Pro active Risk Management
What the Clubs are doing to prioritise
risk and reduce claims
International Marine Claims Conference
September
2013
karl.lumbers@thomasmiller.com
1. What is the Club doing
2. What is the industry driver for proactive risk assessment
i.
ii.
iii.
Money
Culture change
Regulation
3. What is risk
4. What can be done (practically) to reduce risk
i.
ii.
iii.
iv.
What does P&I do best
New claim structure
What is the best use of that structure
What is the advantage of a risk based inspection
5. Conclusion
1. What is the Club doing
•
Bringing together the work of the
•
•
•
•
•
Claims execs
Underwriters
Ship Inspectors
Loss Prevention
…….. and Members
“In a more focused way”
• How
•
Initially
•
•
•
•
Analysis work of the 80’s/90’s
Ship quality/benchmarking work of the 90’s
Human Error/Latent Failure work of the late 90’s/00’s
The Risk Profiling of 00’s
• Why
• Less claims/Less premium
2. What is the industry driver
for proactive risk
assessment
Profit
Culture change
Regulation
i.
“Profit”
It’s not just about less claims/ less premium
•
•
•
•
•
Increased Insurance Costs
Increased Management Costs
Loss of Image/Reputation
Loss of Business
Loss of Profit
Shipowners generally not philanthropic
In business to make a profit for themselves, their
shareholders/investors
But also under pressure to prove themselves
(culture change)
ii.
“Culture change”
Not only are we now living in a world where
there is less money in the system
We now live in a “Show me” rather than
a “Trust me” world
I’m a Doctor, Police officer, MP just does not work in
todays society
Marine Industry - No different
Charterers want to see evidence
Authorities want to see evidence
Courts want to see evidence
Trust me I’m a large well established quality ship owner
just does not work anymore
SHOW ME !!!
iii. “Regulation”
ISM Changes
As from 1st July 2010 Port State Control want to see even more
1.2.2
Safety management objectives of the company should inter alia
(establish safeguards against all identifiable risks)
New
assess all risks to its ships, personnel and the environment and
establish appropriate safeguards.
More pressure, than ever before, on todays
shipowner to show
he is in “control” of his risks
3. So what is risk
Different things
…….. to different people
Risk can be expressed by the general formula:
Risk = Frequency x Consequence
In insurance terms number x value of claims
This formula gives you the ability to prioritise
120,000
Personal Injury
Collision
100,000
Value US$
1
2
80,000
Low Frequency High Value
High Frequency High Value
Low Frequency Low Value
High Frequency Low Value
60,000
FFO
40,000
3
Cargo
20,000
Fines
0
0
1
2
3
4
5
6
7
8
9
10
11
12
Number of incidents by risk type
13
14
15
16
17
Number and value of large claims by ……
Cause of claim
Port of incident
Type of injury
Type of accident
Where accident occurred
Time of day accident occurred
Nationality of person injured
Type of illness
Type of cargo
Type of damage to cargo
Port cargo damaged in
Port cargo loaded
Port cargo discharged
How was cargo damaged
Who was responsible
Etc …………….
slide 21
As insurers we are risk managers
So we do need to do something about it
4. So what can be done
(practically) to reduce risk
when money is tight
i.
ii.
iii.
iv.
What does P&I do best
New claim Structure
What is the best use of that structure
What is the advantage of a risk based
inspection
i.
“What does P&I do best”
The strength of the P&I system
Is its ability to measure damage caused by 90% of the worlds
blue water fleet to
Assets
Environment
People
What can we do as insurers
• Not expert on running ships (22 mariners)
• Can’t tell our Members what to do
• We are expert on handling claims though
• 600 claims 13$m a month
• We use skilled claims handlers lawyers, correspondents,
surveyors to investigate, underwriters to assess risk on a daily
basis
• We know what goes wrong – we pay for it
WE KNOW THAT FOR EXAMPLE…………….
Personal Injury claims now cost more than cargo claims !!!
40
35
30
20
15
10
5
G
A
n
Un
re
co
ve
ra
bl
e
Po
llu
tio
io
n
lis
Co
l
O
FF
Cr
ew
No
n
Cr
ew
0
Ca
rg
o
%
25
That the Main Cause of Large Claims is …………
35
30
25
With an increasing input of shore person error
20
15
10
5
0
Deck Officer Error
Crew Error
Shore Person
Equipment Failure
Medical
Structural Failure
Error
Pilot Error
Mechanical
Faliure
Number %
Value %
Eng Officer Error
That old ships aren’t always riskier than new….......
