Presentation on theme: "INSURANCE: AN EFFECTIVE RISK TRANSFER VEHICLE"— Presentation transcript:
1INSURANCE: AN EFFECTIVE RISK TRANSFER VEHICLE PROJECT RISK MANAGEMENT & ALLIANCEFOUR POINTS BY SHERATON HOTELSHANGHAI, CHINAOCTOBER 22-23, 2009INSURANCE: AN EFFECTIVE RISK TRANSFER VEHICLEGood afternoon.I would like to thank Marcus Evans for promoting PROJECTS RISK MANAGEMENT & ALLIANCES.Nowadays, Risks are becoming more and more complex and losses and exposures take place in huge magnitude.Recently, our country, the Philippines was hit by two strong typhoons that devasted the northern part of the island of Luzon,severely affecting lives and properties.Almost simultaneously, there was earthquakes and tsunami in Samoa, earthquakes in Indonesia and floods in India.During our lifetime, we were able to come across unimaginable losses—either financial, damage to properties or loss of lives.Some major losses that impact the way we do business today were total losses in Bhopal, Bintulu Refinery, Toulouse Chemical Plant,Piper Alpha oil platform, Exxon Valdez, Barings and Enron collapse, UBS and AIG losses, Financial Sector losses in USA and UK.Imagine the rehabilitation and restoration needed to fund all of these physical and material losses amounting to billionsand trillons of dollars?And what about the loss of human lives which cannot be replaced?And EPC Project risks is just one of the many risks that we have to manage properly, hence Project Owners andStakeholders will not only lose huge sums of money but the beneficiaries of such projects will be compromised,and it could mean, make or break for a nation and its people.CARLOS H. YTURZAETA Director, E&RM Phils., Inc.
2PRESENTATION OVERVIEW PROJECT RISK MANAGEMENT & ALLIANCEPRESENTATION OVERVIEWPresentor’s PerspectiveEPC Projects/Types of EPC ProjectsEWRM: Foundation of INSURANCEProject Players ConcernsCREDITORSCONTRACTORSPROJECT OWNERSINSURERSEPC Project Activity/Project ParticipantsSome Common Loss Exposures in EPC ProjectsINSURANCE Solutions/Benefits/Claims AdministrationPost Loss ObjectivesNo substitute for a Comprehensive EWRM.My presentation will cover the following:Perspective, types of projects, and so on.
3PRESENTOR’S PERSPECTIVE PROJECT RISK MANAGEMENT & ALLIANCEPRESENTOR’S PERSPECTIVEAs an Insurance Officer – Project OwnerAs a Risk Manager – Project OwnerAs an Insurer/Reinsurer/Reinsurance BrokerAs a Claims ManagerAs an Auditor/Accountant/Compliance OfficerIn this presentation, my perspective is more as a PROJECT OWNER.For 25 years, I have worked in an energy conglomerate called Philippine National Oil Company (PNOC).PNOC is engaged in refining, distribution and marketing of oil; renewable energy like geothermal, coal, and gas;exploration of oil, gas, geothermal and coal; shipping and transport as well as dockyard operations; research and development ofrenewable alternative energy like biogas, ethanol, biodiesel.Saudi Aramco was a partner at the oil refining and distribution under PETRON CORPORATION from while thePhilippine Government l holds 40% ownership of the company and the public with 20%.Today, it is already a completely privatized company.For 25 years I held various positions from auditor, accountant, compliance officer, insurance officer, risk and property manager,insurer and reinsurer, claims manager and project owner representative.However, in Dec 2002, at the age of 49 years old,I exercised an early retirement and for seven years now, I have been enjoying a fairly good exciting life of balance betweenrest and recreation, professional development and social, community and charity work.And one of the things that occupy my professional development work is my passion for Risk Management and Captive Insurance.
4EPC PROJECTS:MEGA PROJECTS PROJECT RISK MANAGEMENT & ALLIANCEEPC PROJECTS:MEGA PROJECTSMajor infrastructure that costs over US$1 Billion.Projects attracting high level public attention.*Projects inviting high level political interest.*Substantial direct and indirect impacts on the community and environment.*Projects with large magnitude of tasks involved in planning, developing and management.*Design and Construct; Turn-key Basis; Design and Build; Lump-sumEPC Projects are more or less synonymous with Mega Projects – huge infrastructure projects.*Maybe below US$1 billion but the impact is great.
