and often
they’re rewarded on that metric. Believe me,
I love cost cutting as much as the next CFO.
But there’s a point of diminishing returns: If
you drive your costs down to zero, your revenue could be zero, too.
Cost-cutting techniques, such as using
sole-source suppliers, lowest-cost providers,
and plants in countries where labor is cheapest, can be recipes for disaster. As your supply
chain costs fall, your risk can soar. If a brittle
supply chain snaps—an outage at a single
site halts your product flow—costs can go
through the roof as you lose revenue, market
share, brand value and shareholder value.
Supply chain disruption often results
from overreliance on a sole supplier or
a key supplier that, for whatever reason,
unexpectedly fails to deliver promised components. The supplier’s impairment could
be physical exposures—such as human or
natural hazard—or a financial exposure
such as bankruptcy.
it much easier and more cost-effective for
your company to contract with second- and
third-tier suppliers to add needed redundancy to your supply chain.
Global risk data
Property risk data
If you own buildings and plants around the
world, you’re insuring them. In addition to
getting a policy and an invoice from your
insurer, you should be getting hard data per-
“How can big data help you when you’re taking a macro look
at your global supply chain? Perhaps you’re selecting potential
suppliers, deciding where to locate your next facility or
evaluating existing weakness.”
Jeffrey A. Burchill
CFO, FM GLOBAL
To ensure your business resiliency,
you need the right level of supplier diversification at cost-competitive prices. Big data
analytics can help you achieve this. Here are
three fields of risk-related big data to analyze: the CFO’s “private access” data, property risk data and global risk data.
CFO’s “private access” data
As a CFO, you possess a lot of data at
your fingertips that others may not, including accounts payable, accounts receivable,
manufacturing data, cost of goods sold,
and assorted vendor records. You can compile this data and use analytics to uncover
insights concerning both your direct supply
chain and your extended one that the naked
eye would miss.
If you’re a car manufacturer for
instance, your sound system suppliers are all
unwittingly depending on the same maker of
knobs. One storm, fire or bankruptcy at the
knob maker’s business could disrupt your
output for weeks. Analytics can reveal this
needle-in-a-haystack risk before it hurts you.
Analytics applied to proprietary CFO
data can also help you quickly arrive at fair
prices for thousands of components, making
supplies to your company. Another factor to
consider is how much your suppliers may be
susceptible to natural hazards.
taining to the hazards on your properties—
including fire, flood, wind, earthquake and
equipment-failure risk. You should be getting estimated costs for eliminating (or minimizing) those risks, scorecards as to how
risky you are compared with your industry,
and a range of options for prioritizing risk
reduction according to criteria such as cost,
cost/benefit, loss probability and revenue
dependency.
Let’s say your insurer’s risk engineers
are collecting 1,000 data points during each
visit to a client site. Those engineers do
thousands of visits every year and have been
doing so for decades. They should be using
this massive data source to continually refine
your risk assessments. You should be able to
see the resulting insights on dashboards.
Among the potential disruptions are
natural occurrences you might be tempted to
overlook. Perhaps your plant is in the heartland, which sounds safe, but may be in the
floodplain of the Mississippi River. It’s not a
question of if a flood will occur, but when. Or
maybe you’re on an earthquake fault line or
exposed to high winds. That should be part
of your supply chain risk equation, because
these conditions may make it difficult to get
How can big data help you when you’re
taking a macro look at your global supply
chain? Perhaps you’re selecting potential
new suppliers, deciding where in the world
to locate your next facility or simply evaluating your existing supply chain for inherent
weakness.
You’ll want to know about a range of
risk factors, including region-specific natural hazards, terrorism, corruption, economic
health, emergency management capabilities, local supplier quality, and the integrity
of telecommunications, transportation and
energy supply networks.
Data on these crucial variables is available from a range of sources, including the
International Monetary Fund, World Bank
and World Economic Forum. You can combine it with your own data for a multifaceted
analysis or a single risk score for a selected
region. You can use analytical tools to compare and contrast different regions where
you may locate a plant or where a supplier
has its operations based.
All of these data types are just examples
of the rapidly growing wealth of information you can compile and analyze to make
your supply chain sturdy and cost-effective.
Remember, cost reduction is important, but
you shouldn’t be aiming for the lowest dayto-day operational costs. You want to look
to contain your costs over the long term by
avoiding the disruptive problems that can
put you out of business.
Jeffrey A. Burchill is senior vice president
of finance and chief financial officer of
FM Global. ISSUE 2 : 2015 REASON
9
TURBINE TROUBLES
A historic equipment loss and
what could have been done
differently to achieve a
better outcome.
10
REASON ISSUE 2 : 2015
T
he Tennessee Valley Authority (TVA) is one of the largest producers
of electric power in the world. Originally established during the Great
Depression to improve navigation on the Tennessee River and its tributaries, increase economic development and generate electricity in the process,
its mission shifted decisively toward power production to meet the demands for
more electric power during the global conflict of the 1940s and, in particular,
secret weapons development projects.
After the war, as hydropower reached its full development potential, the
TVA began to build conventional fossil-fuel-powered electric plants, too.
One of those power stations is in Gallatin, Tennessee, a quiet community
about 25 miles north of Nashville, named in honor of Albert Gallatin (a linguist
and ethnologist who was a congressman, senator, United States ambassador and
secretary of the treasury).
TVA construction at Gallatin began in 1953 on the north bank of the Cumberland River and was completed in 1959. Although TVA’s presence in the region
and in the Gallatin community is normally unobtrusive, that changed abruptly on
June 19, 1974, with a sudden calamitous equipment failure on the Gallatin II
turbine generator.
According to a contemporary Associated Press report, the 250,000-kilowatt steam turbine exploded without warning, launching large segments of the
machine through the roof of the building. The accident happened about 6 a.m. as
the unit, which had been shut down for minor boiler repairs, was being readied
for a return to service through a cold start procedure. In the immediate aftermath
a TVA spokesman told reporters the generating unit “was severely damaged
when a steam turbine shaft failed.”
Miraculously, no one was injured but
the damage was substantial. It was clear to
any observer that repairs would cost millions
of dollars and the unit would be offline for
a long time, leaving the plant’s three other
generating units to carry the load.
Superficially at least, there seemed to be
nothing to indicate a failure was likely to
occur or imminent. However, further study
by investigators revealed that a cluster of
manganese sulfides (MnS) had become
lodged and a creep-fatigue crack grew from
Regardless of exactly where the failure occurred, the outcome
was still spectacular, with turbine parts weighing up to half a
ton blasted through the concrete roof.
Machine forensics
Engineers have long been adept at deducing
the sources of equipment failures. Catastrophes involving such a massive and expensive
machine were more than a little concerning
and, in the subsequent months and years, the
study of the cause of the Gallatin turbine
disaster clearly showed the value of some of
the more advanced testing methods that have
since become standard practice.
Closer examination showed that the
problem was actually a rotor fracture rather
than simply a shaft problem. But regardless of exactly where the failure occurred,
the outcome was still spectacular, with turbine parts weighing up to half a ton blasted
through the concrete roof.
From there on, the story became a
study in metallurgy, a field undergoing rapid
development thanks to new research and
new analysis techniques. The turbine rotor
itself was made of a steel alloy originally
forged from an air melted ingot in 1954. It
underwent standard heat treating, conducted
at 955°C. Starting in May of 1957, the completed turbine unit was usually base loaded,
at 225 megawatts with an internal operating temperature of 566°C and an operating
speed of 3,600 rpm.
In June of 1974, after a total of 106,000
hours of service, the failure occurred as a
result of a rotor fracture at about 3,400 rpm.
the location. This problem was worsened by
the embrittlement of the rotor itself after so
many years of operation.
Competition and new technology
Fierce competition in the industry and, eventually, a patent dispute added another dimension to the Gallatin story and its importance.
Before the disaster, developments were afoot
in the industry that were to prove useful in
assessing the Gallatin II problem and, had
they been used earlier, might have prevented
the failure altogether.
Metallurgical knowledge was advancing rapidly and one result was that turbine
makers began to use ultrasonic techniques
to inspect turbine parts. By the mid-1950s,
Westinghouse—the builder of the Gallatin
turbine—set up a team to look into ways of
using ultrasonic techniques from inside the
main hollow shaft (the bore) of the turbine.
Most turbine and generator rotors have a
central bore that allows an access point for
conducting internal physical inspections.
Boresonics became the term of art for applying ultrasonic testing through the bore area.
Indeed, boresonic inspections promised to
provide critical insights to engineers not
readily available through older inspection
methods.
General Electric actually managed to
develop this technology by the end of the
decade. This pioneering boresonic device
and the methods used in the inspection of
large turbine rotors began to make possible
more rigorous and accurate inspections.
Recognizing the need for this capability,
Westinghouse gave up its own effort and
instead purchased a boresonic unit from GE.
Although the technology was a step forward
for both companies, it was something that
could only be applied during the manufacturing process, not after the turbine was
deployed. Furthermore, the machine was
still comparatively limited in its capabilities,
with no recording equipment to facilitate
later analysis. And, it was a relatively slow
process. The units consisted of just a few
transducers mounted on spring-tensioned
Plexiglas plates and rotated down the length
of the bore.
However, Westinghouse continued to
use this first-generation tool into the 1970s.
In part, this was a necessity. GE continued to
improve its boresonic machine but declined
to sell the newer versions to Westinghouse.
But even more than the GE technology was clearly needed. The industry recognized that in the future it would be vital
to be able to conduct a boresonic test on
turbines in the field. Indeed, the more thorough inspections of in-service machines,
which boresonics facilitated, were still
conducted at the factory—necessitating the
disassembly of the turbine, transport to a
distant location, and then a return trip and
an expensive reassembly process!
Another driver for further improving
boresonic technology was the growing adoption of bottle boring—a method by which the
internal bore of turbines already in service
for some time are enlarged through machining techniques. The process aimed to remove
cumulative discontinuities that could imperil
the mechanical integrity of the turbines.
In 1972, frustrated by its dependence on
GE for boresonic technology, Westinghouse
decided to again attempt to develop its own
devices, though progress on the project was
very slow. Meanwhile, in 1973, an employee
of Commercial Machine Works, a subsidiary
ISSUE 2 : 2015 REASON
11
These images, provided by Tennessee
Valley Authority (TVA), show a shattered turbine housing and internal
damage to turbine rotors at Gallatin
II. The unit suffered a calamitous
failure on June 19, 1974, an event
that provided visibility into failure
issues in turbines which were not
well understood at the time. The subsequent failure analysis led to many
changes in inspection and operational
practices.
12
REASON ISSUE 2 : 2015
of Alco Standard, patented a new and promising type of
boresonic device. Subsequent to Alco’s patent filing, Westinghouse again defunded its own boresonic development
effort and began to budget for purchase of an Alco Standard
device.
The explosion of the Gallatin II turbine caused Westinghouse to immediately contract with Alco to inspect the
nearly identical rotor inside Gallatin I. It was a fortuitous
choice. The inspection revealed a similar discontinuity with
the one ultimately associated with the failure at Gallatin II.
That timely discovery probably averted a similar or worse
tragedy.
From there, the Westinghouse portion of the story gets
more complicated because the company again reversed
course and decided to build its own boresonic equipment.
However, that effort, which resulted in a new generation of
Westinghouse boresonic devices used at Gallatin and other
TVA facilities, attracted the attention of Alco, which filed suit
against both TVA and Westinghouse alleging patent infringement. The lengthy, seesawing court battles that followed are,
of course, beyond the scope of this article.
Those issues are now in the past and boresonics continues to be standard industry practice. Gallatin, as both
a proof of the need for better inspections and as a testing
ground for boresonic application, served as a crucial step
toward safer and more reliable turbine operations.
In the wake of the incident, utilities across the United
States began to conduct testing of their own rotors. Subsequently, based directly on concerns from the Gallatin disaster, the Electric Power Research Institute (EPRI) developed
its Stress and Fracture Evaluation of Rotors (SAFER) initiative, which was soon embodied in a computer program,
still in use today. SAFER mixes mechanical engineering
principles with finite element stress analysis, heat transfer
and nondestructive evaluation (NDE) techniques as well
as metallurgical insights to support ongoing analysis of
operational risks. The lessons learned from the event were
also transmitted internationally—further enshrining Gallatin as an important touchstone for improving equipment
and honing procedures. Eventually, it was estimated that
the failure caused more than US$5 million of property loss
at Gallatin and robbed TVA of power generation worth an
estimated US$48 million. It was an expensive lesson but
one that has doubtless helped to save much more globally
in subsequent years.