25
Not just old ships that have claims
20
%
15
10
5
0
0-4 Years
5-9 Years
10-14 Years 15-19 Years 20-24 Years 25-29 Years
Number %
Value %
30 Years+
PI Large Claims Location of incident
0
Weather deck
Engine Room
Cabin
Ashore
Hold
Galley
Accommodation
Drill floor
Mooring Station
Tw een Deck
Gangw ay
Lounge bar
Supply boat
Launch
Bridge
Lifeboat
5
10
%
15
20
25
PI Claims Type of Accident
0
Fall (Other)
Slip & Fall
Struck by falling object
Strain by lifting
Fall from ladder/Scaff
Mooring incident
Passenger Casualty
Caught in machinery
Strain by pulling pushing
Fall/Slip from gangway
Cruise cancellation
Strain by holding/lifting
Explosion
2
4
6
8
%
10
12
14
16
18
Collision Large Claims Type of Incident
35
30
25
%
20
15
10
5
0
Crossing
One static vessel
Meeting End on
Overtaking
Meteorological Conditions
Visibility
Poor
Wind
Sea State
Good
Rough
6 to 8 8 +
Fair
Moderate
Calm
3 to 6
0 to 3
Slight
Pr
e
sh
ip
m
Lo
ss
fe
st
at
io
n
In
ua
lity
ng
lo
ss
sin
ki
en
tq
by
ic
Th
ef
t
O
ve
rb
oa
rd
Sh
or
ta
ge
ec
on
om
Lo
st
in
at
io
n
al
da
m
ag
e
on
ta
m
Ph
ys
ic
et
da
m
ag
e
ea
t/ F
or
st
Pu
re
H
C
W
That most Large Cargo Claims are caused by water damage
25
20
% 15
10
5
0
The Clubs know what goes wrong - they pay for it
BUT
At the moment a lot of the data lies
unstructured/unused in computers
We need to pull it together
Ventilator leakage
Bilge line non return valve not working
Liquefaction
Hatch top dogs missing
Draught survey error
Poor quality bags
Crack in tank top
Tarpaulin segregation not suitable
Drain pipes blocked
Ballast line left open
Hatch cover rubbers worn
Inadequate ventilation
Debris in cargo
Poor design of vents
De humidifiers inoperable
Scupper pipe corroded
Bunker tank vent pipe failure
Stevedore pilferage
Poor tallying
High moisture content
Inherent vice
Smoking
Hydraulic leakages
Bills not in accordance with Mates receipts
How ?
ii. “Develop a claim structure”
By using a simple tried and
trusted methodology
Threat & Consequence
Analysis
Some people call it bowtie
Hazard
Recovery
Release preparedness
Impacts/Consequences
Causes/Threats
Preventive
controls
• To prevent the release of a hazard we need to have controls in place
to reduce the risk of that upset, and we need to have recovery
measures identified to stem the consequences if the hazard release
causes an serious incident to develop.
Who is using this Methodology
Let’s put this into a marine context ……..
We know that Risk = Frequency x Consequence
So from the graph below we can see the number of claims (red) x value (blue)
But we have to prioritise – we can’t solve all the problems at once
Water damage is clearly high risk
25
20
15
10
5
sh
ip
m
io
n
ta
t
fe
s
In
en
tq
sin
ki
Pr
e
Lo
ss
by
ic
ec
on
om
ua
lity
ng
lo
ss
ef
t
Th
Pu
re
ge
O
ve
rb
oa
rd
Lo
st
Sh
or
ta
da
m
ag
e
ea
t/ F
or
st
in
at
io
n
H
on
ta
m
Ph
ys
ic
al
C
et
da
m
ag
e
0
W
•
•
•
So lets have a look at this in marine terms
25
20
15
10
5
io
n
ta
t
fe
s
In
en
tq
sin
ki
sh
ip
m
Pr
e
Lo
ss
by
ic
ec
on
om
ua
lity
ng
lo
ss
ef
t
Th
ge
Sh
or
ta
da
m
ag
e
O
ve
rb
oa
rd
Lo
st
Pu
re
H
ea
t/ F
or
st
in
at
io
n
al
Ph
ys
ic
on
ta
m
C
et
da
m
ag
e
0
W
• We know that one of the HAZARDS
of carrying cargo is that it can get
damaged
• We know that one of the THREATS
that can cause damage is water.
• We know that the CONSEQUENCE
of water damage to cargo is
invariably a claim
• This is not rocket science owners
already know this and they have lots
of CONTROLS in place to prevent
the damage occurring in the first
place and lots of CONTROLS in
place to reduce the extent of
damage once it has occurred
• So let’s develop this basic methodology
• So we can
• Record the Threats, Consequences and Controls relevant to the Club’s
claims
• In a consistent/repeatable manner so we can provide a ongoing benchmark against which
to measure risk
• Build up a history for reference
• Show the problems clearly to everyone from ship to boardroom
• Prove to others that Members are in control of their risks
Industry needs this as we know ………………..