5According to Ownership PROJECT RISK MANAGEMENT & ALLIANCEEPC PROJECTSAccording to OwnershipGOVERNMENT – OWNED (Petronas, Pertamina, PNOC, PTT, PROC, etc)Wholly-financed by governmentPartly government and partly privatePRIVATELY -OWNED/PRIVATELY- FINANCEDMay have different ownership structure - JVs, SPVs,JOINT VENTURE – PRIVATE AND GOVERNMENTWholly - private but with government investment/financingPartly private and partly government but managed by privately…with different ownership structure.NOTE: SOME PROJECTS ARE SELF-MANAGED
6EPC PROJECTS According to Purpose PROJECT RISK MANAGEMENT & ALLIANCEEPC PROJECTS According to PurposeUTILITIESWATER SUPPLYWATER DISTRIBUTIONELECTRIC DISTRIBUTIONHUGE SUBSTATIONSDESALINATION PLANTSMASSIVE IRRIGATION SYSTEMSENERGYPOWER PLANTSTRANSMISSION LINESOIL AND GAS (UPSTREAM, DOWNSTREAM)PETROCHEMICALSMINING & EXPLORATIONGEOTHERMAL & COALWINDPOWERHYRDRO & WINDPOWER PLANTS…..and different purposes and objectives and benefits to community and country.
7EPC PROJECTS According to Purpose PROJECT RISK MANAGEMENT & ALLIANCEEPC PROJECTS According to PurposeTRANSPORTROADS & BRIDGESMASS RAIL TRANSPORTAIRPORTSTUNNELS & WATERWAYSHARBORS & PIERSVESSELSTELECOMSTELEPHONE LINESTELECOMS TOWERINTERCONTINENTAL CABLES AND LINESSATELLITES
8EWRM: THE FOUNDATION OF INSURANCE PROJECT RISK MANAGEMENT & ALLIANCEEWRM: THE FOUNDATION OF INSURANCEBefore I formally proceed with the discussion on the USE OF INSURANCE in EPC PROJECTS, I would like to give you the FOUNDATION of INSURANCE, which is RISK MANAGEMENT.INSURANCE is part and parcel of EWRM. It is an important tool in Risk Finance.RISK MANAGEMENT 101
9RISK MANAGEMENT ENTERPRISE-WIDE The Total Approach to the protection of assets, earnings, liabilities, reputation, and personnel against predictable and unpredictable losses in order to achieve the maximum efficiency at minimum cost.Risk Management is now called Enterprise-wide Risk Management because the risk exposures of an organization or even a countryand its people are so huge and complex that a TOTAL APPROACH is necessary in order to protect lives, properties and environment.Modern definition of Risk Management or Enterprise-wide Risk Management. The old definition simple dealt with insurable assets that were insurable.
10THE RISK MANAGEMENT PROCESS Here is my favorite Graphical Chart on EWRM. EWRM is a PROCESS.It consists of Identification, analysis, control, finance and administration.
11RISK IDENTIFICATION METHODS (Risk Profiling)Survey or questionnaireGoing through the Company’s financial recordsReview of contracts, audit reports and surveysFlowcharting of operationsConsulting/Engaging 3rd party expertsOcular and physical inspectionTable top discussion/interview with key personnelRisk identification or Risk profiling is the first step.There are many ways of identification and profiling and I will not discuss this in detail anymore.
12RISK MEASUREMENT/ANALYSIS Frequency - probability or chance/likelihoodWorkshop/BrainstormingLoss HistoryForecastingSeverity - impact of losses/adverse effectsPML, EML, mathematical modelsImpact on 3rd partiesSimulation modelsThe second step is Risk Measurement and Analysis.After identifying the risk and/or loss exposures, we measure the FREQUENCY and the SEVERITY of the LOSS.FREQUENCY is the probability or the chance or the likelihood that such event will occur.SEVERITY is the impact or adverse effects of an event if it occurs.