EXPERT COMMENTARY: KEEPING TURBINES SAFE
US$131 million
PULP AND PAPER
PROCESSING
CHEMICAL VESSELS/
PROCESS EQUIPMENT
TRANSFORMERS
GENERATORS
US$232 million
US$261 million
US$303 million
US$246 million
EQUIPMENT HAZARD LOSSES
By type and total loss
Year 2010 through 2014
NON-ROTATING
ELECTRICAL EQUIPMENT
TURBINES
During the period between 1989 and 2008, FM Global clients experienced 17 steam turbine losses due to overspeed. These incidents alone
resulted in nearly US$60 million in property damage and business interruption expenses.
Speed control is vital to ensuring proper and reliable steam turbine
operation. An overspeed occurs when the rotation rate exceeds a safe
value determined by the manufacturer—and the consequences can
be serious. In the period cited, 38 percent of the incidents involved
mechanical drive units, with a total repair/replace cost of more than
US$22.5 million. Incidents occurred across a broad cross-section of industries, including utilities, basic metals, pulp and paper, and chemical.
Overspeed events are not the only concern. According to Lee
Kenny, assistant vice president, senior engineering technical specialist,
FM Global, problems can arise due to maintenance failures. “In an environment where everyone is trying to minimize costs, maintenance often
gets short shrift,” says Kenny. Therefore, he says, you need to be sure
you are maintaining turbines properly and conducting certain actions at
the proper time.
Because maintenance is expensive and doesn’t provide instant
payback, it can be difficult to rationalize the value of the expense in the
short term. Ultimately, though, a lack of maintenance is directly correlated with increased spending in the long term in terms of equipment
problems and failure. By focusing on a machine’s availability, says Kenny, you can make a more immediate argument for proper maintenance.
“Whether it is a steam turbine or some kind of industrial machine, if it
fails, you are out of production,” he says.
Another practice that can help guarantee turbine reliability is to
institute a program of regular testing. “Organizations should ensure that
if there is a problem, they can get back into operation quickly”—and
that includes knowing where to get replacement components as well as
personnel with special skills on short notice, he says.
It is also important to ensure employees are trained and prepared
to deal with the specific challenges of turbine operations. Employees,
he says, need to operate equipment within appropriate levels and,
should something go wrong, be at the ready to take action.
To ensure you are doing all you can to prevent turbine losses, ask
yourself the following questions: Do I have trained people available
to deal with all the specific challenges of turbine operations? Do they
know how to operate equipment within appropriate limits? If they see
things going wrong, will they flag maintenance and take action?
“We have seen too many instances where a loss was the direct result of someone doing something incorrectly, perhaps turning the wrong
valve at the wrong time,” Kenny adds.
US$1.08 billion
Steam turbine losses and what you can do to mitigate, even prevent, potential turbine loss events
ISSUE 2 : 2015 REASON
13
SHOCK TO THE SYSTEM
A surprising innovation in in-rack sprinkler design reduces
installation costs significantly without sacrificing protection
R
ecently completed FM Global
research has led to a new understanding of how in-rack sprinklers
can be deployed in high-rack storage facilities to maximize protection and reduce cost.
The research is part of FM Global’s
overall business strategy to advance fire protection and help clients minimize property
loss. The new guidelines offer FM Global
clients better, simpler, more cost-effective
and flexible in-rack sprinkler options.
The new protection guidelines greatly
reduce the number of in-rack sprinklers
needed, maximize their vertical spacing
and reduce installation costs by more than
40 percent when compared to today’s inrack sprinkler design guidelines. The guidelines were unveiled publicly in FM Global
Property Loss Prevention Data Sheet 8-9,
Storage of Class 1, 2, 3, 4 and Plastic
Commodities.
14
REASON ISSUE 2 : 2015
“We’re kind of blowing the top off of
everything we’ve done in the past,” says
FM Global’s Senior Research Engineer
Kristin Jamison.
The new guidelines are based on a threeyear research project utilizing small-, intermediate- and large-scale testing as well as
fire modeling technology that is continuously
being developed by FM Global. The new
design is based on a primary understanding
of how fire develops within a storage rack as
well as how the water flow from in-rack sprinklers interacts with a fire.
It also takes a revolutionary approach
by using quick-response, high K-factor
sprinklers. (The higher the K-factor the
more water can flow through the sprinkler.)
These high K-factor sprinklers have been
designed for and deployed in ceiling-level
sprinkler projection but are not generally
used, or tested, for in-rack sprinklers.
Historically, in-rack sprinkler systems
were designed using K5.6 (K80) gpm/psi1/2
or K8.0 (K115) sprinklers. The K5.6 (K80)
sprinkler dates back to the early days of
sprinkler protection. By comparison, ceiling
sprinklers have evolved over the years and
now have values as high as K25.2 (K360).
By utilizing sprinklers that were originally designed to suppress fires from ceiling
level, FM Global was able to dramatically
alter its in-rack Data Sheet 8-9 guidance.
Fewer sprinklers,
better protection
When protecting commodity hazards, current FM Global and National Fire Protection Association guidelines (NFPA 13), as
well as other codes from around the world,
require in-rack sprinklers to be installed on
vertical increments ranging from 10 to 15
feet (3 to 4.6 meters). The guidelines also
limit the maximum storage area above the
top level of in-rack sprinklers to 10 ft. (3 m).
Data Sheet 8-9 now allows for in-rack sprinklers to be installed on vertical increments
ranging from 30 ft. (9.1 m) to as high as 40
ft. (12.2 m) depending on the commodity. In
addition, storage heights above the top level
of in-rack sprinklers can be as high as 40 ft.
(12.2 m) depending on the commodity being
protected and the ceiling-level sprinkler
being installed.
“All the sprinkler research and innovation over the past 30 years has been focused
on ceiling sprinklers. In-rack sprinklers
have been pretty much ignored,” explains
FM Global’s Weston Baker Jr., assistant vice
president, senior engineering technical specialist. Baker works in engineering standards
and oversees developments in this particular
area. “We decided to leverage the relatively
new ceiling-level sprinkler technology and
apply it to the in-rack segment—and what
we found was better performance at lower
costs.”
Baker said most of the research covering current in-rack system designs was
conducted in the 1960s and 70s. FM Global
itself did nearly 50 large-scale in-rack
sprinkler tests from 1969 to 1976, which
helped form the basis for today’s in-rack
sprinkler installation and design guidelines.
Nearly all of those tests were conducted
using small K5.6 (K80) sprinklers protecting short storage heights—25 to 30 ft. (7.7
to 9.1 m)—compared to today’s standards.
goals, FM researchers needed to develop a
new level of understanding of in-rack sprinklers and their role in fire suppression.
“The biggest questions we answered
were, what is the critical amount of water
needed to suppress a fire and what is the
optimal flow rate and coverage area for in-
he new protection guidelines greatly reduce the number
T
of in-rack sprinklers needed, maximize their vertical spacing
and reduce installation costs by more than 40 percent when
compared to today’s in-rack sprinkler design guidelines.
According to Baker, FM Global began
looking into the idea of applying new, larger
sprinklers to in-rack solutions in the late
2000s. FM Global, he said, began to question if the knowledge base of in-rack systems was sufficient. The data was more than
40 years old and a lot had changed since
those tests were conducted. Warehouses had
gotten taller, the commodities being stored
are quite different, and even the fire characteristics of cardboard and other storage
materials have changed. So three years ago,
FM Global launched a research project to
optimize in-rack sprinkler design.
“We knew there had to be a better, simpler way to protect commodities in storage
racks using in-rack sprinklers,” Baker said.
“So we committed three years, a lot of manpower, materials and time. It made sense to
move forward because we knew the investment would really benefit our clients.”
Ambitious goals
The goals of the project were to maximize
vertical increments of the sprinklers, increase
storage heights above the in-rack systems,
allow for independent in-rack and ceiling
design and reduce the likelihood of sprinkler
damage. All of which would greatly reduce
the cost of in-rack systems. To reach those
rack sprinklers,” Jamison said. “Those were
unknown phenomena. Existing in-rack protection had never been optimized. So this
really was a new approach. It had never been
done before.”
With those two pieces of information,
obtained from extensive testing and modeling, FM Global was able to more than double the vertical increments of the sprinklers.
At heights of 30 to 40 ft. (9.1 to 12.2 m), the
higher K-factor in-rack sprinklers are able
to suppress any fire that starts beneath them.
This creates a virtual floor because, the testing confirmed, the ceiling sprinklers won’t
activate for any fire that starts below the top
level of in-rack sprinklers.
The amount of storage space above the
top level of in-rack sprinklers is now solely
based on the capacity of the ceiling sprinklers. If the ceiling sprinklers can protect
40 ft. (12.2 m) of rack storage, for example,
then a warehouse could have 40 ft. (12.2 m)
of storage above the top-tier level of in-rack
sprinklers.
And because modeling showed and
testing proved that the in-rack system and
ceiling sprinklers would not be needed at
the same time, they can now be independent
of each other. The in-rack sprinkler system
designs offered in NFPA 13 and other fire
ISSUE 2 : 2015 REASON
15
protection codes assume that both the ceiling and in-rack sprinkler systems will be
activated simultaneously, thus increasing the
water supply needed.
option compared to US$3.57 million under
the current guidelines, a reduction of 40 percent. Under the new FM Global guidelines,
warehouse owners could save at least US$2
“Right off the bat, this new approach to in-rack sprinklers offers
significant savings. It will also cost less to maintain, it’s more
environmentally friendly and it offers better fire protection.”
David Fuller
MANAGER, FIRE PROTECTION
FM APPROVALS
Also, because fewer levels of in-rack
sprinklers are needed, they can be deployed
in a way that protects them from damage.
With in-racks required every 10 to 15 feet
under NFPA 13 and FM Global’s previous
Data Sheet 8-9, in-rack systems are susceptible to damage from forklifts and other
equipment, resulting in leaks and water damage to the commodity being stored. The new
guidelines allow for a design that eliminates
the mid-bay face in-rack sprinkler, which is
the most likely to be struck and damaged.
“We were able to confirm some things
we already knew,” Baker said, “and were able
to learn a lot of new things, that if you stopped
to think about, really make a lot of sense.”
Greatly reduced costs
The impact of the new guidance on installation costs is impressive. FM Global asked
two leading fire protection and sprinkler
experts, S.A. Comunale and Wiginton Fire
Systems, to compare costs of the new design
and installation guidelines now offered in
Data Sheet 8-9 to existing in-rack sprinkler
protection schemes found in NFPA 13.
The two companies looked at the in-rack
storage requirements for a hypothetical 500foot by 1,000-foot (152-m x 305-m) storage
facility with a storage height of 75 feet (23
meters) and a ceiling height of 80 feet (24.4
meters). The total cost of the project was
US$2.11 million using the new FM Global
16
REASON ISSUE 2 : 2015
per square foot (.09 square meter) because of
the reduced equipment and installation costs.
“Right off the bat, this new approach to
in-rack sprinklers offers significant savings,”
said David Fuller, FM Approvals manager,
fire protection. “There are other benefits as
well. It will cost less to maintain, it is more
environmentally friendly, there is a reduced
potential for sprinkler damage from forklifts,
and it offers better fire protection.”
Fire modeling put to the test
The magnitude of the in-rack sprinkler
research project was incredibly ambitious
and would not have been possible without
another equally ambitious project. A team
of FM Global researchers, with help from
scientists and academic institutions from
around the world, had recently completed
a five-year effort to develop cutting-edge,
open source fire modeling software.
The software, named FireFOAM,
integrates key physical models relating to
fluid mechanics, heat transfer, combustion
and multiphase flows. The software was the
first to incorporate the complex relationship
between fire and water when a fire suppression system is activated. The model can
predict the impact a fire suppression system will have on a fire’s fuel source and the
fire’s growth.
The software allowed for an innovative
approach as researchers tackled the in-rack
sprinkler project, coupling experimental
science and fire modeling for the first time.
Modeling allowed FM Global researchers
to simulate multiple scenarios, sprinkler
sizes and locations.
“When we started this project there
were 13 open questions,” Jamison explained.
“Each one of those questions could have
had its own series of large-scale tests. But
through the synergy of modeling and experimentation, we were able to answer these
questions with a fraction of the resources
that would have been needed for the traditional approach. Modeling showed us where
we needed to put the sprinklers, how to optimize the flow rate and hone all those parameters which were then validated through targeted large-scale testing.”
A new understanding
Understanding the in-rack sprinklers’ performance in the event of a fire was the biggest challenge. Jamison said they identified
11 parameters that affect the way the inrack sprinkler interacts with a fire. Jamison
and her team needed to determine which
were the dominant parameters in order to
optimize the in-rack system. They studied
water flow distributions, ideal sprinkler
positioning, and maximum vertical and
horizontal spacing.
