Pro active Risk Management What the Clubs are doing to prioritise risk and reduce claims

1. Pro active Risk Management What the Clubs are doing to prioritise risk and reduce claims International Marine Claims Conference September 2013 karl.lumbers@thomasmiller.com

2. What is the Club doing • What is the industry driver for proactive risk assessment • Money • Culture change • Regulation • What is risk • What can be done (practically) to reduce risk • What does P&I do best • New claim structure • What is the best use of that structure • What is the advantage of a risk based inspection • Conclusion

3. What is the Club doing

4. Bringing together the work of the • Claims execs • Underwriters • Ship Inspectors • Loss Prevention • …….. and Members “In a more focused way” • How • Initially • Analysis work of the 80’s/90’s • Ship quality/benchmarking work of the 90’s • Human Error/Latent Failure work of the late 90’s/00’s • The Risk Profiling of 00’s • Why • Less claims/Less premium

5. What is the industry driver for proactive risk assessment Profit Culture change Regulation

6. “Profit”

7. It’s not just about less claims/ less premium • Increased Insurance Costs • Increased Management Costs • Loss of Image/Reputation • Loss of Business • Loss of Profit

8. Shipowners generally not philanthropic In business to make a profit for themselves, their shareholders/investors But also under pressure to prove themselves (culture change)

9. “Culture change”

10. Not only are we now living in a world where there is less money in the system We now live in a “Show me” rather than a “Trust me” world

11. I’m a Doctor, Police officer, MP just does not work in todays society

12. Marine Industry - No different Charterers want to see evidence Authorities want to see evidence Courts want to see evidence Trust me I’m a large well established quality ship owner just does not work anymore SHOW ME !!!

13. “Regulation”

14. ISM Changes As from 1st July 2010 Port State Control want to see even more 1.2.2 Safety management objectives of the company should inter alia (establish safeguards against all identifiable risks) New assess all risks to its ships, personnel and the environment and establish appropriate safeguards.

15. More pressure, than ever before, on todays shipowner to show he is in “control” of his risks

16. So what is risk

17. Different things

18. …….. to different people

19. Risk can be expressed by the general formula: Risk = Frequency x Consequence In insurance terms number x value of claims

20. This formula gives you the ability to prioritise 1 Personal Injury Collision 2 Low Frequency High Value High Frequency High Value Low Frequency Low Value High Frequency Low Value FFO 3 Cargo Fines

21. Number and value of large claims by …… Cause of claim Port of incident Type of injury Type of accident Where accident occurred Time of day accident occurred Nationality of person injured Type of illness Type of cargo Type of damage to cargo Port cargo damaged in Port cargo loaded Port cargo discharged How was cargo damaged Who was responsible Etc …………….

22. As insurers we are risk managers So we do need to do something about it

23. So what can be done (practically) to reduce risk when money is tight • What does P&I do best • New claim Structure • What is the best use of that structure • What is the advantage of a risk based inspection

24. “What does P&I do best”

25. The strength of the P&I system Is its ability to measure damage caused by 90% of the worlds blue water fleet to Assets Environment People

26. What can we do as insurers • Not expert on running ships (22 mariners) • Can’t tell our Members what to do • We are expert on handling claims though • 600 claims 13$m a month • We use skilled claims handlers lawyers, correspondents, surveyors to investigate, underwriters to assess risk on a daily basis • We know what goes wrong – we pay for it WE KNOW THAT FOR EXAMPLE…………….

27. Personal Injury claims now cost more than cargo claims !!!

28. That the Main Cause of Large Claims is ………… With an increasing input of shore person error

29. That old ships aren’t always riskier than new…....... Not just old ships that have claims

30. PI Large Claims Location of incident %

31. PI Claims Type of Accident %

32. Collision Large Claims Type of Incident

33. Meteorological Conditions

34. That most Large Cargo Claims are caused by water damage %

35. The Clubs know what goes wrong - they pay for it BUT At the moment a lot of the data lies unstructured/unused in computers

36. We need to pull it together Ventilator leakage Bilge line non return valve not working Draught survey error Liquefaction Hatch top dogs missing Rain during loading Poor quality bags Inadequate ventilation Crack in tank top Tarpaulin segregation not suitable Cargo wet prior loading Weighbridge error (calibration) Drain pipes blocked Bunker tank manhole lids not secured Hatch cover rubbers worn Wet dunnage Ballast line left open Inadequate ventilation Hold coating unsuitable Poor quality dunnage Unable to close ventilators in bad weather Debris in cargo Top side ballast tank leakage Poor design of vents Burst bags not accounted for Poor separation of cargo De humidifiers inoperable Hatch cover rubbers missing Use of improper handling equipment Scupper pipe corroded Bunker tank vent pipe failure Stevedore pilferage Charterers failed to clause mates receipts Poor tallying High moisture content Bilge pump in operative Caked cargo Inherent vice Hatch cover side cleats not tensioned correctly Smoking Infestation Corroded compression bar Hydraulic leakages Bills not in accordance with Mates receipts

37. How ?

38. “Develop a claim structure”

39. By using a simple tried and trusted methodology Threat & Consequence Analysis

40. Hazard Preventive Recovery controls Release preparedness Some people call it bowtie Impacts/Consequences Causes/Threats • To prevent the release of a hazard we need to have controls in place to reduce the risk of that upset, and we need to have recovery measures identified to stem the consequences if the hazard release causes an serious incident to develop.

41. Who is using this Methodology

42. Let’s put this into a marine context ……..

43. We know that Risk = Frequency x Consequence • So from the graph below we can see the number of claims (red) x value (blue) • But we have to prioritise – we can’t solve all the problems at once Water damage is clearly high risk

44. So lets have a look at this in marine terms • We know that one of the HAZARDS of carrying cargo is that it can get damaged • We know that one of the THREATS that can cause damage is water. • We know that the CONSEQUENCE of water damage to cargo is invariably a claim • This is not rocket science owners already know this and they have lots of CONTROLS in place to prevent the damage occurring in the first place and lots of CONTROLS in place to reduce the extent of damage once it has occurred

45. So let’s develop this basic methodology • So we can • Record the Threats, Consequences and Controls relevant to the Club’s claims • In a consistent/repeatable manner so we can provide a ongoing benchmark against which to measure risk • Build up a history for reference • Show the problems clearly to everyone from ship to boardroom • Prove to others that Members are in control of their risks Industry needs this as we know ……………….. “You can’t manage what you can’t measure”

46. So this is our basic claim structure Hazard Something that has the potential to cause a P&I incident Threat Something that if not controlled could cause a P&I incident Consequence (think claim) What is the monetary cost to the Club Carriage of Cargo by Sea Cargo by sea Loss/Damage to Cargo Controls Something which reduces the possibility of that threat causing an incident/event, something which we see fail and cause claims Controls What things should be in place to mitigate the cost of that claim once the incident has occurred What are we checking How effective is that control, are there failures just waiting to happen (latent)

47. Of course water is not the only THREAT which if not CONTROLLED could cause a claim we also have • Cargo Securing • Theft/Shortage/Quantification errors • Contamination/infestation • Ventilation errors • Pre shipment quality of cargo • Fire • Stability error To name a few

48. Hazard Carriage of cargo by sea (Bulk Carrier) Carriage of Cargo by Sea Threat Something that if not controlled could cause a P and I incident Consequence (think claim) What is the monetary cost to the Club Loss/Damage to Cargo Incident

49. Full Cargo Risk Profile (Bulk Carrier/General/Reefer)

50. Full Cargo Risk Profile (Bulk Carrier/General/Reefer)