13RISK MEASUREMENT/ANALYSIS F r e q u e n c yImprobableSevrityRegularLOSS CONTROLandPREVENTIONNegligibleRETENTIONThis quadrant is what I normally use in my presentations about EWRM.You can find other books, presentations and lectures containing more boxes, sometimes 6, 8 or even more.But I would like a simple one. One that is basic. A quadrant.Here we can see that the FREQUENCY of an event could take place from improbable into regular while the SEVERITY ofan event could be negligible towards being catastrophic.I use the quadrant to measure SEVERITY & FREQUENCY in order to identify what POSSIBLE EWRM SOLUTION can be usedin order to mitigate, reduce and control the adverst effects of the event.And if you look at this quadrant, INSURANCE is only one of the many EWRM solutions to mitigate effects ofnegative/adverse events.CRISIS MGMNTGood GovernanceBus Continuity PlanDisaster Recovery PlanINSURANCEBus. Continuity Plan Disaster Mgnt PlanEmergency Mgnt PlanCatastrophic
14RISK MANAGEMENT TECHNIQUES RISK CONTROL – Stop losses from happening or if it happens, reduce the effects and impact of the loss.AND/ ORRISK FINANCE - Provides fund if and when losses occur.The 3rd step of EWRM is to adopt an appropriate/applicable EWRM Technique, whether to CONTROL or FINANCE or to do both.
15RISK CONTROL RISK FINANCING 1. Retention through 1. Risk Avoidance RISK MANAGEMENT TECHNIQUESRISKCONTROLRISK FINANCING1. Retention through- Deductibles- Reserve/Funds- Current Expensing- Borrowing- Self-Insurance- Captive Insurance2. Transfer through- INSURANCE- Hold Harmless/Outsource1. Risk Avoidance2. Loss Prevention3. Loss Reduction4. Segregation of Risks5. CombinationDiversificationOutsourcingRisk CONTROL is basically avoidance, prevention, reduction, segregation, combination, diversification and outsourcing.Risk FINANCE on the other hand is retaining risks and losses through deductibles, reserving, expensing, borrowing,self-insurance and captive insurance while transferring risks and losses thru INSURANCE and hold harmless clausesand again, outsourcing the risk exposures.
16CONTROL (Avoid, Prevent, Reduce) QUESTION: CONTROL OR FINANCE?CONTROL (Avoid, Prevent, Reduce)In an EPC contract or Project Management contract, the project owner and all parties concerned should have to strike aproper balance in order not to compromise the interests of the various parties involved, especially the ultimatebeneficiaries of the project.The questions to be asked are: Is there enough financial resources to immediately rebuild, restore and replacein case there is a loss. Is there an adequate risk transfer mechanism to fund such restoration and rebuilding?If the answer is leaning towards NOT ENOUGH, then, the organization should really have a comprehensive EWRMcontrol program in place.FINANCE(Retain or Transfer)IDEAL: PERFECT BALANCE
17RISK MANAGEMENT TECHNIQUE TRANSFER INSURANCEEAR, CARGuarantees and BondsALOP following EAR, CAR, MarineCost OverrunRepayment GuaranteesErrors and Ommissions, Professional IndemnityReinsuranceNon-insurance transferscontractual transfershold harmlessoutsourcing or subcontracting-use of 3rd party experts.TRANSFERRING of risks is a risk management solution of last resort.The key to managing risk is CONTROL—anticipate, avoid, prevent, reduce, recovery, continuity of operations.Since we’re talking about maximizing insurance as a Risk Management Technique, we will deal with all theinsurance coverages applicable to EPC Projects.Actually, EPC Project-type of arrangement is a Risk Management approach in order to minimize huge loss exposureson the part ofthe Project owner. The project is outsourced, there is a fixed contract price, all responsibilities are defined and cost-benefitsare properly considered even in the start of the project.That in itself is Risk Management in contrast to a project that is handled by the owner himself—engineered, procured,construct, funded, operated, maintained, paid, etc. by the owner.May it be an EPC Contract or a Project Management Contract, Risk Transfer through INSURANCE, Reinsurance andNon-insurance transfers like contractual transfers, hold harmless clauses and outsourcing and subcontracting,INSURANCE PRINCIPLES & PRACTICES are still the same.
