CONTROLLING HUGE FIRE AND BUSINESS INTERRUPTION LOSSES IN MANUFACTURING

—  CONTROLLING HUGE FIRE AND BUSINESS INTERRUPTION LOSSES IN MANUFACTURING
INDUSTRY

—                   Being a paper presented by:

—                           Mr. Raymond Akalonu

—   TO THE RISK SURVEYORS ASSOCIATION OF NIGERIA CONFERENCE 

—    

—   1^ST OF NOVEMBER 2012

—   

—  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.

— 





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

   Ray.akalonu@dangote.com

   0802-314-6910

Mitigation of Explosion and Fire in Oil Industry and the Effect on Community

•       Mitigation of Explosion and Fire in Oil Industry and the Effect on Community

•        PAPER PRESENTED BY EVARISTUS UZAMERE, CEO OF SAFETY ENGINEERING AND FIRE CONSULTANTS (NIGERIA) LIMITED ON THE OCCASION OF THE 2012 ANNUAL CONFERENCE OF RISK ASSOCIATION OF NIGERIA HELD ON THURSDAY, 1^ST  NOVEMBER 2012 AT SHERATON HOTELS AND TOWERS, LAGOS.

•       The Chairman,

•       The President and Executives of RISAN

•       Distinguished Ladies and Gentlemen.

•       Fire and Explosion in Oil Industry

•       The Piper Alpha Disaster in the North Sea on July 06, 1988 had the highest death toll in the Oil and Gas Offshore Operations.  165 of the 226 on board died.  The vast majority died from smoke inhalation (109). Over $1b lost.

•       During the Gulf War in 1991, 640 wells ignited in Kuwait.  Fires raged for more than eight months, consumed 2 billion barrels of oil and cost Kuwait US$100 Billion lost. 

•       $839m was lost at a petrochemical plant in Texas October 23, 1989 by a Vapour Cloud Explosion (VCE),

•       Fire and Explosion in Oil Industry

•       On October 17, 1998 at Jesse, Nigeria, a petroleum pipeline exploded killing about 1200 villagers, some of whom were scavenging gasoline.

•       On May 16, 2008, a pipeline exploded in the community of Ijegun, a suburb north of Lagos, Nigeria. The explosion took place after a bulldozer struck an underground oil pipeline. More than 40 killed.

•       Fire and Explosion in Oil Industry

•       In major refinery losses, 47% are due to fires, 30% explosions, 15% vapour cloud, 5% mechanical breakdown and 5% other.

•       At Terminal installations, Fires account for 41% of the losses, explosions 33% and mechanical failures 13%.  The majority of losses occur at storage units.

•       Definitions

•       Mitigation - the action of reducing the severity, seriousness, or painfulness of something.

•       Risk Mitigation covers efforts taken to reduce either the probability or consequences of a threat. These may range from physical measures (protective fences) to financial measures (cash, insurance).

•       Risk is defined as a function of the probability of occurrence of an undesired event together with a measure of its adverse consequences.

•       Hazard - The potential to cause harm, including ill health or injury; damage to property, plant, products or the environment; production losses or increased liabilities.

•       ALARP - To reduce a risk to a level which is ‘as low as reasonably practicable’ involves balancing reduction in risk against the time, trouble, difficulty and cost of achieving it. This level represents the point, objectively assessed, at which the time, trouble, difficulty and cost of further reduction measures become unreasonably disproportionate to the additional risk reduction obtained.

•       Four Phases of Emergency Management

•       Mitigation – Activities taken to eliminate or reduce the probability of the event, or reduce its severity or consequences, either prior to or following a disaster/emergency.

•       Preparedness – Activities, Programs and Systems developed and implemented prior to a disaster/emergency that are used to support and enhance mitigation of, response to, and recovery from disasters/emergencies.

•       Four Phases of Emergency Management

•       Response – In disaster/emergency management applications, activities designed to address the immediate and short-term effects of the disaster/emergency.

•       Recovery – Activities and Programs designed to return conditions to a level that is acceptable to the company.

•       Legal Aspects of Mitigation

•       The Mineral Oils (Safety) Regulations require that a licensee or lessee:

•       Develop and maintain contingency procedures and measures for the safety of personnel and equipment in emergency. 

