A question that is often asked by companies is why they should bother to implement the recommendations put forward in the insurance report. Another way of putting this is, “How much will my premium reduce if I do this work?” Both of these are excellent questions.

The traditional view of making engineering decisions is based on cost/benefit analysis. If a certain recommendation will cost $1M to implement, how long will it take for the company to recoup that in terms of lower insurance premiums?

First, the insurance risk engineer is the wrong person to ask. They have no input into the pricing of insurance. Underwriters determine the pricing, all risk engineers do is describe the risk profile of the facility, and advise on the probability of losses.

Second, as stated previously, it is not really a matter of how much will be saved on a premium by implementing certain recommendations, but it is a question of whether an insurer wants to be involved in a risk to start with. Market conditions play a big part in this decision, and in a hard market, those companies with the best risk profiles will be assured of being covered. Those with the poorest risk ratings may well be left to fend for themselves.

I have often been involved in discussions regarding the likelihood of a certain risk occurring. Sometimes, site staff are absolutely convinced that a risk is so low as to be unworthy of consideration, and are righteously indignant that a recommendation based on that risk has been put forward. In good faith, they assert that such a thing would never happen. Unfortunately, it is the role of an insurance company to cover the risks that are unlikely. If they were likely, then the site would have already done something about reducing the risk. In the worst cases, where we can’t agree that the risk has a real probability of occurring, I offer to remove insurance liability for all losses associated with that particular risk scenario. Effectively, this means to include a clause in the insurance documentation that all losses from that source will be born by the client, and not the insurance company. If the site demands that the risk can never happen, they shouldn’t mind it not being covered by the insurance, right? Why pay for it if it will never happen? To date, the offer to remove cover for the specific risk in question has never been accepted at any site in my experience.

Tip from Engineering Asset Management: An Insurance Perspective by Ian Barnard

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