18RETAINED/FUNDED RISK (Deductibles, Funded Self Insurance, etc) QUESTION: RETAIN OR INSURE?RETAINED/FUNDED RISK (Deductibles, Funded Self Insurance, etc)Again, there has to be a perfect balance in transferring risks. Not all INSURANCE PROVIDERS will accept all types of risks.Some of these risks like those predictable recurring and normal events, those caused by gross negligence,gross incompetence and grave erroneous conduct, and finally, the extreme ones like sabotage and terrorism,fraud and syndicated felonies could hardly if not totally be insured.TRANSFERRED RISKS(Insurance and Hold Harmless)IDEAL: PERFECT BALANCE
19CONTROL OR FINANCE RETAIN OR TRANSFER? CORPORATE CULTUREFINANCIAL STRENGTHLOSS HISTORYMARKET CONDITIONMANAGEMENT STYLENote: Management may set a policy on risk retention and transfer once the EWRM is set in place.At the end of the day, the balancing act of INSURING/TRANSFERRING risks and RETAINING/ABSORBING risks dependson several factors:The culture of the organization whether they are risk takers or risk averse.The financial strength of the company, whether they have enough funds to absorb risks or not.The loss history, whether losses dominate their projects in the past or not.The industry situation, whether or not the present situation is inclined towards insurance or towards prevention and control.And of course, the Management style.
20PROJECT RISK MANAGEMENT & ALLIANCE MAXIMIZING THE USE OF INSURANCELet us now evaluate how we can make optimize the use of Insurance as a Risk Financing mechanism to protect thevarious interests in the EPC projects.
21EPC PROJECT PARTICIPANTS HOSTGOVERNMENTSUPPLIERSEQUIPMENTMANUFCTRSFEEDSTOCKSEPCCONTRACTORSUB-CONTROPERATORADVISORSLEGAL/EWRMCREDIT/FINANCEENGRS/CONSULTPROJECT OWNER*First of all, let us identify who are the key players of the PROJECT, may it be EPC or other types of mega projects,regardless of the ownership and relationship structure. Each interest should be properly protected and INSURANCEis one of the most important tool in Managing Risks.POWERPURCHASERSDISTRIBUTORSINVESTORSCREDITORSLENDERSINSURERSREINSURERSGUARANTORS*COULD TAKE MANY DIFFERENT FORMS: JV, MULTIPLE OWNERS, SPVS, INVESTORS ONLY DURING CONSTRUCTION, ETC.
22EPC PROJECTS: PHASES OF ACTIVITIES PLANNING/DESIGNING/COST BENEFIT/FEASIBILITY/SELECTION OF FINANCIAL ADVISORS/LENDERS/INVESTERSESTABLISHING PROJECT OWNER/COMPANY/EITHER EXISTING OR NEW ENTITYFINANCIAL CLOSING/BIDDING OF PROJECT/CONCLUSION OF CONTRACTSWe also have to know the different phases of activities involved in the PROJECT—from conceptualization, feasibility study,planning, designing, selection of advisors, establishing the project owner, financial closing, bidding, conclusion of contracts,construction, shipment of machineries, commissioning and testing.SHIPMENT OF MACHNERIES & EQUIPMENT/CONSTRUCTIONCOMMISSIONING AND TESTING
23EPC PROJECTS: PHASES OF ACTIVITIES (Con’t) TURNOVER/ACCEPTANCE BY PROJECT OWNER/COMPANYTURN OVER TO OPERATOR AND/OR MANAGEMENT COMPANYCOMMERCIAL OPERATIONS/ACCOMPLISHMENT OF OBJECTIVES OF THE PROJECT….turnover and acceptance by the PROJECT OWNER, turnover to Operator and/or Management Company, commercial operations,payment to lenders and creditors and investors, generating income to pay for lenders and investors, and continuous operations.GENERATING INCOME/PAYMENT TO LENDERS/INVESTORSFULL PAYMENT AND CONTINUOUS OPERATIONS
24SOME OF THE RISK/LOSS EXPOSURES EPC PROJECTS RISK MANAGEMENTSOME OF THE RISK/LOSS EXPOSURESSUBSTANTIAL COST OVERRUNS >50% OF ORIGINAL COST.SUBSTANTIAL BENEFIT SHORTFALLSBANKRUPTCY OF PROJECT OWNER/CONTRACTOR/OPERATORWITHDRAWAL OF LENDERSCANCELLATION OF HOST GOVERNMENT PERMITSPOLITICAL RISKS LIKE WAR AND TERRORISM.WITHDRAWAL/BANKRUPTCY OF INSURERS AND REINSURERSDELAY START UP AND DELIVERY.DELAY IN EQUIPMENT PROCUREMENT AND DELIVERY.LOSSES DURING CONSTRUCTIONLOSSES DURING COMMISSIONING AND TESTING.WITHDRAWAL OF POWER PURCHASER OR DISTRIBUTORCURRENCY FLUCTUATIONSUNSTABLE LAWS, LEGAL &, REGULATORY FRAMEWORK, PRICINGERRORS IN DESIGN AND RESULTANT SPECIFICATIONSKnowing the key players of the PROJECT and the PHASES OF ACTIVITIES will then give us the various risks and loss exposuresthat surface before, during and after project implementation.
