Worldwide the need for a risk management approach within engineering inspection is growing. Phil Wright, chief engineer for Allianz Cornhill Engineering, explains why it is increasingly being adopted by the industry.
Having an effective, thorough and rigorous risk management approach to the inspection of plant, machinery and equipment is now more important for companies than ever.
Modern businesses in today's highly competitive global economy will find that diligence in relation to plant and equipment makes good business sense. Consideration must be given not only to the capital cost incurred of replacing a piece of equipment and machinery, and resultant loss of revenue due to business interruption, but also to the health and safety of the workforce.
So whether a firm has a dependency on delivering effective service from the office, or is reliant on plant and equipment in a factory, it is essential that an effective risk management approach is adopted.
The catalyst for this globalised risk management approach is the global business drive, which achieves a high standard of health and safety for employees. The raising of standards of health and safety within the workplace is a direct result of European and, more recently, British Government intervention.
Jack Straw's recent proposals for a change in the law regarding corporate manslaughter will make firms and directors more accountable for injuries and deaths within the workplace. This development places an even greater emphasis on the firms' responsibility to ensure that the correct risk management procedures and processes are in place.
Engineering insurance companies, together with the broker who acts as the first point of contact with the client, both have an important responsibility to provide clients with appropriate risk management guidance. The unusual and particular requirements for the the Broker/Engineer Surveyor/Client relationship have been well documented.
However, although the engineer surveyor delivers the actual physical inspection, the broker's role in conveying the benefits and the additional risk management aspect of the surveyor's role remains crucial.
The role of the broker and engineering insurer lies not only in helping businesses identify and control risk, it is also in highlighting the additional benefits of these activities. Businesses, faced with increased legislative demands as instigated by European directives, are often very negative about these developments. This can, if not properly managed, result adverse feelings about everything involved with the legislation.
The engineering insurer and broker are first in line. Instead of saying “don't shoot the messenger”, it is more constructive to ensure that the message is presented in as favourable a light as possible.
Consequently, the traditional nature of engineering inspection based on insurance and prescriptive legislative requirements is being rapidly updated. There has been an adoption of the global risk management approach to complement the drive to improve standards via European regulations.
The smooth working of the relationship between the broker and the engineer surveyor's is central to delivering clients with both guidance on the requirements that regulations make on individual companies, and, ultimately, implementation.
Risk assessment can be dependent on both the type of discipline that the surveyor specialises in and the working environment that is to be inspected – whether it is an office, a construction site, a restaurant or a factory, for instance.
There are three basic disciplines within the engineer surveyor field: the pressure systems, the lifting and handling, and the electrical and local exhaust ventilation (LEV) disciplines. These disciplines, along with the various working environments all present different challenges in terms of assessing risks and defining the safety issues that emerge.
For instance, in service industries such as hotels, risk assessment is an integral part of the inspection process, especially for health and safety concerns.
In hotel kitchens, where there is a stronger likelihood of contact between electricity and water, the inspection needs to be regular and thorough, particularly when there is a high turnover of part-time, relatively unskilled staff. Bacon slicers, glass washers and general food preparation presents a significant risk to health and safety of employees and customers.
Surprisingly, it is still not unusual in the service industry for maintenance to be on a breakdown and repair basis. This failure to adopt preventative measures also has repercussions for the industry, in terms of the financial loss in revenue. A common problem encountered at many sites and offices by pressure system engineer surveyors is that of the respective client's boiler operating regimes.
A common problem occurs when boilers are run with inappropriately dosed feed water which results in potentially serious consequences. Poor maintenance of a boiler combined with feed water treatment will result in the accelerated corrosion of the boiler tubes. This often has implications for the entire manufacturing processes when deterioration has become so expensive as to require boiler renewal.
This example illustrates where risk management in process engineering can save money and lives. It is generally acknowledged that, if a boiler breaks down in a process engineering plant, it will present a real danger and threat to the health and safety of employees. However, a boiler breakdown also incurs both capital cost in replacing the boiler and pipe network, as well as a business interruption cost, resulting in lost revenue due to a lack of power.
In the world of construction, there are obvious health and safety risks, but firms are less appreciative of the huge financial costs that occur due to the failure to obtain a vital replacement component for faulty machinery.
For example, the availability of spare parts for a crane's gearbox may be very limited and, as a consequence, replacement incurs a high capital cost as well as the cost to the business as work is suspended. Where an accident has occurred at work, the result will not only be possible human cost but also the loss while the accident area is quarantined for the purposes of an enquiry.
Europe's and the Government's drive to raise the standard of health and safety in the workplace should not be seen as a burden for today's companies. The risk management as offered by the engineering inspection industry is a positive step forward.
Managing directors realise that if an accident or death occurs within their company's workplace, the damage incurred to the business from the negative publicity alone is enough to ensure correct standards are in place. So whatever area the surveyors examine – whether it be geotechnical aspects, ground water control, flood prevention, third party risks, correct use of plant and equipment or fire – a risk assessment strategy is used.
It is understood that the engineer surveyor's inspection of a client's plant and machinery is unique, in that few other kinds of insurance involve a physical inspection of equipment direct from the insurance company itself. On the commercial side, the broker – in advising the client of the new risk management approach – can also point to the benefits of independent third party inspection.
The advantages of having an such an independent inspection cannot be underestimated, as an independent engineer surveyor often discovers that even the most obvious faults can be overlooked. An in-house team can become over-familiar with the plant and machinery that they are working with on a daily basis.
Apart from the superior risk management benefits of an independent third party inspection, there is also the fact that independent inspectors do not have a direct interest in the size of any maintenance contract that may result from inspection. In-house or outside maintenance teams have been known to enhance the amount of recommended maintenance work required, in order to bump up the final quote for the contracted work. Hence, employing a third party inspection firm can also be a potential cost saver.
Similarly, another important area that the broker can highlight – particularly for construction and civil engineering firms – is the risk assessment of fire. Industry figures show that there are approximately 4,000 fires on construction sites each year. The cost of fire damage, which can run into millions of pounds in cases such as the Nat West Tower and the London Underwriting Centre, could be avoided.
A surveyor's inspection would ensure that there was a fire plan present on site in order to ensure there were site precautions, fire detection devices and alarms. Surveyors deploy risk management skills to examine the installation for appropriate signs, the presence of fire retardant and non-combustible materials in high risk, “hot work” designated areas.
The overall assessment would also include ensuring sound maintenance of gas and electricity supplies, the safe storage of materials and equipment, security measures to minimise arson risk and adequate fire brigade access and facilities. This is a prime example of the thorough and rigorous inspection that occurs when fire prevention and safety is examined.
Engineering insurance has evolved to take account of the global drive to raise standards of health and safety along with maximising the efficiency and productivity of companies.
The adoption of cost-effective risk management across the global economy is crucial to the success of this brave new world. Engineering insurance companies, working alongside brokers, have a great responsibility to clients in the months and years ahead.