“We really had to key in on which of the
parameters were most important and which
were secondary,” Jamison said. “We ended
up focusing on the placement of sprinklers
within the racks and optimizing the activation
time and water coverage area. And for the
first time, we understood what the parameters
were that led to in-rack sprinkler success.”
Unlike ceiling sprinklers, in-rack systems are dramatically affected by the commodity itself. Water distribution from ceiling
sprinklers is unencumbered by the commodity and is much easier to predict. That is not
the case with in-rack systems.
“One of the most important aspects of
in-rack sprinklers is understanding, when a
sprinkler is activated, where does the water
go and how much water do you need to sup-
SEE THE DIFFERENCE
press the fire,” Jamison said. “Water distribution out of an in-rack system is not uniform. The sprinkler might be only six inches
away from the commodity so you get highly
localized water concentrations and at four
feet away you’ll get no water at all.”
To understand where the water goes,
Jamison and her team conducted several
water distribution tests and performed calculations using FireFOAM to determine
optimal sprinkler placement and flow.
By the time the team got to large-scale
testing they had studied nearly everything
associated with in-rack sprinklers. They
looked at sprinkler activation, water distribution and suppression, activation time and
the placement of face and flue sprinklers.
“Early on we tried some sprinkler configurations that just didn’t work,” Jamison
said. “But by the time we got to the largescale tests, I would have been surprised if it
didn’t work the way we had expected.”
Research shows that fewer but more powerful sprinklers within storage racks
provide more effective fire protection for many commodities stored in warehouses. As a result, FM Global Property Loss Prevention Data Sheet 8-9,
Storage of Class 1, 2, 3, 4 and Plastic Commodities, was revised in July 2015.
vs.
example of an old configuration
example of a new configuration
Advancing fire protection
FM Global has a long history of working
with the National Fire Protection Association to improve its fire codes, including
NFPA 13. Eventually the recommendations
of FM Global’s Data Sheet 8-9 may find
their way into NFPA 13 and possibly other
fire protection codes. Baker and Jamison
presented FM Global’s findings at the
annual NFPA Conference and Expo in June.
And while the process of improving NFPA
13 will unfold over the next few years,
FM Global customers will be able to utilize
the new protection guidelines immediately.
“Section 1.5 of NFPA 13 indicates
that you don’t have to implement a protection scheme provided in NFPA 13 as long
as you use a protection scheme equal to or
better than what is offered in NFPA 13,”
Baker explained. “All of the research we
conducted can be used by our engineering
staff on behalf of our clients to assure local
authorities that our in-rack sprinkler protection options meet the intent of this section so
they can feel comfortable signing off, even
though it’s not in the code yet.”
THE BENEFITS
Improved fire protection
n
Lower cost to install
n
Reduced vulnerability to damage
n
Protection for unlimited storage heights
n
Reduced water usage and environmental impact
n
COST SAVINGS
In a 500,000-square-foot (46,450-square-meter) warehouse with an 80-foot
(24-meter) ceiling height, the cost of installing sprinklers, pumps and water
tanks could fall from approximately US$4.3 million to as little as US$2.6 million,
according to contractor estimates.
THE RESEARCH
Nearly three years of research, conducted by our world-renowned scientists
and property loss prevention engineers, included computer fire modeling at the
Center for Property Risk Solutions and hundreds of small-, intermediate- and
large-scale tests at the FM Global Research Campus.
ISSUE 2 : 2015 REASON
17
PRINTING THE
WORLD IN MULTIPLE
DIMENSIONS
A research team digs to uncover
the hidden risks involved with
3-D technology
M
any see 3-D printing as the next industrial revolution. Machines that can print
objects, officially known as additive manufacturing, have the potential to alter
the global economy, reshape the manufacturing process and create a new world
where businesses can potentially produce their own building materials, paints, plastics and
even medical equipment.
This new technology is slated to change how many manufacturers do business, introducing new processes and materials, and altering the way manufacturing facilities are designed
and utilized. While there are still many questions and unknowns, one thing is evident: 3-D
printing brings with it an abundance of opportunities—and risks.
FM Global is focused on understanding the risks associated with this emerging technology and helping clients protect the value their businesses create. “We’re concerned about
any new technology that can introduce a new hazard that’s not covered by our FM Global
Property Loss Prevention Data Sheets,” explains Dr. Franco Tamanini, head of an internal
FM Global group that looks at emerging technologies. “So we’re trying to get our arms
around 3-D printing from that perspective.” FM Global’s data sheets are engineering standards that provide guidelines for mitigating property risk.
Fast-evolving technology
3-D printing has come a long way from just a few years ago. The first commercially available machines came out in 2009 and were capable of producing a plastic whistle in just a few
hours. Universities, researchers and other visionaries seized on the new technology and its
potential, creating a host of fully functional products using just additive manufacturing. They
have already used 3-D printing to produce parts for bicycles, robots and even cars.
While most of the really cool 3-D printed gadgets are only prototypes, 3-D printing has
quickly advanced beyond academic and theoretical. 3-D printing is beginning to reshape the
manufacturing process.
18
REASON ISSUE 2 : 2015
Advancements in the last six years
have moved additive manufacturing well
past the plastic whistle, producing parts
made out of just about any material used
in traditional manufacturing. Today, 3-D
printers are being used to manufacture aircraft parts and produce complex construction assemblies.
FM Global has been tracking the
advancements of 3-D printing over the last
few years and this year performed the background research to better understand the risks
associated with additive manufacturing.
“The biggest question is, are our clients putting themselves at risk and not even
knowing it,” posits Henry Febo, senior engineering technical specialist, engineering
standards, FM Global.
Advanced Technology
Working Group
The research project was initiated by
FM Global’s Advanced Technology Working Group (ATWG), a team specifically
designed to stay ahead of new technologies. Working with engineers in operations
around the world, the group identifies technologies that might impact FM Global’s
protection recommendations (see related
story). Much of the work of the ATWG
has been centered on advancements in fire
protection and ensuring new materials and
products live up to their promises. But the
group also looks at emerging technologies that may impact risk management as a
whole. And with FM Global field engineers
running into 3-D printing more and more,
the group targeted 3-D printing for a more
in-depth study.
“The machines used in additive manufacturing are expensive,” Tamanini said. “As
the technology becomes more widespread, we
expect manufacturers will have large systems
of interconnected machines. That expansion
will create the potential for large property loss
and significant business interruption.”
One reason the ATWG has kept an
eye on additive manufacturing is because it
introduces a completely new manufacturing
process. 3-D printers build components by
depositing thin layers of material and fusing
them together by heating, often through the
use of lasers. The building material typically
is fine, powdered metals, plastics, ceramics
or glass.
ing is done, further reducing the risk of ignition. Febo said the largest danger, currently,
comes in cleanup.
“We’ve been dealing with combustible
metals for a long time so there are procedures in place for handling, cleanup and
While most of the really cool 3-D printed gadgets are only
prototypes, 3-D printing has quickly advanced beyond
academic and theoretical, and is beginning to reshape the
manufacturing process.
Many manufacturing facilities that are
venturing into 3-D printing may not have
dealt with these types of materials before.
FM Global has already worked with several clients to ensure that the handling, storage and cleanup of these materials meet
FM Global standards. FM Global researchers have also examined the additive manufacturing process to better understand what
new risks may be introduced.
“One of the underlying concerns is the
use of very fine powders, particularly metals,” Febo explains. “To a lot of people’s surprise, if these metals get airborne and find an
ignition source, they can explode and pretty
violently.”
Febo is an expert on combustible dust.
He serves on three combustible dust committees at the National Fire Protection Association (NFPA) and is a fellow of the American
Institute of Chemical Engineers (AIChE).
FM Global tapped his expertise because it
identified combustible dust as potentially the
greatest risk in 3-D printing.
“Right now the dust hazards are somewhat limited due to the small-scale use of
3-D printing and the nature of the process,”
he said. “The printers are laying down very
thin layers and then fusing them together;
so typically, there isn’t a lot of dust around.”
The 3-D printers Febo has studied also
use an inert gas internally where the layer-
storage,” Febo said. “Some clients have
experience dealing with these materials and
some don’t. An obvious initial step is to
make them aware of the hazards. For example, cleaning out the internal passages by
blowing air through the machine would be
the wrong thing to do. Instead, proper cleaning would take place with static-bonded/
grounded units.”
Febo said additive manufacturing is
somewhat limited. Companies may have one
or two machines in research and development (R&D) or may be producing parts in
relatively small quantities.
Currently, 3-D printers are ideal for
making a small number of complex parts.
The aerospace industry is using them to
make internal engine parts. The precision of
additive manufacturing allows these parts to
be made as a single component, instead of
multiple pieces in traditional manufacturing.
The 3-D printed parts are also lighter and
more durable.
3-D printers have also found their way
into the medical field. Some companies are
creating customized prosthetics that can
even incorporate robotic mechanisms.
“What we’re seeing right now is that
3-D printers are very good at creating complex shapes,” Febo said. “They are still relatively slow—the technology is not practical
to pump out large quantities. For complex
ISSUE 2 : 2015 REASON
19
machines or devices that are produced by
the hundreds, it’s not a reasonable way to
manufacture things.”
No significant new risks
Febo explains that under current conditions,
additive manufacturing doesn’t present significant new risks. The equipment can be
located in a typical moderate-hazard manufacturing operation with automatic sprinkler
protection in work areas and storage rooms.
Cleanup of manufactured parts should
be conducted in hoods or enclosures
equipped with suitable ventilation and dust
collection systems, and where the alloys are
combustible, basic ignition source controls
should be in place. The handling of powders
and their disposal should be done in accordance with the manufacturer’s instructions
and safety data sheets.
Febo says the rules for additive manufacturing are not much different from
FM Global’s current recommendations.
But he said that the evolution of 3-D printing has only just begun. The application of
the technology is endless and if the last six
years are any indication, additive manufacturing will only get faster, more refined and
more widespread.
Additive manufacturing is expected to
impact just about every industry, including
automotive, medical, business and industrial
equipment, education, architecture and consumer products.
a way that introduces a mixture of materials
that are more reactive?”
As the role of additive manufacturing
expands, so do the potential risks, says Dr.
Jenny Chao, senior lead research scientist,
FM Global. She pointed out that, while the
current small-scale use of 3-D printers doesn’t
pose a significant explosion risk, conditions
could be different in a full-scale additive
manufacturing environment. The storage and
handling of large quantities of metal powders
may require completely different protection
recommendations than are being used today.
“Beyond understanding the hazards
associated with how our clients currently
use 3D printers and what we can do to help
them avoid or reduce loss, we also need to
identify potential hazards that can develop
as additive manufacturing rapidly evolves,”
says Chao. “We have to ask ourselves, what
are the innovations that will drive additive
manufacturing in the future? Right now,
the desire is to print large parts quickly, but
there are new innovations—such as printing
thing that is not covered in our current engineering data sheets.”
Researchers are predicting that additive manufacturing will eventually redefine
the entire manufacturing process. Factories
will be smaller and located closer to the consumer, as additive manufacturing negates the
benefits of large-scale production facilities.
On-demand printing will reduce the need to
store finished products, and raw materials
in powder and liquid form will be stored in
large containers.
“Additive printing has been touted to
be able to reduce supply chains, assembly
lines and inventories,” says Chao. “Although
we are not there yet, if this becomes a reality, our clients may be able to simply print
what is needed on demand, instead of having
parts shipped from a network of supply chains
around the world. This implies that, in addition to explosion and material reactivity concern, clients may also face equipment hazard
issues. This has the potential to have a large
impact on business continuity.”
“What happens in five years when things change? Someone is
going to develop new techniques that make the process faster
and less costly. Do they do it in a way that introduces a mixture
of materials that are more reactive?”
Mark Blank
OPERATIONS CHIEF ENGINEER, FM GLOBAL
Unpredictable future
As the process improves, 3-D printing may
become practical for producing items by the
thousands instead of the hundreds. Instead of
manufacturers having one or two 3-D printers
in R&D, they potentially could fill an entire
manufacturing floor. Hundreds of 3-D printers, linked together, churning out products.
“What happens in five years when
things change?” asks FM Global’s Mark
Blank, assistant vice president and operations chief engineer. “Someone is going to
develop new techniques that make the process faster and less costly. Do they do it in
20
REASON ISSUE 2 : 2015
parts using multiple materials from a single
machine—that may completely transform
3-D printing. This change may introduce an
entirely new set of hazards that we need to
understand in order to protect the value of
our clients’ businesses.”
“One machine for prototyping is different from full-scale production,” Chao
said. “What happens when you go from
little jars of powders to much larger containers? What happens when stand-alone
machines are replaced by hundreds that are
interconnected? The hazards may be some-
And while it still seems like the Back to
the Future promise of the hoverboard, predictions include the day when everyone has a
3-D printer at home. When you wear out your
favorite sweater, you just print a new one.