25Stable contract price; Cost overruns provided EPC PROJECT RISK MANAGEMENT: CREDITORS’/LENDERS’ CONCERNS (Bankability/Acceptability of Project)Project completion as scheduled: normally tied up with off –take agreements or income generation.Stable contract price; Cost overruns providedProvision for Extension of Project Costs and Project Completion dateOutput/Off-take Guarantees (ALOP/DLD)Limited liability of Project Owner to ContractorPerformance & Surety Bonds – 20% performance and 10% surety for design & latent defects & Retention.Security from Contractor (Consortium and its Head Offices): Back to Back GuaranteesAnd every PROJECT key player has its own concerns and issues to settle. Take the case of the CREDITORS/LENDERS.Lenders are exposed more than anyone else in the PROJECT, especially in PROJECT MANAGEMENT where the collateral isthe COMPLETED PROJECT itself.If the Project fails, the Creditors will certainly be left holding the bag. Major concernstherefore are Costs, Completion and Realization of Project benefits.
26EPC PROJECT RISK MANAGEMENT: CREDITORS’/LENDERS’ CONCERNS (continued) Viability of project maintained until operation.All changes/milestones communicated to Lenders.Lenders named as additional co-insured.Limited design and techno risksLowest Country, political and credit risks.Comprehensive Insurance Cover (seamless cover)Guaranteed Payment of Loan.Smooth Certifications Process (acceptance, commissioning & testing, governments, environmental, international standards)Moreover, Creditors and Lenders are concerned by the project viability until the loan is fully paid and secured.In some instances, Lenders would want to be named in the policy to the extent of its exposure in the project.Creditors are worried about country risks, design and techno risks, seamless insurance cover, and governmentand industry standards certification process.In fact, some Creditors require certifications as a pre-requisite forthe final financing draw-down.
27EPC PROJECT RISK MANAGEMENT: CONTRACTOR’S CONCERNS COMPREHENSIVE INSURANCE PROGRAMSEAMLESS INSURANCE PROGRAMOWNER CONTROLLED INSURANCE PROGRAMHOST COUNTRY LAWS, REQUIREMENTS.LOCAL EXPERTISE –SUPERVISORY & LABORLOCAL MATERIALS & EQUIPMENTLOCAL SUB-CONTRACTORS—ENGINEERING & SUPPORT SERVICESREASONABLE PROJECT OWNERThe Project Contractor on the other hand has its own concerns and issues to reckon with. Being the one on theContractors are becoming more selective. Especially is oil and gas projects, Contractors are limited andProject Owners and Sponsors are also categorized as Class A, Class B and Class C in terms of professionalism and integrity.
28EPC PROJECT RISK MANAGEMENT : PROJECT OWNER’S CONCERNS THE MOST APPROPRIATE PROJECT THAT WILL GIVE THE DESIRED BENEFITS/OBJECTIVESAN IDEAL CONTRACTOR/MANAGER/SUPPLIERATTRACTIVE FINANCING SCHEME & LIBERAL CREDIT TERMS AND CONDITIONS.SEAMLESS INSURANCE PROGRAMLEASE COSTEFFICIENT CLAIMS ADMINISTRATIONTECHNICAL SUPPORT SERVICESCLASS ‘A’ REINSURERSMunich Re, Allianz, Hanover Re, General-Cologne ReSwiss Re, Zurich Financial ServicesSCOR, AXAGARD; Scandinavian RILloyds Syndicates/Bermuda RIAIG/HartfordAnd of course, the Project Owners Concerns and issues.The Project Owner’s desire is to come up with the most appropriateproject that will give the desired benefit and objectives of the stakeholders, selection of an ideal contractor and otherservice providers, attractive financing scheme and seamless protection thru a comprehensive insurance program.Project Owners/Sponsors normally benchmark with best practices and network with industry players.More often, Project Owners are driven by competition and customer demands.
