— CONTROLLING HUGE FIRE AND BUSINESS INTERRUPTION LOSSES IN MANUFACTURING
INDUSTRY
INDUSTRY
— Being a paper presented by:
— Mr. Raymond Akalonu
— TO THE RISK SURVEYORS ASSOCIATION OF NIGERIA CONFERENCE
—
— 1ST OF NOVEMBER 2012
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— CONTENTS
Ø OPENING REMARKS
Ø INTRODUCTION
Ø HUGE FIRE AND BUSINESS INTERRUPTION DEFINED
Ø LIMITING THE INTERRUPTION IN BUSINESS
Ø CONTROL OF FIRE AND BI LOSSES
Ø FLOOD AS A PERIL COVERED IN FIRE POLICY
Ø CONCLUSION
Ø RECOMMENDATIONS
— OPENING REMARKS
Distinguished Ladies and Gentlemen, I wish to express my profound appreciation for the opportunity granted me to stand before this distinguished gathering of experts and worthy professionals from different fields to share my thoughts on this subject.
— INTRODUCTION:
In recent times, the recurring issues of fire devastation and the resultant disruption in business activities leading to losses in revenue and continuing costs are of immense concern to the business community, hence the appropriateness of this topic at this time.
The fire incident at Nigerian Bottling Company (NBC) , Benin Plant in 2008, which was settled at N8,010,579,302.00, the one in the Sugar refinery in Kenana Sudan in 1998 which was settled on arbitration for 108 Million Usd, the recent fire incident in Karachi & Lahore in Pakistan that killed about 315 people and led to a colossal loss of 2 big clothing facilities, the recent Dangote Sugar refinery fire incident (July 7, 2012) which underwriters have been advised to make a reserve of over N7 Billion naira are all case in point. Hurricane Sandy is on its way to causing untold billions of dollars in damage in the United States.
— INTRODUCTION(CONTD)
It is against this background that I seek to commence this interactive discuss with my knowledgeable audience by starting off with a peep into the conceptual discuss of HUGE FIRE & BUSINESS INTERRUPTION LOSSES.
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HUGE FIRE AND BUSINESS INTERRUPTION DEFINED:
HUGE FIRE AND BUSINESS INTERRUPTION DEFINED:
While fire can be defined as the state of combustion in which inflammable material burns, producing heat, flames, and often smoke, a huge fire could be likened to a Conflagration or a blaze which is an uncontrolled burning that threatens human life, animal life, health, or property. A conflagration can be accidentally begun, naturally caused (wildfire), or intentionally created (arson). Arson can be accomplished for the purpose of sabotage or diversion, and also can be the consequence of pyromania. During conflagration the property is damaged or destroyed by fire. Firefighting is the practice of attempting to extinguish a conflagration, protect life and property, and minimize damage and injury. One of the goals of fire prevention is to avoid conflagrations. ……..
— WHAT IS BUSINESS INTERRUPTION INSURANCE?
Business interruption insurance covers the loss of income that a business suffers after a disaster while its facility is being rebuilt. A property insurance policy only covers the physical damage to the business, while the additional coverage allotted by the business interruption policy covers the profits that would have been earned. This extra policy provision is applicable to all types of businesses, as it is designed to put a business in the same financial position it would have been in if no loss had occurred.
This type of coverage is not sold as a stand-alone policy, but can be added on to the business' property insurance policy or comprehensive package policy. Since business interruption is included as part of the business' primary policy, it only pays out if the cause of the loss is covered by the overarching policy
— WHAT IS BUSINESS INTERRUPTION INSURANCE?(CONTD)
The basic business interruption formula is:
Loss of gross profit/rent + Extra/Additional Expenses – savings in expense + reasonable claims preparation costs (e.g. accountants costs) = Business Interruption Loss
— LIMITING THE INTERRUPTION IN BUSINESS INTERRUPTION:
Following huge fire damage, insureds, brokers, and insurers are often confused by the extent to which business interruption insurance will respond to their loss.