“The technology is going to continue
to evolve and we’re not entirely sure where
it’s going,” Blank added. “Wherever it takes
us, we are committed to staying ahead of the
new developments and effectively managing
these changes so we can adhere to the utmost
standards of property loss prevention.”
ADVANCED TECHNOLOGY WORKING GROUP
AS TECH PROGRESSES, AN AMBITIOUS ALLIANCE LOOKS TO STAY ASTRIDE WITH IT
That’s the premise behind FM Global’s Advanced Technology Working Group (ATWG), which
was formed in 2007 to stay ahead of technology changes that could impact FM Global clients.
The group reviews information provided by FM Global engineers around the world and then
enlists research or engineering standards to further review trends that may pose new risks.
“The goal is for the ATWG to be the clearinghouse for reviewing technology, not just in
terms of new hazards but also loss prevention solutions,” explains committee member and
Operations Chief Engineer Mark Blank. “Field and account engineers can send us information
if they see change happening that they feel FM Global needs to take a closer look at.”
The group monitors technology trends that have the potential to present new hazards.
Changes in manufacturing techniques,
equipment or even the composition of
materials may create risks that are not
“Our goal is to help clients save money. We don’t want them
addressed in FM Global data sheets. Printo invest in something that is presented as an advancement
cipal objectives include identifying and
in fire protection only to find out they have to replace it in two
getting ahead of technologies that proor three years. We want to be able to provide guidance to our
duce hazards before they become losses,
field engineers and our clients so they understand what is a
and defining opportunities immediately in
order to better serve FM Global clients.
good solution or an acceptable risk, and if it’s not, why.”
The group also looks at advances in
Mark Blank
loss prevention. It identifies new technolOPERATIONS CHIEF ENGINEER
ogies and evaluates their effectiveness,
ensuring the new technology lives up to
its promises and offers real improvement over the current technology.
“Companies are constantly coming out with new products and new fire protection solutions,” explains Franco Tamanini, senior research fellow, who leads the ATWG. “They’ll do
some testing and think they have something that works pretty well. We’ll put the technology
through diverse and rigorous testing and sometimes the product isn’t as sound as claimed.”
In the last eight years, the group has reviewed more than 30 technology trends. The engineers submit basic information and the potential impact of the new technology. The ATWG
then determines if the potential impact warrants a research project or if a new standard
needs to be developed for an evolving hazard.
The ATWG has launched research projects to better understand trends in manufacturing
and material storage. It has looked at new techniques in the manufacturing of semiconductors, automated retrieval systems and their impact on storage facilities, and the potential
hazards of additive manufacturing, also known as 3-D printing.
“Our goal is to help clients save money,” Blank adds. “We don’t want them to invest in
something that is presented as an advancement in fire protection only to find out they have to
replace it in two or three years. We want to be able to provide guidance to our field engineers
and our clients so they understand what is a good solution or an acceptable risk, and if it’s
not, why.”
ISSUE 2 : 2015 REASON
21
ONE
ON
ONE
WITH
CAROLINE
WOOLLEY
EMEA RISK AND PROPERTY PRACTICE LEADER, MARSH LTD
fter spending 15 years in claims, Marsh’s Caroline
Woolley, the global leader for the company’s new,
London-based Business Interruption Centre of
Excellence, is now focused on establishing the
global brokerage company’s new vision for the
industry. “We want to encourage insurers to
view business interruption the same way clients do, which is anything that interrupts business.”
What is the motivation behind this new initiative from Marsh?
We’re trying to change the conversation in relation to business interruption (BI). In the insurance industry, there’s a long-standing assumption that business interruption means property
damage (PD) business interruption, but that’s not the way clients think. The starting point really
is that we view it as clients do and regard business interruption as anything that disrupts normal,
day-to-day business operations. This is important, particularly if you’re talking to someone
whose main job isn’t in insurance. They view business interruption risk in this holistic way and
that’s what we’re trying to do. To be a true risk advisor, we have to look at the risk first and
insurance will come in later. We have to look at the overall risk, identify where insurance is
available, but also look at those gaps in cover and close them where we can.
22
REASON ISSUE 2 : 2015
How has this new vision been
received?
Very positively from all stakeholders—
including clients, risk management associations, claims professionals, insurers and lawyers. Some insurers have said, “Yes, we want
to completely change the way we underwrite
BI.” It’s now approached in a very traditional way and there are lots of changes that
should be made. One of my colleagues, who
has a background in liability, actually said,
“It’s funny how business interruption seems
to be treated as a mere add-on to property
damage.” Business interruption following a
major property damage event is one of the
biggest losses our clients face and it can be
the most complex part. We’re just changing
the focus a bit here; we’re trying to improve
the PD/BI policies and then we’ll move on to
the others as well. The reaction from insurers
has been very positive, they’re happy to support the project, they want to help.
How does FM Global rate in that
regard?
I see FM Global as having a more evolved
definition of BI, recognizing data as an
asset and therefore incorporating some
cyber cover as standard. Also, for example,
FM Global has “a supplier of suppliers”
extension clause, which picks up interruption further down the chain that usually
people don’t anticipate. If there’s the word
“direct” in the supplier’s extension clause, it
means “first tier only.” People don’t necessarily realize that, so part of this project is
raising awareness of the limitations of existing policies. We want to work with the rest of
the industry to come up with improved solutions for PD/BI and beyond.
What else do you feel is surprising to
many clients?
Clients are surprised by the claims process
in terms of the length of time to settle a BI
ISSUE 2 : 2015 REASON
23
The ultimate benefit is certainty. That’s all
anyone can really hope for. At the end of
the day, we are looking at risk and we want
to help risk managers mitigate risk as much
as possible. We want to make sure that their insurance
works as expected.
claim and the level of scrutiny from insurers. We’re promoting the inclusion of claims
preparation clauses in policies. This allows
the client to instruct someone to help them
prepare and document their claim. Now,
that’s often a forensic accounting team and
we see that as an increased cost as a result
of an incident. It should be part of the claim.
We’re promoting the inclusion of those
clauses. FM Global policies have, as far as
I’m aware, nearly always had them.
You mentioned you were improving
existing policies and developing new
ones?
Yes, with regards to PD/BI there are five
key issues that have been around for some
time, in relation to: value calculation, supply chain, wide area damage, indemnity
periods and the claim process. We are trying
to provide solutions to those, once and for
all. The approach that FM Global takes is
usually on a gross earnings basis. But there
is the option of gross profit, too, which is
very good, because it improves people’s
understanding of claims from around the
world. The United States is different from
the international region in that regard.
It’s making sure that people are comfortable with whichever basis they’re used to.
Also, it helps with the indemnity period
issue already mentioned. On a gross profit
basis, you have to identify up front what
your period of interruption might be and
lots of scenario work is essential to make
sure that window of opportunity to claim is
long enough. We quite often see a standard
12-month indemnity period. But it’s rarely
sufficient. I’ve seen enough major losses
and natural catastrophe events to know that
isn’t enough for a devastating event.
24
REASON ISSUE 2 : 2015
If you’re on a gross earnings basis, the
period is based on reinstatement; it should
therefore provide cover for however long it
takes to reinstate the assets. That option can
help, particularly in certain industries, with
long lead times for specialist assets.
So it’s critical to have options.
Right, and also accurate values, anything
that can assist people in getting the right values to avoid any under-insurance is a good
thing. The solutions to most of the issues
identified is pre-loss work—don’t wait for
a claim to happen before quantifying your
potential losses and testing the policy. Loss
scenario work is vital for improving cover
and managing expectations.
How do you sell this? How do you get
the word out, and to what end?
The ultimate benefit is certainty. That’s all
anyone can really hope for. At the end of
the day, we are looking at risk and we want
to help risk managers manage out that risk
as much as possible. We want to make sure
that their insurance works as expected. Part
of this work that we’re doing is managing
expectations. Actually, it’s also about identifying the limitations. It may appear a bit
negative sometimes, but actually everybody
has got to be aware of the limitations of their
existing cover. If we’re talking about PD/
BI, it’s a contract like any other. You have
to look at the wording. We have to make
sure everyone understands what is covered
and, more importantly, what isn’t covered.
Everyone appreciates the honesty and is
instantly more comfortable with existing
insurance. Then we move on to other risk.
This approach is gaining the support of
risk management associations around the
world—starting with AIRMIC, FERMA and
PARIMA—which helps us gain traction.
What motivates you? What inspires
you to do this?
I spent 15 years in claims, both the investigation of claims for insurers and then helping
Marsh clients and preparing their claims. I
know what can go wrong; I know how tough
it is for a business to survive a major loss.
The insurance money can be a lifeline; the
insurance money will fund all of the mitigating actions and business continuity plans,
therefore I want to make sure it’s sufficient.
I think it’s important to improve the claims
experience; having seen what can happen, I
know what changes are needed. Marsh has
given me the opportunity to make a difference. We’ve got the ability to do that and
that’s why we’re reshaping the industry
in relation to BI. The response across the
industry has been very positive.
But this isn’t the typical role that
Marsh assumes, as the broker.
Some of these projects go beyond, I suppose, the norm of a traditional insurance
broker. This puts us in the position of being a
true risk advisor. If we look at natural catastrophe risk, for example, I’ve seen firsthand
from a claims perspective just how bad it is
for people involved. At Marsh, we’re doing
everything we can to help people and advise
them in relation to natural catastrophe risk.
We want to make sure that the risk management and preparation is strong, and that
insurance is in place. We have a very clear
view of best practices in relation to natural
catastrophe risk management and transfer.
To be honest, we’re raising the profile of
insurance to ensure the money is available
post loss. If the insurance funds aren’t in
place, what happens? What happens to the
community? This is where we move on to
Marsh not just being a risk advisor, but a
member of these communities. We try to
help organizations such as the UNISDR
[United Nations International Strategy for
Disaster Reduction] to make cities more
resilient to natural catastrophe risk.
TALKING
POINTS
WITH EJ PARK
VP, TEAM LEADER, ENVIRONMENT AND SAFETY TEAM, SAMSUNG ELECTRONICS
amsung Electronics journeyed west recently to see firsthand
FM Global’s testing and research center. The contingent was led by
EJ Park, vice president and team leader of Samsung’s environmental health and safety division. Prior to working at Samsung, Park
served in a similar capacity at British American Tobacco. During
their visit, Park and his colleagues took personal interest in viewing
safety, loss prevention and risk management—all considered critical concepts by Samsung— through the FM Global prism.
What is your role in Samsung’s insurance relationship with FM Global?
I am vice president of Samsung Electronics and responsible for EH&S [environmental health and safety] management of
the Device Solutions division. And, as you
know, loss prevention is a big part of EH&S
management. I manage the EH&S team
based in the Giheung Complex, in Korea,
covering not only three domestic sites, but
four overseas sites, including Austin, Texas
[USA], and three sites in China (Suzhou,
Tianjin and Xi’an,) which also fall under
Device Solutions.
The Samsung semiconductor business
started as a Korean company around 40
years ago. Now we are a top-notch global
organization in not only sales revenue, but
corporate citizenship as well, which is related to EH&S
management.
At Samsung Electronics, propertyrelated insurance business is managed by
the EH&S team. For that reason, I have
been deeply involved in the insurance contract process, collaborating with all other
relevant functions, like finance, treasury,
operations, etc.
26
REASON ISSUE 2 : 2015
What is Samsung’s view of loss
prevention?
In our area, we call this “loss prevention
and protection.” Prevention literally comes
first. We focus on prevention activity first
because we believe all accidents are preventable—as a part of the company’s safety
philosophy. We are always trying to be perfect at EH&S management; but, of course,
we are not perfect. That’s why we need certain measures, just in case. That is called
“loss protection.” From this perspective,
we have various, robust protection methods at our business, including firefighting
facilities, fire brigades, emergency response
teams, fire training and drills, business continuity planning and more.
And, as a final measure, we have adequate insurance.
What concerns you most in terms of
Samsung’s exposure to risk?
All business is exposed to a variety of risks,
depending on their environment. Samsung
Electronics is no exception. From the perspective of EH&S, I am sure we have a very
reliable and stable safety system and activities based on local legal requirements and
global practices. The Samsung semiconductor business started as a Korean company
around 40 years ago. Now we are a topnotch global organization in not only sales
revenue, but corporate citizenship as well,
which is related to EH&S management.
As for risk exposure at our Korean
sites, FM Global was already familiar with
them because they—as part of their process—conducted a professional risk survey
a few months before we signed the insurance contract. We have very integrated and
concentrated manufacturing locations at
our site in Hwasung, Korea, rather than a
portfolio risk. We already recognized the
risk, so we have a variety of loss prevention
and protection systems in place.