29INSURANCE COVERAGES EPC PROJECTS RISK MANAGEMENT Here are the various insurance programs that are available to an EPC Project. Each Player or stakeholder in the Project hashis own protection needs. And therefore, the most appropriate and comprehensive risk management program should be in place.Insurance should only be secondary.
30OWNER-CONTROLLED INSURANCE PROGRAM EPC PROJECTS RISK MANAGEMENTOWNER-CONTROLLED INSURANCE PROGRAMOver-all Control of the EPC reinsurance program.Seamless transition from construction to Operational phase.Coverage as least cost due economies of scale.Delay in Start Up (DSU) or ALOP can be easily effectedOwner has choice of insurer security – Class A & IndustryClaims paid directly to Owner or JV Owners.Interface with Owners existing insurance program.Where handover is on phase-by-phase basis.Elimination of redundant insurance services & expenses.All Project parties covered for same risks – single point responsibility- back-to-back guarantees.Control of Claims/Coordinated Claims Admin.Safety/Loss Control services from Insurance providers.OCIP or owner-controlled insurance program are secured by the Project Owner either new or within the existing OCIP program.Large companies have existing OCIP for CAR and EAR, CGL, etc. and all they have to do is to report such risks with existing reinsurers.The advantage is that only one party is responsible for bundled service rather than unbundling which may be expensiveand may result in gaps.
31BENEFITS OF A COMPREHENSIVE INSURANCE PROGRAM EPC PROJECT RISK MANAGEMENTBENEFITS OF A COMPREHENSIVE INSURANCE PROGRAMPROTECTION IS ASSURED IF COVERAGE IS SEAMLESSFUNDS DELAYS IN PROJECT COMPLETION.ENHANCES PROJECT CREDIT.INSURANCE IN A PROJECT BECOMES A FORM OFCollateralEnhanced form of securityENHANCED CONFIDENCE OF LENDERSREDUCTION OF PROJECT FINANCE COSTSREDUCTION IN PROJECT OVERHEADS.STAKEHOLDERS CONFIDENCEPEACE OF MIND OF ALL PLAYERS.DELIVERY OF DESIRED PROFITABILITY FOR ALL.In any project, a seamless insurance program is always desired by the Project Players.More than the maintenance of the needed capital for the project, some of the benefits of a comprehensive insurance program are…..protection is assured,enhanced lenders confidence, reduction in costs and overhead, stakeholders confidence, peace of mindand delivery of desired profitability.
32EPC PROJECTS RISK MANAGEMENT RESPONSIVE CLAIMS MANAGEMENT PRIOR TO THE LOSS--Proper Property Valuation/Appraisal--Adequate Bonding Requirement--Specific Job Description/Deliverables--Loss simulation; Drills and exercises; Training & Education; Emergency Preparedness,--Loss History; Loss ForecastingDURING THE LOSS-- Reliable and capable adjusters with integrity-- Disaster Management/Disaster Recovery-- Salvage and subrogation values and rights.-- Preservation of evidence and securing of witnessesPOST LOSS-- Submission of documents and evidences.-- Close coordination among claimants, adjusters, insurance companies,brokers and other third parties if any.-- Policy interpretation; Questions on clauses-- Payment on Account; Settlement in 30 days-- Negotiation skills; compromise and ex-gratia settlement.-- Subrogation/Recoveries.-- Business ContinuityEqually important is the Claims Administration Program not only in EPC Projects but even in going concern businesses.Yes, primary concern of Project Owners is to come up with a comprehensive insurance program.Normally, Insurers/Reinsurers and Project Owners should formulate a guidelines on Claims Administration and should formpart of the EPC Project Documentation and to be communicated to all concerned parties.Likewise, included in such Claims Administration Program is the pre-selected Loss Adjusters and Surveyors in cases of losses.Otherwise, there could be a tug-of-war who to appoint when the loss occurs.
