Risk engineering solves problems before they can occur, providing the practical information you need to make decisions that prevent losses and interruption. And your insurer will love you for it, reports Sara Benwell.
Risk engineering is a critical tool in any risk manager’s armoury.
Done right, it reduces risk exposure, increases business resilience, and ultimately protects profitability.
Carl Leeman is chief risk officer at Katoen Natie, a logistics company with warehouses covering a total surface area equivalent to 120,000 football fields.
The organisation takes risk engineering seriously, and the process begins in the planning stage, before facilities are even built.
Leeman says: “We have a very tight partnership with our property insurer. But we also do a lot of risk engineering ourselves.
“For instance, we’ve done a lot of stuff on windstorm and flooding in the US, where we invested a lot initially to adapt our roofs and building heights. We’re now Cat 3 resilient.”
“For commercial property, mitigation can take many forms and address a wide variety of risks”
Chris Hickin, FM Global’s vice president and operations engineering manager of London operations, agrees that good risk engineering is all about mitigating disruptive issues before they arise.
He says: “For commercial property, mitigation can take many forms and address a wide variety of risks; one being ensuring equipment is properly maintained. One client case study that illustrates this is an instance where we provided engineering-based maintenance support for a multinational waste-to-energy business.
“Engineers discovered tube thinning in an area of a boiler where this particular risk wouldn’t have been expected. Uncovering this hazard not only allowed the business to implement loss prevention measures before it potentially caused a major event, like an explosion, it also enabled this issue to be brought to the attention of those responsible for similarly configurated equipment across the world.”
PRACTICAL, PROACTIVE
Katoen Natie has deployed risk management successfully throughout its operations to tackle multiple risks.
Along with windstorm and flood, another area of focus has been solar power, using an engineering approach to decide which buildings can have panels installed, and which way they should face.
The company now places its solar panels facing east–west, rather than the classic south-facing approach, to smooth out the energy production. This helps reduce oversupply, critical in countries where you cannot sell the energy back to the grid.
Plus, the east–west approach also offers a much better wind resistance and thus limits storm damage to the solar panels. The business is also investing in batteries to store excess energy, although this comes with its own set of risks to manage.
A third area of focus is floods, particularly for facilities in flood-sensitive areas where Katoen Natie operates. To tackle this, Leeman says the company has decided to build all its warehouses in the US at highway level, 5 feet above the existing level in other areas.
“If you do risk engineering, insurers will still be willing to insure you”
In some cases, they have chosen not to build in locations that were initially an option for the business. He says: “That was not an instruction from our insurers, but something we decided ourselves. And when Houston was completely flooded during Katrina, we had zero water in our warehouse or offices.
“Even at the worst moment, we were still 1.5 feet clear because we build higher. So nowhere had water on site.”
This approach, says Leeman, leads to happy clients and insurers. Customers are reassured that goods will not be damaged in an incident, which reduces supply chain risk, while insurers are able to continue providing cover, where otherwise they might not be able to.
The latter point is something Leeman cautions all risk managers to be cognisant of. He says: “If you do risk engineering, insurers will still be willing to insure you. Otherwise, I have heard about cases where insurers say: ‘Nope we don’t want to insure this location.’
“Windstorm risk in the US is an example where we have full coverage on the traditional market. A lot of companies are not able to get it anymore in the same location because they didn’t apply any risk engineering, and now they potentially have buildings that are ready to be torn down by the first hurricane that hits them.”
MAKING THE BUSINESS CASE
Leeman adds that while expense is sometimes seen as a barrier to risk engineering measures, for new facilities or plants, usually you can make significant changes for minimal costs, and of course, you will save a lot of money in the long run if an event does occur.
With acquisitions, he acknowledges the process can be more expensive, but says that if the risk in an area is too high and mitigation is not an option, then Katoen Natie will walk away and not buy the land or facilities.
Hickin agrees that effective risk engineering goes beyond physical risk management and often leads to significant savings from a business continuity perspective.
“For those responsible for a power plant, for example, if an incident occurs, having an emergency response plan is only part of the equation. When the pressure of avoiding costly shutdowns is factored into decision-making, an effective risk [engineering] culture is also an important part of loss prevention,” he explains.
Risk engineering can either be carried out in-house, or done in partnership with an insurance company that specialises in this area. Either way, a good relationship with property insurers is a must.
“When the pressure of avoiding costly shutdowns is factored into decision-making, an effective risk [engineering] culture is also an important part of loss prevention,”
For instance, Leeman says that while Katoen Natie does much of its own engineering, it still works closely with its insurance provider, sharing its improvement plans and having the carrier do checks on solutions.
FM Global’s engineers actively engage with facilities operators, guiding employees in understanding optimal emergency responses for specific equipment and real-world scenarios.
Hickin says: “A great example of this initiative in action comes from our partnership with a large power generation company, which improved its scenario-based risk assessment procedures, facilitating discussions on abnormal events, enhancing emergency response plans and fostering a preventive mindset.
“This proactive approach not only minimises potential risks but also addresses the significant concern of revenue loss during plant shutdowns.”
TREAT, TOLERATE OR TRANSFER?
Andrew Devereux, risk intelligence manager at Healix, says the company incorporates risk engineering into its methodology for identifying, managing, and mitigating risks.
“We ask clients to share their risk appetite prior to a project, so we can ensure the mitigation measures we implement align with their accepted levels of physical, economic, and reputational risk.”
“Proactive risk identification allows for the creation of robust mitigation processes and crisis response protocols”
Once the risks have been identified, Healix uses engineering principles to assess the likelihood and impact of each. Then the risk manager can decide whether to treat, tolerate or transfer each threat.
Devereux concludes: “Proactive risk identification allows for the creation of robust mitigation processes and crisis response protocols, safeguarding people, projects and professionals across the globe.”
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