What is your personal approach to
risk management?
Actually, my approach to risk is quite
aligned with what Samsung is doing. In
terms of my personal history, unlike typical
managers at Samsung, I joined the company
just two years ago, after working in many
other business environments, including two
multinationals, a British tobacco company
and an American gas company.
Samsung has been trying to improve
and integrate all safety-related concepts,
from hardware to software perspectives,
especially over the last two years. They
invested a lot of money in risk improvement, which I am happy about. Now I am
focused more on managing people, promoting a safety mind-set and monitoring the
working practices of all employees, including contractors. I am trying to create more
balance in risk management, between failsafe and foolproof efforts.
How do you envision FM Global facilitating that view?
Interestingly, I had a chance to work with
FM Global when I was at the British tobacco
company as EH&S manager. So I am relatively familiar with FM Global’s company
culture and practices. Recently, I was very
impressed with their work on the risk survey. Their detailed approach here was very
professional. As I mentioned, Samsung has
been trying to greatly improve its various
programs, including safety inspections.
But we realized, after seeing FM Global’s
site survey results, that there was still room
The Samsung team witnesses a fire test on their recent trip to the FM Global Research Campus.
for improvement. To be honest, I am very
pleased to have the insurance contract with
FM Global, because it is one of the best
property insurance companies in the world.
Plus, I know that FM Global is compatible
with us in all major areas, like insurance
coverage, loss prevention advice, risk management and claims services.
As an EH&S guy, I am personally
more interested in loss prevention and risk
management, because safety is a numberone priority for me. I know you have more
than 1,800 loss prevention engineers. I am
looking forward to the quality service and a
great safety journey with Samsung.
tection. As far as I know, that is different
from typical property insurance companies,
which are more focused on insurance coverage and claims service. This philosophy is
completely aligned with my expectations of
an insurance company.
I know that FM Global will help us in
our journey toward managing our risk successfully, with quality services in a most
effective and efficient way, in order for us
to continue as the number-one player in our
business segment around the world. It is a
great journey with a win-win strategy.
What is it about FM Global’s own
philosophy on loss prevention that
appeals to you?
I know FM Global has a very well-organized service program for clients, which is
balanced between loss prevention and proISSUE 2 : 2015 REASON
27
28
REASON ISSUE 2 : 2015
CURRYING
FLAVOR
easoned leader
s
s
’
y
n
s hi p
pa
McCo
m
o
C
d
r
e
c
y
n
i
t
pe for su
in
rmick a
zes
a
d
e
c
t
cess
mana
as crea
g ing risk h
O
ver the last decade or so, McCormick’s extraordinary global
expansion has had flourishing effects across the organization,
resulting in sharp upticks in revenue, burgeoning market dominance and a big brand boost. So, how did the Fortune 1000 firm manage
the risk that accompanied all of that sudden growth?
No one in the business of managing risk would argue that when
success comes rapidly, within a compressed time frame, it could result
in significant spikes in risk exposure.
Expanding a global footprint brings with it new hazards. Are they
foreseeable? Is that new acquisition vulnerable to flood? Additionally,
when a company is uncovering new revenue streams, it’s also consolidating, that is, squeezing suboptimal facilities down and relocating
critical operations to cut cost and accommodate the new order. That
consolidation changes the value and significance of various locations,
and opens up new vulnerabilities and exposure to business interruption.
When revenue is flowing, profits are growing and there’s all this
great economic buzz going on, it’s easy to overlook the risk and uncertainty that growth brings. Fortunately, McCormick, the US$4.2 billion
(in annual sales) flavor giant that is fast solidifying its place at the top of
its industry, understood the consequences of its growth and took action.
Thanks to productive partnerships, an embrace of metrics, c-suite buyin and smart risk improvement investments, they were able to swing the
risk pendulum back to an acceptable level.
ISSUE 2 : 2015 REASON
29
S
ugar ’n spice
The global packaged spice market is roughly US$10 billion in
sales, and McCormick, the Baltimore-based
firm and the world’s largest spice and flavoring producer, enjoys roughly 20 percent of
that business. To get there, McCormick had
to be aggressive, and like many elite corporate success stories, they had to take their
share of risks. “Global expansion is one
of our growth strategies,” says Jim Radin,
vice president of global supply chain for
McCormick. “It brings us into countries that
weren’t on our travel list 10 years ago.”
Stretching into places like China, Turkey, India and Poland inserted the company
squarely into areas of the world that have not
yet adopted North America’s risk management philosophy. In addition to new markets
for selling McCormick products, sourcing
raw materials can sometimes pose challenges.
“Spices are primarily grown around the equator and in countries that are much less developed,” says Bob Utz, the now retired director
of supply chain solutions for McCormick.
“I’m talking about basic government and
security issues and an infrastructure that is
really not up to a higher level.”
Not only that, the transportation and
supply chain issues that McCormick contends
with, means that moving those spices from
their origin to major markets requires thousands of transportation lanes from the different countries into processing facilities. The
network is understandably vast—a challenge
to keep security tight and products in transit.
For example, Utz explains, “Our cinnamon comes from Indonesia. Then it’s trans30
REASON ISSUE 2 : 2015
“
In the last three years we’ve taken a
STRATEGIC APPROACH TO MANAGING RISK
that we first applied domestically. We are
now exporting that strategy globally.
”
BOB CONRAD, MCCORMICK CFO
loaded and shipped to Singapore, and then
transloaded again and shipped from Singapore to Baltimore—three legs in all that
require coordination and oversight.”
And that’s just for cinnamon. Many of
the other spices come from various ports in
India, and those spices make several other
stops on the way to Baltimore. Of course, for
a vast, organized, multinational like McCormick, while the modern-day spice routes do
pose problems, it’s nothing they can’t handle.
“The challenges with McCormick’s
global expansion are really the typical
challenges most organizations face,” says
George Plesce, FM Global vice president
and operations manager. “First of all, as we
all know, the culture of protection isn’t the
same around the world. Codes and standards
don’t necessarily support that each and every
time, and the quality of the risk in place isn’t
at the level that we and McCormick would
like it to be.”
At the same time McCormick was
expanding into emerging markets, it was
consolidating and streamlining facilities in
its major markets at home. That consolidation, which began a decade ago, involved the
company shifting a large share of its production and storage at a single site. It was indeed
smart for business. But, once all was said
and done, it resulted in uneasy new vulnerabilities. If something unexpected happened
in that one location—which presented issues
with dust and ignitable liquids—business
would have suffered serious interruption.
Larry Delp is a senior project engineer
with McCormick. “During this [consolidation], you could see that we were putting
more of our eggs in fewer baskets,” he says.
“The risks we had in the past were still present, only now the impact could be greater
because we didn’t have the degree of built-in
redundancy amongst different sites that we
had previously. In the event of a catastrophic
failure at a facility, our plan was just to go to
one of our other facilities. This was a more
complicated option.”
Once the consolidation and expansion
was under way, FM Global had its share of
concerns about protecting its client. McCormick, insurance partner with FM Global
since 1967, along with longtime broker
partner Marsh, began to delve into the challenges that lay ahead.
“McCormick has always been involved
globally,” says John Koester, risk consultant
with Marsh, who has been working with
McCormick for 30 years. “It was an evolution; there were many changes they had gone
through over the years. Once they fully recognized the issues they were dealing with,
they embraced them and took care of them.
It’s been great to see how they’ve risen to the
challenge.”
“One of the reasons McCormick is so
successful is that they’re willing to change
and evolve,” says Plesce. “They always
make decisions that make sense from a business standpoint. But in many cases those
decisions change your exposure to loss.
ISSUE 2 : 2015 REASON
31
In-rack sprinklers (above, and below left) protect raw
ingredients in McCormick’s Hunt Valley Distribution
Center. Bob Utz, facing page, is the recently retired
director of supply chain solutions.
They simply had to decide how to protect
the changes that had taken place and they
certainly did.”
McCormick, Marsh and FM Global put
together a three-phase plan to help deal with
those new exposures. The first contended
with North America, the second with Europe,
and the third, still under way, is Asia Pacific.
Plesce explains: “The three-phase plan was
set up to prioritize where the revenues were
driven across McCormick. What we initially
did was identify the most mission-critical
locations and what the exposures were to
loss at each of them. One track was for all
of the large capital improvements. And at
the same time we followed a second track,
which was, ‘How do we get human ele32
REASON ISSUE 2 : 2015
ment implemented across the world where
maybe it wasn’t in place?’ We also wanted
to get the other locations moving and make
improvements where necessary, while we
waited for the capital improvements.”
The triangular relationship between the
three parties provided excellent checks and
balances for the work that was being done.
“Marsh plays an important role here,” says
Radin. “They keep FM Global accountable
for the value proposition they bring and they
keep us at McCormick in check as well.
They play a pivotal role and bring a level of
independent guidance that we seek. In fact,”
he says, “that triangle has kept the partnership with FM Global together and strong for
many years.”
L
ooking at the
numbers
Over a short span of time,
McCormick developed a new resolve: to
build resiliency into its business model.
They had learned the lessons that new
growth posed—fortunately without any real
setbacks—and were intent on strengthening
their risk profile.
“You could see it become a greater
part of the culture,” says Radin, “and what
really got it going was the use of analytics,
our metrics.” McCormick began employing
the MyRisk® console, including RiskMark®
scores and HPR [highly protected risk] designations, as tools. “I will tell you I have
never worked with a client who has been
more seriously tracking and using those analytics to show improvement on an ongoing
basis,” says Plesce. “They are very driven to
get all of their mission-critical locations to a
highly protected risk level.”
During his tenure, Bob Utz was the
primary driver of risk by the numbers at
McCormick. “Certainly, with the metrics
that are available to us from FM Global, the
RiskMark, HPR numbers and loss expectancy dollar amounts, we’ve been able to
show a significant increase in the mitigation
“
efforts of risk and reduce the potential for a
major business interruption.”
Fortunately for the supply chain executives, top brass at McCormick also take an
interest in those metrics. And they are willing to green-light the funding that makes
those numbers look even better. “With these
numbers, says Utz, we could go to our management committee and to our board of
directors on a regular basis and show them
the progress that we’re making.”
Bob Conrad, CFO at McCormick, has
been a part of those meetings. “In the last
four or five years we’ve invested more than
US$15 million globally in enhancing protection at our facilities,” he says. “In the last
three years we’ve taken a strategic approach
to managing risk that we first applied domestically—obtaining HPR status for many of
our facilities in the United States. We are
now exporting that strategy globally.”
“We refer to the FM Global program
as the ‘benchmark’ risk management program,” says Radin. “In fact, when we look
at other areas of responsibility, McCormick takes an FM Global-type approach.
We apply rigor and metrics to ensure we
have the right priorities and we’re making
the right investments in the right locations
around the world.”
“Both partners, as well as our broker
Marsh, take a lot of pride in these types of
success,” adds Conrad. “Our total insured
value has grown 70 percent in the last six
years, while our average policy rate has only
gone up three basis points, which equates to
a savings of roughly US$1 million in premium reduction. Yet while tangible benefits
are important, McCormick’s primary objective is to minimize the potential for a loss
that could disrupt production and impact the
supply of product to customers.”
(continue on page 36)
With the METRICS THAT ARE AVAILABLE TO US FROM
FM GLOBAL, we’ve been able to show a significant
increase in the mitigation efforts of risk and reduce the
potential for a major business interruption.
”
BOB UTZ
ISSUE 2 : 2015 REASON
33
TALKING WITH
JIM RADIN
34
REASON ISSUE 2 : 2015
Jim Radin is vice president of global supply
chain for McCormick and Company. In his current role for eight years, Jim has been with the
company for 24. He came to the company as a
project engineer and has been heavily involved in
the company’s major projects around the world
in terms of construction of facilities, especially
during McCormick’s recent global expansion.
That work ultimately led into the management of
facilities as a factory manager, end-to-end supply
chain in Europe, then supply chain globally. Jim
now has responsibilities for operations in China
and India as well as Europe, down to South Africa
and throughout North America as well.
Talk about your specific responsibilities as they relate to supply chain.
It starts with procurement, then works its way through manufacturing, distribution and transportation, as well as our
capital program, which is our investment program around the world, and our facilities. Part of my responsibility is to
ensure that we have product available to sell in all of the major markets in which we do business. So the risk associated with that and protecting our product supply from risk, whether it’s global risks—environmental or political—or
physical risks that could present themselves in our factories and distribution centers.
Let’s talk about specific risks. What are some of the chief risks you’re concerned about?
The risks that our FM Global program directly addresses are around our physical property and ensuring that our
facilities are operable 24/7. There are some risks that fall outside that scope as well. You know, we source from just
about every country around the world. Spices come from countries close to the equator. Not all of them are the most
stable political environments, so that’s additional risk we have. I really focus on keeping our principal facilities
operational, and protecting the assets that we have deployed around the world. I call those actually our controllable
risks. And that’s specifically what the FM Global program addresses for us.