“You can’t manage what you can’t measure”
So this is our basic claim structure
Hazard
Something that has
the potential to cause
a P&I incident
Threat
Consequence
Something that if not
controlled could cause a
P&I incident
What is the monetary cost to
the Club
(think claim)
Carriage of
Cargo
by Sea
Cargo by sea
Loss/Damage
to Cargo
Controls
Controls
Something which reduces the possibility of that
threat causing an incident/event, something
which we see fail and cause claims
What things should be in place to mitigate the cost
of that claim once the incident has occurred
What are we checking
How effective is that control, are there failures just waiting to happen (latent)
• Of course water is not the only THREAT which if not CONTROLLED
could cause a claim we also have
•
•
•
•
•
•
•
Cargo Securing
Theft/Shortage/Quantification errors
Contamination/infestation
Ventilation errors
Pre shipment quality of cargo
Fire
Stability error
To name a few
Hazard
Carriage of cargo by sea
(Bulk Carrier)
Carriage of
Cargo
by Sea
Threat
Something that if not
controlled could cause a
P and I incident
Loss/Damage
to Cargo
Incident
Consequence (think claim)
What is the monetary cost to
the Club
Full Cargo Risk Profile (Bulk Carrier/General/Reefer)
Full Cargo Risk Profile (Bulk Carrier/General/Reefer)
Full Cargo Risk Profile (Bulk Carrier/General/Reefer)
“So we now have a structure for what causes all of
the Club’s claims !!!”
How do we use it
Well………
• With the help of our claims executives and underwriters we know what
has gone wrong (Risk Profiling) Club/Individual Members/Individual
Ships and the cost to the Member/Club, we know those THREATS we
see most often
• We know from the Club’s Human Error Project that most claims arise
from accidents “just waiting to happen” (Latent Failures) and usually in
one of 11 areas of operation (See No Room for Error). Coupled with
our claims handlers knowledge/experience and in depth analysis of
our claims we can determine those CONTROLS most likely to fail.
• SO if we know the THREATS and understand the CONTROLS that
usually fail our technical staff all ex Masters/ Ch Engs can use their
experience to assess the effectiveness of those controls
With their experience and over 2000 reference
points developed from the system with our claims
handlers
Each control is rated 1-5
Carriage of
Cargo
by Sea
Loss/Damage
to Cargo
Is there a dedicated cargo care officer
Is there a cargo watch system in place
Is there an efficient communication system between ship/shore
Does cargo officer know who is in charge of stevedores
Are names/responsibilites of shore people known/logged
Is there a procedure in place for bad weather rain/wind
What procedures are in place for clausing mates receipts
Is a rough cargo log book kept
Is quality of dunnage checked (unseasoned)
Is cargo stored/protected from ships side/tank top if needed
From in depth analysis of 23 years of claims
Have identified
• 6 Primary Risk HAZARDS
• 76 Common THREATS which if not contained could cause
an incident
• 450 CONTROLS which need to be in place and effective if
the THREAT is to be contained
We now have a verifiable/transparent/structured risk assessment
system based on solid claims data
We know 13$m of claims is caused by one of
iii. So how do we use it for the benefit of our Members
At present - Short form visits
Summary of findings discussed with crew
Future - to use it to work closer with Members
where claims trends indicate an issue
iv. “What is the advantage of a risk based
inspection”
Risk Based Inspection - Benefits
•
Inclusive
•
Involves all in the chain
–
–
–
–
–
•
Structured
•
•
•
•
•
Focus on those claims that cost the Club money
Focus on the real causes of claims
Enables best use of resources - manpower/money
Flexible
•
•
•
Discipline - a system to follow, repeatability
History - learning from mistakes
Benchmarking – comparability (shows how good your controls are against a Club average)
Verification - proof you are in control – Charterers, Authorities, Courts
Concentrates effort
•
•
•
•
Member’s crews - sharp end, dealing with the problems day to day
Claims handlers - who investigate and manage the problems/claims
Underwriters - who assess and rate the financial risk
Loss Prevention - who try to reduce the risk, “risk profiling”
Ship inspectors – who are the link between ship and shore, assessors
Not prescriptive - easily changed, not penalty driven (PSC)
Current - follows claims trends
Proactive
•
•
Concentrates on accidents waiting to happen (latent flaws) by assessing CONTROLS
Identifies areas for improvement
5. Conclusion
We now have a STRUCTURED system to
PINPOINT & REDUCE “AVOIDABLE” expense
which can be SHARED with our MEMBERS
Pro active Risk Management
What the Clubs are doing to prioritise
risk and reduce claims
International Marine Claims Conference
September
2013
karl.lumbers@thomasmiller.com