The following are seven steps stakeholders should take before a catastrophe strikes their business.
v Conduct a Risk Analysis
v Develop Options To Mitigate Risks.
v Integrate Key Functional Business Leaders
v Create an Enterprise Security Plan.
v Develop a Crisis Management Plan.
v Establish a Crisis Management Team
v Practice the Plan
— LIMITING THE INTERRUPTION IN BUSINESS INTERRUPTION(CONTD)
Remember, you wouldn't want to learn navigation in the middle of the sea during a storm. Successful businesses learn from their mistakes and those made by others. Many businesses failed as a result of Katrina because they failed to plan for the worst. They did not believe it could happen to them. Consistent focus and consistent action can pay off in the event that an unexpected catastrophic loss event occurs.
— CONTROL OF FIRE AND BI LOSSES
Control of fire and BI losses encompasses both pre-loss and post loss endeavors;
PRE-LOSS
The best defense against loss is a series of interdependent programs created by management to identify and control fire, explosion, mechanical and electrical breakdown, and other perils, and to deal with the resulting emergency or contingency. Yet without feedback, it is impossible to tell whether programs have been implemented as management intended. The effectiveness of these programs must be continuously monitored because the failure of one or more of them significantly increases the potential for loss. Loss prevention audits provide management with a feedback mechanism that allows prompt detection of unsatisfactory conditions and initiation of appropriate corrective actions. It is suggested that loss prevention audits are conducted once a month.
— CONTROL OF FIRE AND BI LOSSES(CONTD)
v SMOKING REGULATIONS
v MAINTENANCE,
v EMPLOYEE TRAINNING
v PRE-EMERGENCY PLANNING
v INSURANCE RECOMMENDATIONS
v HAZARDOUS MATERIALS
v HOT WORK
v LOSS PREVENTION INSPECTION,
v SURVEILLANCE,
v HOUSEKEEPING,
v HAZARD EVALUATION,
v MANAGEMENT COMMITTED TO LOSS PREVENTION AND CONTROL,
v FIRE EQUIPMENT INSPECTION
— CONTROL OF FIRE AND BI LOSSES(CONTD)
POST LOSS:
After the initial chaos, confusion, and massive disruption typical of a catastrophic loss, a company is faced with a myriad of decisions. Most of them ultimately focus on the same issue: How can we mitigate the loss and resume operations as quickly as possible? A major part of this process typically includes repairing or rebuilding the damaged facility.
— CONTROL OF FIRE AND BI LOSSES(CONTD)
ISSUES TO BE ADDRESSED ARE:
v Notification of the underwriters.
v Immediate assessment of the situation to ascertain the magnitude of loss and to take inventory of human, material and financial losses
v Kick starting the Business continuity framework
v Assembling experts for the reconstruction
— FLOOD AS A PERIL COVERED IN A FIRE POLICY
With 25% of the population displaced, over 17 billion set aside for resettlement, Flood either man made or as a natural disaster has come to stay as warnings indicate of more perilous times ahead. How prepared are we to take on this challenge?
— FLOOD AS A PERIL COVERED IN A FIRE POLICY(CONTD)
RECOMMENDATIONS:
It is recommended that the every manufacturing concern should:
Ø Have a comprehensive pre-loss program and loss prevention audits
Ø Develop a robust Business continuity plan (BCP) in its crisis management program detailing emergency response/disaster recovery arrangements
The insurer should:
Ø Encourage loss prevention activities by means of incentives, offer high caliber, professional consulting to their insureds at no additional cost and encouragement community efforts at loss prevention.
Ø In liaison with the Government come up with a national flood Insurance program (NFIP) to address this real and disastrous challenge.
Ø Build capacity, do proper re-insurance and improve the technical depth of underwriting.
The Risk Surveyors should simply rise up to the occasion!
QUESTIONS AND DISCUSSIONS
THANK YOU
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