Can you talk about the engineering services at FM Global and how it has served McCormick’s
business strategy?
Yeah, it’s one of my favorite questions, and it leads to one of my favorite anecdotes about FM Global. I would actually challenge anyone to sit in the planning meetings we have with FM Global and McCormick Resources and to
quickly determine which company each person works for. The FM Global engineers have strong relationships with
our factory management, with our engineering department, and they really are an extension of our own resources.
We’re convinced that they have our best interests at heart when they visit any of our facilities and recommend
improvements. In fact, they have actually offered more economical solutions to some of the issues that we were trying to engineer on our own. So that engineering service is invaluable, as far as I’m concerned.
Can you talk briefly about the global services engineering function?
Moving into markets around the world, and some of these markets in places where we haven’t done business before,
at least from a manufacturing standpoint, FM Global had to move with us. And what we have found is the network
of resources that are available around the world have been invaluable to us, particularly since our entry point into
these countries is through acquisition. And we’ve used FM Global services to help us in our due diligence process.
Can you name a specific situation where you can describe what you just explained?
A specific example of using global services was an acquisition that we made in China. Now, we have been doing
business in China for more than 25 years, but there was a large acquisition target that we identified a few years ago.
And we brought FM Global resources into that target to be part of our due diligence team and make recommendations on what we would need to do to bring that facility up to a highly protected risk status. What that then allows
us to do is to build those efforts into the acquisition model so that we know exactly what we need to invest and how
long it will take to bring it to an acceptable level of risk.
Have you had a loss that you could share?
One story I like addresses how to view recommendations and the value of those recommendations in our facilities.
We have a facility in England that, unfortunately, experienced an electrical room issue. We actually had a fire
in an electrical distribution room. And, long story short, that facility was back and operational within 24 hours. So,
one of the questions I got was, “If this was a highly protected risk, how did it have a fire?” And I answered, “Well,
because it was a highly protected risk, it endured that and was able to get back up and running within 24 hours.”
It was the recommendations that kept it contained, that kept the rest of the building operational and allowed us to
recover very, very quickly, more quickly than if we hadn’t completed the recommendations made in that location.
ISSUE 2 : 2015 REASON
35
H
appy
together
In a relatively short
time, with incredible focus and diligence,
McCormick and Company went from being
an uncertain risk to a highly protected one.
Despite its tremendous success, or perhaps
because of it, it has gone to great lengths to
protect that success and its ever-expanding
market lead. It is also willing to change
and evolve to account for the shifting landscape its growing footprint creates. “The
company understands that it’s just smart to
do things proactively to manage risk,” says
Plesce. “And that’s why they’re an ideal
organization for us. Every time their exposures evolve through the smart things they’re
doing to continue to enhance their business
plan, there’s an opportunity for us to bring
value. They understand the importance of
protecting risk. So when they put their mind
to something you can see that permeate their
organization in a relatively quick period of
time, and that’s awfully nice to work with.”
Larry Delp (left) with project engineer Varsha Patel and Bob Utz review
the fire protection methodologies by
FM Global utilized at this and other
McCormick facilities.
Bob Utz believes that through the
challenging work the team has managed to
accomplish in a short period of time—work
that has helped the risk pendulum to swing
back to an acceptable place—the bond has
grown much stronger. “We’ve really brought
it back to a great partnership. We share a lot
of information. We’re always communicating and trying to make sure we have that
close relationship globally at all our facilities, so that we know we’re doing the best we
can to try to mitigate all the risks we face.”
Any relationship that traverses
decades—four in all so far for Marsh,
McCormick and FM Global—is going to
go through some turbulence. The important thing is to endure those rough patches
and emerge with more strength and resolve.
“We’ve been servicing the McCormick
account for well over 40 years,” says Plesce.
“It’s a solid partnership because we share
a common goal of helping to assure that
McCormick keeps product on its shelves,
and keeps delivering value to its sharehold-
ers. And that’s really the foundation that our
relationship is built upon. Whether it’s us,
Marsh or McCormick—typically all three
together—we’re all moving in the same
direction.”
Radin agrees. “I think we’ve hit a great
level in terms of the relationship and the
interaction that we have,” he says. “I believe
continuing that and bringing it to an even
higher level of engagement is actually going
to be easy. I think we have hit the tipping
point where we recognize—and FM Global
recognizes—that our company cultures are
very similar, our way of doing business is
very similar, and our core values are very
similar. That alignment is incredibly strong.”
TALKING WITH JOHN KOESTER
John Koester of Marsh Risk Consulting has been working with McCormick on the broker side for
roughly 30 years. He began his career as an FM Global engineer, servicing the McCormick account,
before transitioning to a role with Marsh.
So talk to me about your background.
I received a degree in engineering and started working for FM Global straight out of school. For me, it was foundational in terms of understanding risk assessment. FM Global provided a tremendous learning environment. They
taught me an amazing amount about the world of property risk control. For many people who work in the field in one
way or another, FM Global was the place where people developed those skills, then entered into other fields down
the road.
You know McCormick as well as anybody. What is your opinion of the company in terms of
risk quality and its views on risk?
In my experience, from the late ’70s, McCormick has always been very highly focused on quality. That’s in all areas,
risk control being one of them. They’ve always been very conscientious. When they get advice from FM Global engineering, they wait, consider, assess and apply. I’ve seen that done over the years to the current day. There have been
challenges over the years, the same with any company. Companies change and in some cases they change extremely
fast. It’s always a challenge to keep up with risk control as the company is zooming along. And McCormick has done
a fabulous job with that.
What were your thoughts at the moment you saw the complexion of the account changing?
I think it was just another evolution of the changes they had been through over the years. They had always been
involved globally. But their role, what they were taking on globally—how they handled it as a company—changed.
And so you get the same kind of challenge as when you consolidate facilities and put more eggs in a single basket.
So the consolidation and the expansion created greater risk management challenges.
Correct. You’re going into new areas that you may not have had a big presence in. When you consolidate, you’re
bringing operations all under one roof. There’s more risk in one place, and that presents challenges from both
McCormick’s and FM Global’s standpoint. So there were a number of issues over the years, and I think McCormick
has handled them well.
So everyone’s at the table, everyone agrees that changes need to be made, and you’re saying that McCormick is willing to make those changes. What was the attitude during those
discussions?
The attitude was always a very good one on everybody’s part. One thing that’s been great to see is the constructive
partnership between McCormick, FM Global and Marsh, even in the midst of some challenges. There were times for
patience, persistence and perseverance. I believe it was a fairly normal process of bringing concerns to the attention
of senior management. That’s been another one of the keys to success for McCormick; there has been senior management involved on McCormick’s part as well as FM Global’s. It’s at the root of a working relationship that goes
back more than 40 years.
ISSUE 2 : 2015 REASON
37
“
One thing that’s been great to see is the
CONSTRUCTIVE PARTNERSHIP BETWEEN
MCCORMICK, FM GLOBAL AND MARSH, even in
the midst of some challenges. There were times
for patience, persistence and perseverance.
JOHN KOESTER, MARSH RISK CONSULTING
Please elaborate on the importance of senior leadership at McCormick and the role
they play in supporting the overall efforts of risk management.
People often think about capital expense as a big challenge, and it is. As the capital expense goes higher,
higher levels of buy-in and support are needed by the corporation. But perhaps more important is the effort
on the part of staff at all levels to support the risk management process. All of it has to get carried out at
all different levels. And so you can have some capital expense there and that gets tackled. But if you don’t
have all the people in place to implement that, then carry it forward in a sustainable way in the years to
come, you just don’t have the benefit you would like to see. And McCormick has done both of those things.
They’ve supported the capital expense and the staffing, and the level of support needed there as well.
Can you tell me about the Marsh team that works on this account?
We have client executive Mark Stevens. Wherever we have touchpoints with McCormick throughout the
world, Mark has overall responsibility. Sharon Walker is our property advisor who really understands the
insurance terms, conditions, and things that those of us in risk control don’t quite often get very involved
with. And then we have teams of people on a global basis particularly in the countries where McCormick
is located, to handle things locally from an insurance standpoint.
It really is about the team. There’s an extensive team at work either in the spotlight
or behind the scenes making all of this happen.
Yes. If people just get a glimpse of it they don’t necessarily see that. We also have a global council at
McCormick that I participate in, as do others on the FM Global engineering team. There’s a very high level
of participation in the McCormick world. FM Global engineering has local engineers at all the sites around
the world. Altogether, you’re talking about a very large team effort.
In your work over the three decades, what impresses you about McCormick as an
organization?
There’s a tremendously high quality and sustainability. They’ve had a process in place for their products
for many, many years and they keep improving it. They also have a long-standing tradition of partnership. So internally, for example, they have had what they refer to as multiple management boards, groups
of people who get together to work on projects. External companies like FM Global and Marsh are also
partners, with a vision toward long-term relationships. I believe this has been a key ingredient in how well
this program has worked over many years.
38
REASON ISSUE 2 : 2015
Varsha Patel, Larry Delp (center) and Bob Utz in a
key facility called the Spice Mill, standing near large
containers of McCormick products.
EIGHT GREAT RISK
MANAGEMENT
PRACTICES
At a recent sponsored forum, we asked nearly 200
of our clients, hailing from a wide array of industries, to indulge in an important exercise. We asked
them to identify the most critical risk management concepts, discuss them in detail, and then
develop a blueprint that every resilient organization should follow.
Many of our clients share our philosophy of resilience. The core of resilience is the knowledge
that the majority of loss is preventable. We recently convened a group of nearly 200 risk management leaders from several large, well-known firms across a spectrum of industries to discuss
best practices in risk management. These professionals offered their experience and expertise on
the benefits of resilience. Together they identified a handful of key focus areas for every organization intent on creating, or maintaining, a tangible culture of resilience.
While we assembled this group, we did not influence the proceedings. Rather we allowed
our clients to dictate the discussion and determine its outcomes. What follows is the result of this
candid forum, the eight crucial risk management components that every resilient organization
should focus on.
ISSUE 2 : 2015 REASON
41
1.
DEVELOP A
PROPERTY
CONSERVATION
POLICY
‘‘
My philosophy is that I have
to know the risk, I have to
examine the risk and I have to
mitigate the risk. Also, I know
that I must have partners who
buy into that philosophy and
will assist me in doing those
three things.
MARIFRANCES MCGINN
VICE PRESIDENT, GENERAL COUNSEL
AND RISK MANAGER
PROVIDENCE COLLEGE
‘‘
Hershey’s risk management
program walks in stride with
our strategic plan of the
organization.
MEGAN MARSHALL
DIRECTOR OF RISK MANAGEMENT
THE HERSHEY COMPANY
Developing a property conservation policy is one
of the first best practices our risk management leaders recommend. A property conservation policy is
a risk manager’s philosophy on why, and ultimately
how, to protect business assets and revenue streams.
This philosophy must align with the fundamental tenets
of the organization in terms of strategy, corporate culture,
and current practices and policies. For a property conservation policy to be effective, it also must be documented and
supported by senior management.
A property conservation policy should be customized to address
the precise nature of a company’s business. It should identify common
hazards and mitigation techniques in the industry. Moreover, it should reveal
interdependencies within an organization, contain a vulnerability assessment of the
company’s supply chain and include contingency plans for critical customers and suppliers. It
should contain new acquisition procedures, project management standards for managing change
and information on how losses and claims will be handled.
It should include plans for gaining and sustaining support from the highest levels of management and for implementing effective training programs so employees have the knowledge
they need to use this policy. The policy should not be one-size-fits-all. Local facilities should
have the opportunity to adapt the policy in a way that best suits their particular circumstances.
A well-developed property conservation policy is a risk manager’s playbook. It ensures
that the company fully understands the risks it’s facing, how best to mitigate those risks and how
to minimize business disruptions in the event of a loss. Fellow risk managers, industry groups,
and FM Global’s field engineers and client service teams are great resources for developing a
property conservation policy. And, a good policy won’t sit in a drawer and be dusted off every
few years; it will be a living document that drives the risk management and loss prevention of an
organization.
‘‘
Insurance alone is not enough to manage business risk. In fact, insurance
is a means of managing risk for relatively few corporate risks. From a business standpoint, risk processes and controls need to be embedded in business process from strategy through business operations into regulations
and business ethics. For the insurers there is a large amount of regulation
and compliance requirements. Controls are part of the day job.”