•       Carry out a comprehensive risk analysis of the project in accordance with API recommended practice, where applicable, or other internationally accepted procedures, or documented standards of the licensee or lessee.

   

•        HSE-Management System

•       Leadership and Commitment - Top-down commitment and company culture, essential to the success of the system.

•       Policy and Strategic Objectives - Corporate intentions, principles of action and aspirations with respect to health, safety and environment.

•       Organisation, Resources and Documentation - Organisation of people, resources and and documentation for sound HSE performance.

•       Evaluation and Risk Management - Identification and evaluation of HSE risks, for activities, products and services, and development of risk reduction measures.

•        HSE-Management System

•       Planning - Planning the conduct of work activities, including planning for changes and emergency response.

•       Implementation and Monitoring - Performance and monitoring of activities, and how corrective action is to be taken when necessary.

•       Auditing and Reviewing - Periodic assessments of system performance, effectiveness and fundamental suitability.

•       Fire and Explosion Hazard Management

•       Identification of the hazardous events (coarse assessment)

•       Analysis and assessment of the hazardous events (type, areas affected, magnitude of the consequences, duration, likelihood, etc.)

•       Reduction of the risks from fires and explosions through inherently safer design;

•       Design to reduce the likelihood, scale, intensity, duration and effects of each hazardous event;

•       Identification and specification of the particular prevention, detection, control and mitigation measures needed for each hazardous event.

•       Fire and Explosion Hazard Management

•       Identification of the  People, Environment or Asset exposed to potential harm.

•       Assessing the potential consequences, likelihood of loss of control and the risk  and reduction to a level as low as reasonably practicable.

•       Control – Can the causes be eliminated? What controls are needed? How effective are the controls?

•       Recovery – Can the potential consequences or effect be mitigated? What recovery measures are needed? Are recovery capabilities suitable and sufficient?

•       Strategies for Mitigation

•       The Strategies for Disaster Mitigation shall include:

•       Integration of mitigation activities into development programs at all levels, such as installing effective and functional fire alarms in buildings.

•       Comprehensive costs and benefits analysis of possible measures

•       Short, medium and long term plan to sustain activities

•       National action plan to support and empower vulnerable communities

•       Promotion of participatory planning and management of activities with vulnerable communities.

•       Early Warning System

•       Some of the major tools for disaster preparedness, prevention and mitigation shall include Early Warning System (EWS), and contingency planning.

•       Early warning systems shall be designed to alert areas, communities, households and individuals of impending or imminent significant disaster events. It shall enable vulnerable groups to take necessary steps to avoid or reduce the risk and prepare for an effective response.

•       Disaster Mitigation

•       The activities for disaster mitigation shall include:

•       Conduct orientation and sensitization, such as dangers of pipeline vandalism.

•       Facilitate and promote implementation of various insurance policies for risk transfer.

•       Build capacity and increase awareness

•       Develop public safety communications system

•       Develop Emergency Alert Systems

•       Contingency stockpiling of food and non-food necessities. 

•       Conduct training and simulation exercises

•       Conduct stakeholders meeting.

•       Explosion Hazard Management Philosophy

•       The achievement of a condition where the explosion risk for the installation is reduced to As Low As Reasonably Practicable (ALARP)

•       CONTROL is better than MITIGATION is better than EMERGENCY RESPONSE.

•       As regards systems to reduce risk, PASSIVE systems are more reliable than ACTIVE systems are more reliable than OPERATIONAL systems are more dependable than EXTERNAL systems.

•       ALARP

•       To achieve an ‘ALARP’ design with respect to explosion hazards requires:

•       The identification of all areas of the installation where there is potential for explosion events to occur;

•       The elimination of the potential for explosion events to occur, or if this is not achievable, the minimization of the frequency of explosion events and, the minimization of the consequence of explosion events

•       The implementation of a safety management system which ensures that the above goals are consistently achievable.

•       Explosion Hazard Management

•       Explosion hazard management describes the features of an effective Safety Management System, discusses the choice and management of detection, control and mitigation systems and identifies the main characteristics of the hazard discussing minimization of the consequences of residual events which lead to an explosion event.