33INSURERS EXPECTATIONS PROJECT RISK MANAGEMENT & ALLIANCEINSURERS EXPECTATIONSCOMPREHENSIVE PROJECT SURVEY REPORTNature of Project: Turn-key, Lump Sum, Design & BuildExposures: Natural and Man-Made/Terrorism & SabotageRisk Management ProgramProject Owner’s Management Culture especially OHSSESELECTION OF RISKSClass A, Above Average Risks of the ProjectLong-term relationshipsIntegrity of Project Owner and other parties to the EPC ProjectIntegrity/Track record of all other players: contractors,operators, lenders, operatorsHost government’s exposure to political risks/current legislationsPROJECT STANDARDSLocal government, internationalIndustry standardFire Codes; Materials StandardsThe Seamless Insurance Coverage as well as a Responsive Claims Administration Program are achieved only when INSURERSexpectations are met.More than the premiums, the Insurers/Reinsurers expect a comprehensive project survey,integrity of project players, commitment of host governments, and the adoption of global industry standards.As the Risk Financing Vehicle provider, it is concerned with the Management Culture and Good Governance of theProject Owner and Contractor.It is for this reason that it is advised that the Insurers/Reinsurers of EPC Projectsshould primarily consists of the SAME Insurers/Reinsurers of the Operational completed Project, hence we call it SEAMLESS.
34PROJECT RISK MANAGEMENT & ALLIANCE SOME STATISTICS ON LOSSES IN THE AIRLINE INDUSTRY70% OF THE ACCIDENTS WERE CAUSED BYHUMAN ERRORS.IN THE SHIPPING INDUSTRY65% OF THE ACCIDENTS WERE CAUSED BYHUMAN ERRORS50% OF THE ACCIDENTS TOOK PLACE ON ACLEAR DAY.IN THE OIL & GAS BUSINESS50% WERE DUE TO NEGLIGENCEWORK PERMITS, POOR HOUSEKEEPING, CHANGE MGNT.As the saying goes, “To err is human, to forgive is divine”.Because of such loss statistics, more and more the need to educate and train personnel from Project Owner to Contractorand Sub-Contractor becomes imperative.Because of this, there is NO SUBSTITUTE TO A PRO-ACTIVE ENTERPRISE WIDE RISK MANAGEMENT PROGRAM.
35LOSS EXPERIENCE CYCLE ABNORMAL BUSINES CYLE PROJECT RISK MANAGEMENT & ALLIANCELOSS EXPERIENCE CYCLEABNORMAL BUSINES CYLEIn every loss experience, there should be lessons learned.Very important is loss prevention, loss reduction or loss avoidance.Post loss evaluation is also important.*ONLY possible if there is a comprehensive insurance program that is in place.
36PROJECT RISK MANAGEMENT & ALLIANCE POST-LOSS OBJECTIVES SURVIVALCONTINUITY OF OPERATIONS (normal capacity?)STABILITY OF EARNINGSGROWTH POTENTIALSHUMANITARIAN CONDUCT/CSRENVIRONMENTAL IMPACTINVESTMENT RETURNS TO ALL PARTIESATTAINMENT OF THE PROJECT OBJECTIVES/BENEFITSWhen there is a loss, we need to answer questions like:Can we survive the loss? Can we continue operating at normal capacity?Can we maintain the present level of earnings? Is the forecasted growth levels still attainable?Are we going to have potential environment and humanitarian liabilities?Will our shareholders still be assured of the normal return on their investments? Can we still maintain present dividend rate?5. Will the objectives and benefits of the project still realizeable?