PAUL TAYLOR
PRESIDENT, RISK MANAGEMENT OPTIONS LIMITED
42
REASON ISSUE 2 : 2015
‘‘
We put a step-by-step game plan together to overhaul the sprinkler system. Clearly, top management
and shareholders in the company believed in the sprinkler program because our people were at stake. For
me, that was very satisfying. We never even talked about money, they just said we have to do it, and we
went ahead and plotted the entire program, put in the budget and proposal, and did it. It demonstrated
real commitment from the corporation, top management and shareholders, that they care about our
people sitting in our part of the world, thousands of miles away from them.
‘‘
SWEE LEONG LIM
PRESIDENT, LEVITON CHINA
Changes managed proactively and continuous risk improvement will help to ensure
that the business is robust
in the face of materializing
threats. This will translate into
the protection of the revenuegenerating operations and,
hence, the bottom line.
ANDY BRYSON
GROUP INSURANCE AND RISK MANAGER
COBHAM PLC
2.
Risk management is not an academic exercise, our panel warns. A quality risk management
program continuously works to lower the risks a company faces. Risk improvement begins with
identifying key risks and hazards and then making a compelling case for proposed improvement
measures. If a risk manager has been successful in gaining upper management support and driving a culture of loss prevention, then implementing individual risk improvement programs will
be a much easier task.
Increasing the sensitivity to loss exposures helps build a loss prevention culture throughout
the company. Publicizing case studies of real losses, prominent industry losses and the company’s own loss history or near misses can help pave the way for investments in risk improvements.
In establishing priorities, our panel of experts recommends attacking easily accomplished
improvements first. This can establish risk improvement as an achievable goal. It also helps to
widely convey the results of a risk improvement program, share success stories and recognize
those involved in the program.
Creating incentives for risk improvements is also important. This can be done by offering financial incentives for risk improvements or fostering healthy competition between
plants or facilities. This can be accomplished via benchmarking using a simple
internal grading system, a program like RiskMark®, safety incident rates
or other applicable tools.
A risk manager should be able to detail how risk
improvements will positively impact revenue, market share,
reputation or environmental concerns. The risk manager should also identify needed benchmarking data
and establish success metrics so the impact of the
improvements can be quantified.
Continued support from upper management
will help maintain risk improvement as a priority. Anticipating obstacles and objections, setting expectations with senior officers, project
managers and loss control personnel, and
obtaining executive sponsors for top priorities are proven ways to keep risk improvements on the front burner.
ACHIEVE
RISK IMPROVEMENT
ISSUE 2 : 2015 REASON
43
3.
LEVERAGE INTERNAL
AND EXTERNAL
RESOURCES
‘‘
Our common goal is to mitigate losses and make the process as
smooth and cost-efficient as possible. It’s easier to convey that message within the organization, to ensure that a risk control program
is in place. We want to engage the entire organization, not just the
engineering group, or safety and security, but general management,
local management as well as finance—because ultimately an event
will have financial ramifications and impact across our organization.
‘‘
FABRICE FUENTES
DIRECTOR, TREASURY PENSION AND INSURANCE, PHILIP MORRIS INTERNATIONAL
The one thing I absolutely love is how hands-on FM Global is with our
properties, through inspections, through walking the sites, especially
during construction. They are such an asset to what we do. Brandywine is really moving forward in construction and development, and
there are a lot of unique challenges we’re coming up against. Brandywine has always been a commercial real estate company, but now we
are dabbling in student housing, luxury residential, multifamily, pools
on rooftops, green roofs and automated parking. So there have been
a lot of unique things we’ve started that FM Global has come in and
helped with.
‘‘
KIRSTEN SHAWN
RISK MANAGER, BRANDYWINE REALTY TRUST
Relationships are extremely valuable to Hershey, and I am most
proud of the relationships we’ve forged. We look to build strong
partnerships that cross multiple years, so that as the insurance
marketplace or other emerging risks ebb and flow, we can make sure
our program also remains dynamic.
MEGAN MARSHALL
DIRECTOR OF RISK MANAGEMENT, THE HERSHEY COMPANY
44
REASON ISSUE 2 : 2015
Effective risk management cannot be
achieved in a vacuum. The best practices of
the top risk managers involves tapping a variety of resources, both internal and external,
and when appropriate, sharing experiences
and expertise with trusted advisors and networks.
Top risk managers pull together internal
groups to ensure business continuity and resilience. A multi-department team representing key areas—audit, facilities management,
legal, human resources, operational health
and safety, security and IT—can ensure risk
management is a companywide endeavor.
Tapping internal departments helps ensure
that a risk management plan is comprehensive
and all vital operations are involved in contingency planning and disaster recovery. Internal
experts can also identify risks that a risk manager hasn’t accounted for, ensuring the company’s risk assessment is all-encompassing.
Enlisting senior management sponsorship is another good practice, according to
our panel. Ask senior management to promote
risk management in stewardship meetings,
and to help integrate risk management goals
into key performance indicators.
Top risk managers also look beyond
their internal resources. Our panel recommends tapping outside experts, including
FM Global. FM Global’s engineering and
client service departments allow clients to
leverage FM Global’s expertise and research.
FM Global’s risk service testing and Risk
Reports are excellent resources for identifying key risks and hazards.
Other third-party resources include brokers and policy reviewers, adjusters and risk
consultants who can help a risk manager conduct the proper due diligence. Best practices
includes obtaining peer guidance at safety
and insurance conferences, risk management
forums and policy workshops.
For instance, systemic threats to a
global supply chain mean that an individual
business can be affected by outside forces. In
such cases, by coupling your knowledge of
risk with your supply chain experts’ knowledge, you will improve the resilience of your
company.
‘‘
I’m a little outspoken and have very high energy. I’m extremely direct
and I do a lot of hands-on training. The more I can communicate to my
team, the more they can communicate to their team. Communication is
key for me. If I can get in their heads, they will remember what I
said and better communicate with our tenants. It’s really
important to make sure everybody is on the same
page, because you never know when you’re going
to have a true emergency situation.
KIRSTEN SHAWN
RISK MANAGER
BRANDYWINE REALTY TRUST
4.
Communication is the key to almost any initiative.
The goal of top risk managers must be establishing a strong risk management culture throughout
the organization by effective communication.
Doing so demands buy-in and ongoing support
from the highest levels of management. Once
that is gained, organizations must then avoid
complacency by paying meticulous attention to
the objectives and time frames established.
To strengthen the risk management case and
encourage continuous improvement, risk managers
must develop metrics to prioritize and report to the
company leaders and at the operations level.
Consider a business impact analysis, which will help
frame the risk management message in financial terms.
Quantifying exposures in terms of cost of potential loss versus cost of risk improvement will help hold the interest in risk
improvement initiatives. At the operational level, focus on the threat
of unplanned production outages.
Successful risk managers are able to communicate across the organization
that managing risk is of the highest priority and should be “top of mind” for every
single employee. Encourage buy-in from top managers by sharing risk assessments with senior
executives.
Our panel recommends looking for clever solutions for overcoming global issues, as well
as language and time zone barriers. In addition, they recommend careful examination of the
communication methods that work in each organization. Today’s workers are inundated with
email and many plant workers don’t have continuous daily access to computers. Consider communicating via text, intranet, company magazine or other vehicle.
The best practices of our expert panel include weekly or monthly e-bulletins with the latest
company-focused risk management news and co-worker driven reward programs for an individual risk improvement effort. Other best practices include central “communications stations” that
serve as gathering spots for departments to share risk management information and constantly
monitoring communications and any feedback provided by users.
COMMUNICATE
AND IMPLEMENT
A PLAN EFFECTIVELY
ISSUE 2 : 2015 REASON
45
5.
An insurance and risk management program
must be global. It can’t only be focused on
domestic offices or ignore remote locations.
A worldwide program, with all its complexities, is a must, our experts agree. Once
again, support from top levels of management is vital in mandating worldwide compliance with an insurance and risk management program. Be sure your constituencies
understand the expectations, as well as the
benefits, of a global program.
Our panel recommends employing
strong corporate policies to centrally place
insurance and assign responsibility. These
policies will ensure local entities will not
establish their own policies. Risk managers
should nurture solid relationships with local
entities and convey to them that premium is
not necessarily the most important attribute.
Our panel explains that consistent terms and
conditions are often what’s key.
Risk managers should also cultivate
relationships with controllers, as they usually have the pulse of an organization. Risk
managers can then leverage these relationships when managing acquisitions and
divestitures globally.
Our experts recommend protecting
stakeholders by gaining senior management
sign-off for any activities that go beyond
corporate risk management. They recommend using brokers and insurers to augment
the company’s internal capabilities. Brokers
and insurers can help deliver the company’s
risk management message and ensure the
program is compliant and has adequate
capacity. They can also stay on top of regulatory changes and conduct annual reviews
of global risk management programs.
Finally, our panel recommends sharing
claims stories internally with all stakeholders, no matter their location, so everyone can
learn from a loss experience and feel ownership in the risk management function.
46
REASON ISSUE 2 : 2015
MANAGE GLOBAL INSURANCE/
RISK MANAGEMENT
PROGRAMS
‘‘
The underwriting challenges are different. We comply with all local
regulations, currency regulations; billing and paying premium can
be a challenge. We consider compliance to be nonnegotiable. There
are so many regulations in place all over the world. But that can be
resolved by working with your WorldReach® partners. Local issues
come from having a global program.
‘‘
JON KING
MANAGER, RISK CONTROL AND LOSS PREVENTION, PHILIP MORRIS INTERNATIONAL
We have one main objective: to ensure we understand our exposures
so that they can be adequately managed. One challenge is to ensure we use a uniform yardstick, while recognizing local constraints.
Circumstances vary from big markets to small markets, high-volume
production to specialized production, highly automated to largely
manual processes. The same solution cannot necessarily be applied
everywhere. That means everyone has to have the same awareness
of risk in order to drive continuous risk improvement. To deal with this
challenge we need to constantly communicate. We’ve created a training program to share fundamental risk engineering and methodologies to a broad audience across PMI. We’ve been very pleased with
the outcome of those trainings, with high satisfaction rates from the
attendees. We also see increased activity to implement risk recommendations in areas where we have presented in our seminar.
FELIPE DANTAS
MANAGER, RISK MANAGEMENT AND INSURANCE, PHILIP MORRIS INTERNATIONAL
‘‘
Good risk management practices enhance shareholder
value. You don’t have to think in terms of disasters
happening or their adverse effects being avoided.
Effective supply chain risk management should be
embedded in a well-run business and I think, overall,
this will positively affect the share price.
ANDY BRYSON
GROUP INSURANCE AND RISK MANAGER
COBHAM PLC
6.
MEASURE AND
REWARD SUCCESS
‘‘
We made a significant upgrade to sprinkler
protection in our Kleve, Germany, facility. The
project was not cheap. To justify the project,
we took a look at the value of the property
and, more importantly, the business interruption cost to that facility to see how that
would impact AMETEK. The impact on us
for not completing this recommendation in
the event of catastrophic failure or fire at this
facility would greatly outweigh the cost of the
installation. The overall impact on AMETEK
shareholder value was a critical factor that
helped sell this project.
MARK SCHEUER
DIRECTOR, COMPLIANCE
AMETEK, INC.
An important best practice recommendation of our panel is measuring
success. It is key to gaining upper management’s support, as well as an
ongoing commitment to risk management throughout the organization.
To measure success, risk managers need to understand the total
cost of risk, which includes premium, claims below deductible, internal
costs, external vendor costs and reputational risk. Risk managers need
to establish appropriate tracking metrics, and then consistently measure
the program’s progress.
There are several metrics our panel recommends for tracking success, including FM Global’s RiskMark®. RiskMark is a fact-based analytics tool to help companies quantify and manage property risks. It
enables risk managers to precisely understand the risk of major property
loss at each facility, the potential business impact and the best solutions
to address these vulnerabilities.
Other metrics to measure success include claims closure and recommendation completion rates. Measurement could also include tracking movement in percent of highly protected risks and tracing progress
on established risk improvement plans or on a current vulnerability that
risk management is looking to improve.
These metrics should be presented to management and key stakeholders. This can be done through communication vehicles like a scorecard or annual report. The reporting should use succinct prose and
persuasive quantitative data, such as premium savings, costs vs. expenditures, and positive reports from regulators.
When presenting this type of information, take care to tie risk to
sustainability, and if appropriate tie achievements in the areas of environmental health and safety (EH&S) and life safety.
External auditors, loss control specialists, insurers and brokers can
help measure risk management success as well as help present on the
results favorably.
Our panel recommends communicating basic expectations across
the entire organization and providing recognition when significant milestones are reached.
ISSUE 2 : 2015 REASON
47
‘‘
[What keeps me awake] is mitigating losses, ensuring business continuity and running cost-efficient
programs. There’s a tendency to feel at ease, to be
complacent. You need that spark to stay abreast of
changes, constantly improving processes and use
of our resources. It’s a complex environment, so we
need to keep pace with those changes and make
sure we can respond in a most effective manner.