•       lnsurance

•       Insurance has sometimes been identified as a mitigation strategy, but this is not entirely accurate. It is rather a mechanism for spreading the financial risk posed by hazards. Thus, it is a recovery preparedness measure that reimburses the policyholder for the monetary value of property that has been damaged or destroyed. 

•       Conclusion

•        Review of a Past Fire Incident

Insurers to pay over N7 b claims on Dangote Sugar refinery fire mishap

Insurers to pay over N7 b claims on Dangote Sugar refinery fire mishap

Chuks Udo Okonta

Insurers are to pay over N7 billion claims on the fire incident that occurred at the Dangote Sugar refinery Inspen has learnt.

The General Manager, Group Insurance, Dangote Groups of Companies Raymond Akalonu, disclosed this at the 2012 annual conference of Risk Association of Nigeria (RISAN) in Lagos, adding that the incident occurred on July 7, 2012.

He noted that underwriters have been advised to make a reserve of over N7 billion, to indemnified the company on the loss caused by the inferno.

    He said: “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, 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.”

He suggested that loss prevention audits should be conducted in organizations once a month, adding that loss prevention audits would provide management with a feedback mechanism that allows prompt detection of unsatisfactory conditions and initiation of appropriate corrective actions.

He said 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.

He called for entrenchment of feedback mechanizing in loss prevention, adding that without feedback, it is impossible to tell whether programs have been implemented as management intended. He noted that the effectiveness of these programs must be continuously monitored because the failure of one or more of them significantly increases the potential for loss.

Shareholders laud NAICOM’s intervention in erring firms

Shareholders laud NAICOM’s intervention in erring firms

Chuks Udo Okonta

Shareholders have thrown their weight behind the National Insurance Commission (NAICOM) on the taken over of the management of erring insurance companies.

 The commission today Thursday, took over the management of Goldlink Insurance Plc, having took charge of Alliance and General Insurance two months ago.  

The President, Nigerian Shareholders’ Renaissance Association, (NSRA) Olufemi Timothy, told Inspen that an industry were regulation is not effective, there is danger to the stakeholders, adding that with the kind of measure, taking by NAICOM, all underwriters will now sit up.

He said: “With the measure taking by NAICOM, underwriters would now see the commission as a dog that can bark and bite. It is a good development that some people are made scrape goat. We have been complaining of uncomplimentary things going on among the underwriters.

“Now that NAICOM has risen to punish them, they would realise that most of the things they have been doing that they can escape with them.

“The step taken by NAICOM is a good development and it portends a good future for the industry.

On why shareholders have be silent over the rot that is now being uncovered by NAICOM, he said:

“When you talk of shareholders in the insurance industry, you are likely to have 200,000 of us. Where you have 200,000 shareholders, opinions would vary. Some of us who are active have been talking of the misdeeds in these companies, but no body listened to us. We have been calling on the regulators to look into the accounts of these firms, but no body cared to listen, but now that we have got somebody who is ready to listen and take action, we are happy that our voices would be adhered to and our complains would be acted upon.”

Secretary, Nigerian Shareholders Solidarity Association (NSSA) Gbadebo Olatokunbo, said the taken over of the company is a good development, adding that it would raise the confidence of stakeholders.

 He noted that the taking over of the firm would serve as deterrent to other operators who have been exhibiting carefree attitude in carrying out their responsibilities.

NAICOM in a statement said has constituted a seven-man interim board of directors to oversee the affairs of Goldlink Insurance Plc with effect from November 1.

It noted that the constitution of the interim board is sequel to the recent resignation of members of the board of directors of the company following anomalies/misstatements discovered in the audited financial statements of the company for the year ended December 31, 2011.

The interim board has been, among others, charged with the responsibility of carrying out full investigation of the financial reports and corporate governance failures observed in the course of reviewing the company’s financial statement for the year ending December 31, 2011.

The interim board, which shall be for six months in the first instance, has Mr. James O. Ayo, as Chairman, Mr. Gbolahan Olutayo, as Managing Director and Mr. Adeyinka Olutungase, as Chief Finance Officer.

Other members of the interim board include Ambassador Umar Damagun, Alhaji Sashe Dabana, Prof. Chioma Kanu Agomo and Mallam Abubakar Sadiq Mijinyawa (independent director).

It is important to note that this development does not any way affect the capacity of the company to provide dependable insurance services.