Why You Should Care About Your Facility’s Risk Profile
Risk is an unavoidable part of operating any industrial facility, and the “cost of risk” is generally thought of as a fixed financial cost that has been set at some higher level and is something our company – and our plant – are just required to deal with.
But is it really a “fixed” cost, or can industrial facilities actually make an impact by taking steps to reduce it by investing in workplace safety? One recent Hexagon customer found that “Yes, we can reduce the cost of risk” – to the tune of over US$1.5 million.
In this example, the main driver was Shift Handover. The facility, part of a leading U.S. chemical manufacturer, had experienced some incidents in the past but was actively trying to improve. In discussions with its insurer, the company came to understand that its insurance premiums are largely driven by the “risk profile” assigned to it by insurance underwriters – and that by digitizing key processes, specifically Shift Handover, it could significantly improve that risk profile and reduce its overall cost-to-insure.
In this example, the company invested in software and services to implement Hexagon’s j5 Operations Management Solution across its entire facility. By digitizing its existing paper-based shift handover, work permitting and operator logs, the company not only streamlined its operations, but enforced accountability and consistency in areas that previously had been largely uncontrolled, resulting in a safer operating environment.
The value of these changes was recognized and validated by its insurer, allowing the plant to justify the entire j5 implementation on the basis of insurance savings alone.
Insurance companies serving customers in manufacturing and process industries are highly motivated to help them avoid incidents and lower the risk that is inherent in operating large industrial facilities. The annual cost of insurance for these types of plants is a significant number. A refiner worth $1 billion will likely pay on the order of $2.5 million per year, according to insurance analysts.
According to Marsh (Marsh.com), the overall liability to insurers for global refining and petrochemical incidents from 2017-2019 totaled more than $12.5 billion. In cases like the one outlined above, when customers do manage to improve their risk profile, it means the insurers have a much better chance of avoiding pay-outs, and they are willing to reduce premiums to achieve this. The insurance industry as a whole has devoted substantial resources to the analysis of past industry incidents and to identifying which areas of focus are most likely to provide the greatest return on investment for their customers.
In recent years, as a result of this research, insurers have recommended their customers invest in processes that have a high potential for reducing operational risk and increasing workplace safety such as Shift Handover, Process Hazard Analysis and Management of Change. These areas are exactly where Hexagon’s Asset Lifecycle Intelligence division j5 Operations Management solution is most effective.
If you think that your facility may be able to reduce costs by reducing your risk profile, we can help. Please reach out to your Hexagon Account Manager or contact us here.
For further insight into the current state of industrial risk profile management, we highly recommend this article from PlantServices.com: Refineries that postpone planned maintenance downtime to boost profits are facing disastrous consequences.