37PLANNING, DESIGN, CONTRACT SIGNING PROJECT RISK MANAGEMENT & ALLIANCE NO SUBSTITUTE FOR A SOUND RISK MANAGEMENT PROGRAMPLANNING, DESIGN, CONTRACT SIGNINGRESPONSIBILITIES OF ALL PARTIESTRACK RECORD/EXPERIENCE OF ALL PARTIESINVOLVEMENT OF REINSURERS from beginningCONTRACT REVIEW-Mismatched related contracts (b2b clause)LOSS CONTROL MEASURES-CONSTRUCTIONPREVENTION/REDUCTIONBUSINESS CONTINUITY PLAN/EMERGENCY RESPONSEDISASTER MANAGEMENT & RECOVERYDEVELOP CULTURE OF RISK MANAGEMENTCONTROL OF INSURANCE (OCIP)INSURANCE/REINSURANCE/RETENTIONSEAMLESS INSURANCE COVERCLAIMS ADMINISTRATIONWe can, therefore, say that in CIVIL OR ENGINEERING PROJECT, big or small, there is no substitute for aSOUND RISK MANAGEMENT PROGRAM.When we say, there is no substitute for a sound EWRM program, it means an “ounce of prevention is betterthan a pound of cure”.From planning to design to contract signing, up to construction, testing and commissioning, and finally to operations,a comprehensive EWRM program should be in place.Which means, there should be proper loss control, loss prevention, loss reduction, risk finance and risk transfermeasures that are in place.
38ALLIANCES OF RESOURCES IN SUMMARY: PROJECT RISK MANAGEMENT ENTAILS:ALLIANCES OF RESOURCESCONTINUOUSENTERPRISE-WIDERISK MANAGEMENTPROGRAM/ADMNINIn summary, PROJECT RISK MANAGEMENT requires ALLIANCE of initiatives and interventions.These ALLIANCES should bring together the use of TECHNOLOGY, PROCESSES and of course, the most important of all,PEOPLE. PEOPLE, the most important resource of the organization.And PEOPLE is the most sensitive among all ALLIANCES.It is for this reason that HUMAN RESOURCE TRAINING & DEVELOPMENT comes into play.That is why Conferences like these are very important, not only as a source of learning but also to BENCHMARK & NETWORKso that each one can benefit from BEST PRACTICES.Thanks to MARCUS EVANS for putting this conference together with partners, sponsors and alliance providers.Have a nice day.
39ACKNOWLEDGEMENTS/REFERENCE MATERIALS USED Risk and Insurance Management Association of the Phils (RIMAP)– various annual conferences fromRisk and Insurance Management Society of North America (RIMS)-various annual conferences in Winnipeg, Florida and San Francisco fromInternational Federation of Risk and Insurance Management Association of Asia and Pacific (IFRIMA) discussion meetings in Florida, Cologne, San Francisco fromFederation of Asia Pacific Association of Risk Management Organizations (PAFARMO) annual conferences – Malaysia, Singapore, Sydney, Philippines fromPresentation of Wolfgang Zimmermann of Allianz AG, Industrial Division-Engineering/Marine, 2004.Books written by George Head of Insurance Institute of USA and Prakash A. Shimpi of Swiss Re New Markets.
40CARLOS H. YTURZAETA Certified Public Accountant (CPA) Ex-Licensed Underwriter & Reinsurance Broker, Insurance Officer, Risk ManagerLecturer, Insurance Institute of Asia & the Pacific (IIAP)/Marine Underwriters Asso of the Phils.(MUAP)/Philippine Institute of CPAs (PICPA)Consultant/Speaker Trainor on Enterprise Wide Risk Management/Captive Insurance/ Accounting, Audit and Tax/Property Management/Estate Planning, DMP, Crisis Mgnt, Claims Admin. Systems and Procedures, Emergency Management, Business Continuity.Established the first Philippine Captive in Bermuda (Overseas Ventures Insurance Corp.or OVINCOR)Established/Gen. Manager of-the first “controlled” Phil. Insurer (Petrogen Insurance Corporation), a fronting company for OVINCOR.25 years in the largest energy conglomerate in the Philippines consisting of Petron, PNOC, PNOC-Energy Development Corp, PNOC-Shipping & Transport Corp., PNOC-Coal Corp, PNOC-Exploration Corp, PNOC-Tankers Corp—in various capacities.Social work, cooperatives, and community development thru Rotary Club Makati Edsa (District 3830) & Jose Carlo P. Yturzaeta Memorial Foundation, Inc.
41MARCUS EVANS CONFERENCES THANK YOU.ENJOY THE REST OF THE WEEK.CARLOS H. YTURZAETADIRECTOR, E&RM PHILS., INC. CHAIRMAN, MUAPLECTURER/TRAINOR, Enterprise Wide Risk Management, Insurance and Reinsurance, Captive Insurance, BCP, DMPAddress: &41