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 take 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 $1.5 million dollars (USD).
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; 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 solutions across its entire facility. By digitizing its paper activity logs and shift handovers, the company not only streamlined processes, but it enforced accountability and consistency across processes 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 Operations Management solutions 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 (USD) will likely pay on the order of $2.5 million (USD) 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 (USD). 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 PPM’s 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 2020 article from PlantServices.com: Refineries that postpone planned maintenance downtime to boost profits are facing disastrous consequences.
Alan is a Senior Industry Consultant with Hexagon PPM. He has managed and delivered software projects for clients operating Manufacturing and Power Generation facilities for over three decades. Specializing in the application of Hexagon’s j5 Operations Management software, Alan currently manages a number of separate j5 implementations for a long-time LNG customer and also meets with new and potential clients to discuss their business processes, requirements and challenges – and how j5 or another Hexagon solution could best be applied to help address those challenges.