‘‘
FABRICE FUENTES
DIRECTOR, TREASURY PENSION AND INSURANCE
PHILIP MORRIS INTERNATIONAL
Supply chain risk and reputation are intrinsically
linked to share price. Consider the companies
who were impacted in 2008 when a ship’s anchor
dragged through some of the subsea communication cables in the Indian Ocean, which in turn disrupted operations in India and the Middle East. The
event also affected offshoring operations for many
organizations. It is clear that reputation affects
share price. My view is that an organization’s share
price is best managed by its reaction to a crisis. The
way you handle your public relations, staff communications and the actual incident will all have an
effect on share price.
‘‘
EDWARD SHERLEY PRICE
To leverage trends, you first must identify them. Our panel recommends expanding an organization’s risk horizon to investigate risks
that are typically beyond insurance, such as geopolitical concerns or
brand reputation.
Identifying important trends and understanding the issues relevant to them can help a risk manager develop appropriate ways to
mitigate these new risks. To be successful, risk managers must be
integrated into the business phases of the planning process, which
will require establishing credibility with senior executives and operations leaders. Risk managers should seize every opportunity to gain
the ear of these most influential audiences, and use that access to
explain the most compelling risks and offer mitigation measures.
Risk managers should look two to three years ahead, and recognize core and noncore risks. Among the fastest-growing trends
concerning today’s risk managers are cyber risk, political risk and
climate change (specifically, the effect of a dwindling water supply
on business continuity and resilience).
Risk executives should view all new technology through a
prism of risk management. For instance, privacy concerns are currently top of mind as large-scale information breaches are rampant.
The widespread use of cloud computing is fueling such concerns.
Risk managers should ask, “What risk does this technology present
to my organization?” and “Which suppliers hold critical data relative
to my business?”
Risk managers also need to manage supply chain risks. They
should critique the business continuity plans of suppliers, and their
suppliers, and look for gaps. The same should be done for critical customers. Risk managers should execute detailed analyses in
cases where a supplier or customer will significantly impact
the company’s business. Just-in-time supply chains
require exceptional resiliency.
HEAD OF BUSINESS CONTINUITY
EXPERIAN
Once an organization has outsourced elements of its manufacturing operations to third parties, it reduces the influence it has
on the risk management process. If there’s an effective business impact analysis (BIA) conducted, it will highlight the most
significant of these outsourced nodes, but once you get to tier
two or three, even an effective BIA will struggle to achieve that
granularity.
ANDY BRYSON
GROUP INSURANCE AND RISK MANAGER
COBHAM PLC
48
REASON ISSUE 2 : 2015
7.
STAY ON THE
LEADING
EDGE OF TRENDS
8.
BEST PRACTICES
FOR THE “PART-TIME”
RISK MANAGER
Many organizations have only “part-time” risk
managers, meaning their daily work involves other
responsibilities, such as treasury or operations. Though
challenging, this situation does not necessarily mean the
risk management program has to be any less effective than
with a full-time risk manager. Still, a “part-time” risk management function typically demands a smaller-scale, more easily managed program.
To ensure even a “part-time” risk management program is top-notch, our
panel recommends the following best practices:
n
Get support from the top. Nothing will make the risk management job more effective
than getting that support before a significant loss occurs.
nMake site visits to locations with critical operations to understand their vulnerabilities
and raise awareness of risk management. These visits go a long way toward ensuring
the acceptance of a risk management program throughout the organization.
nDevelop a simple, deliverable risk management policy, establishing processes or procedures to address frequent challenges, and adapting practices that work well in one part
of the business and replicating them in other areas.
“Part-time” risk managers should also utilize internal and external resources whenever possible. Brokers, insurance carriers and FM Global account engineers can be valuable resources. Our panel also recommends utilizing benchmarking and Risk Reports to
highlight risk, influence decision-making and prioritize risk improvement capital expenditure allocation.
‘‘
Esterline looks for partnerships with our brokers and our different
carriers to match our needs across the world. It’s really important for
us because we have a very small risk department, so we push a lot
of that out to the business units. We partner with different carriers like
FM Global that can help. They can be there to guide us, be there as a
sounding board, and be there to help us when we build or remodel.
We use our partners a lot.
KRISTEN CARNEVALI
DIRECTOR OF TREASURY AND RISK
ESTERLINE CORPORATION
ISSUE 2 : 2015 REASON
49
MAKING IT
LOOK EASY
Faced with the challenge of doing a big job with a small staff, Esterline’s
Kristen Carnevali found that entrusting her client service team with
some heavy lifting was the quickest and easiest way to get things done.
So far the formula has yielded excellent results.
Kristen Carnevali enjoys a quick lunch with her client service team, Will Arnold and
Melony Ellsworth, above, and on a whirlwind tour of a handful of Esterline’s major
facilities in California. Carnevali is director of treasury and risk at Esterline.
52
REASON ISSUE 2 : 2015
Honestly, my account
engineer and FM Global
field engineers are my
principal resource. Will
Arnold is my first call when
I need something, or when we need
to work through an issue. Either he
responds himself or he gets in touch
with a local engineer with the right
knowledge to take care of it.
KRISTEN CARNEVALI
DIRECTOR OF TREASURY AND RISK
ESTERLINE
risten Carnevali is logging
serious miles across the
California desert in a black
SUV. She doesn’t seem to
mind driving much and she
knows the territory. She
and her engineering team
do this circuit a few times
annually. The travel lends
itself to some funny moments, including her
internal dialogue about her driving.
“Oh, I better slow down. These guys are
going to get mad at me for driving too fast,”
she says, referring to the caravan she’s leading. “I promised myself I wouldn’t speed. As
my husband would say, ‘Just stay with the
flow of traffic and you won’t get in trouble.’”
Despite the brisk pace, the scenery—
vast mounds of ecru sand and bulky moun-
tains dotted with scrub brush—provides a
good distraction.
Carnevali works for Esterline, a specialized manufacturing company based in
Washington state (USA) serving principally
the defense and aerospace markets, where
she is director of treasury and risk. Boasting 13,000 employees, Esterline is a leader
in this sector and they own—mainly through
acquisition—dozens of companies.
Managing risk in an organization like
this is grueling. The company has operations
worldwide, many of which have unique and
varying approaches to health, safety and
property conservation.
Since assuming the responsibilities presiding over the risk side, Carnevali has seen
Esterline actively acquire companies worldwide and grow exponentially.
“Being a global company is truly challenging; we have large manufacturing sites
in multiple countries all over the world,”
says Carnevali. “Knowing that, it’s important for us to have a strong insurance partner
that is also a global company and has partners positioned globally to work with the
local entities in all of our countries. It’s a
challenge, but it becomes a little easier when
I have a partner like FM Global.”
Roughly half of Esterline’s subsidiaries
are located outside the United States, including Mexico, France, the United Kingdom,
Canada, India, China and Morocco. In some
of those locations, Esterline works through
FM Global’s WorldReach® network to get
the job done.
“The great thing about working with
WorldReach partners is that we can be con-
ISSUE 2 : 2015 REASON
53
fident we are achieving compliance in those
different countries,” says Melony Ellsworth,
the FM Global account manager working
with Esterline. “We currently have multiple
policies beyond the master policy we issue
to provide that local insurance coverage for
Esterline’s properties. Another benefit of having WorldReach partners is that we have a
standard underlyer, that is, a standard policy
form. So when Kristen looks at the policies
in place internationally, they are essentially a
mirror image of what she has seen on the master form. It makes it so much easier for her.”
Commitment to global compliance is a
must-have for Esterline, due to the nature of
the work the company does. The Esterline
team is always focused on compliance and
requires the same from its partners.
Another advantage of teaming with a
global insurance company is their capacity,
not only to have the policy in place, but also
54
REASON ISSUE 2 : 2015
the people to keep track of recommendations,
needs and progress. “Honestly, my account
engineer Will Arnold and FM Global’s field
engineers are my principal resource,” says
Carnevali. “Will is my first call when I need
something or we need to work through an
issue, and he either responds himself or he
gets in touch with a local FM Global engineer with the right knowledge to take care of
it. FM Global handles a lot for me so I don’t
have to visit all of those locations myself. I
couldn’t do it alone. But FM Global allows
me to streamline my process and keep it
simple.”
Arnold, the main engineer on the
account, agrees. “Esterline is very in tune
with what’s going on at all of their facilities, but they also don’t have the internal
resources to constantly monitor and manage
the risk in each of their operations themselves. This, though, is by design. Esterline
places trust in highly vetted, preferred vendors in a variety of business areas, in lieu of
hiring more internal staff. This approach has
many benefits when you have a world-class
partner like FM Global.
Moreover, Esterline relies heavily on
their broker, Marsh, and on their carriers,
both in property and in other lines of business, to help them manage risk. What we get
to do for them is provide their own internal
information by visiting the sites and collecting the data, and we use that data to provide
reliable risk management advice.”
When the Esterline and FM Global
team get a chance to travel together they can
accomplish quite a bit. On this occasion, for
instance, Carnevali is traveling with both
Arnold and Ellsworth. “When I tour facilities with Will, he can point out certain things
and talk to me about the field engineering
reports that he reviews,” says Carnevali. “He
can talk to me about the recommendations
and why they want to see something done.
He can also point out the recommendations
they gave us that we put in place and implemented.”
Another challenge faced by Esterline
and other global companies is developing a
consistent view of risk management and loss
prevention. For example, in some locales,
active loss prevention and risk mitigation
aren’t quite as common. Communication is
key and it’s important to understand how and
why perspectives on the role of insurance
may differ.
“Getting everyone comfortable and on
the same page is often critical to the success
of our insurance programs,” says Carnevali.
“Letting them know what insurance we
carry, why we carry it, why we have certain
limits, and the philosophy of our carrier are
all issues we need to discuss at length.”
Over the course of two days, Carnevali
and her account team visited three aerospace
and defense facilities, all located south and
east of Los Angeles.
One facility is responsible for producing combustible material used for defense
products, a second deals with the meticulous
assembly of intricate electronics, and a third
takes raw materials, mixes them into specially formulated elastomer products, then
shapes the material into various aerospace
seals and clamping products.
The team, decked out in safety garb,
tours each of the facilities together, looking closely at manufacturing processes and
discussing the potential risks of each one.
Arnold is clearly familiar with the manufacturing processes in each of the facilities, and
he takes a lot of time explaining each one.
For a busy risk manager, guidance like this
is invaluable.
Says Will Arnold: “We get to see more
of the changes at these facilities and catch
potential issues early. Simply by being onsite together, we can discuss what we’re
seeing, and this communication helps us to
understand the risk together.”
At Esterline, Kristen Carnevali also
has treasury responsibilities, so she wears
numerous hats. “For that reason,” says
Arnold, “I think she has a great appreciation
for what her brokers and her carriers can
provide to her. She’s really happy to look at
how we view risk and take on a collaborative
approach to minimizing that risk.”
The mutual advantage is clear. The client service team focuses on the engineering
and underwriting, while Carnevali enjoys
the benefit of not only seeing her local facility people, but also building a worthwhile
relationship with her insurance company.
Together they can start knocking out items
on their list. For Carnevali, the relationship
she has with her account team is key to the
program’s success.
Not only does the team make the effort
to accompany her on site visits like they’re
doing here, but they also manage to chat
casually throughout the year. They both happen to be based in office buildings located in
close proximity to each other.
“One of the benefits we have is that
Esterline’s office is right across the street in
Bellevue, Washington,” Ellsworth adds.
“I sit down with Melony and Will at
least quarterly,” says Carnevali. “We’ll go
through outstanding items, potential things
we could correct. Sometimes I’ll say, ‘Okay,
name 10 items we could knock out this
policy year.’ We discuss them and strive to
get them done. The best thing is, we actually
accomplish them. We would love to get all
of our facilities up to highly protected risk
(HPR), that’s our goal. It proves we all mean
business.”
ISSUE 2 : 2015 REASON
55
digital
Find this exclusive video coverage on our magazine website!
Working Together
McCormick +
FM Global
McCormick’s enormous and
successful global expansion
brought about significant risk
mitigation challenges. But
with corporate support, a
solid broker relationship and
a collaborative effort with
their FM Global client service
team, McCormick managed
those challenges with skill
and effectiveness.
Working Together
Esterline +
FM Global
Esterline’s lean and mean
risk management team, led
by Kristen Carnevali, and
supported by FM Global,
might be small in number,
but it’s big at heart. Its
success has come thanks to
active communication and a
talented crew.
“Voices” videos
Jim Radin of McCormick
and John Koester of Marsh
FIND this video coverage on our magazine website, fmglobal.com/reason.
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