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The Devil You Know… A brief look at risk surveying… Hugh Khull, Risk Survey Manager, Cerno 1.

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Presentation on theme: "The Devil You Know… A brief look at risk surveying… Hugh Khull, Risk Survey Manager, Cerno 1."— Presentation transcript:

1 The Devil You Know… A brief look at risk surveying… Hugh Khull, Risk Survey Manager, Cerno 1

2 The Devil You Know… The devil you know is better than the one you don’t. Old idiom 2

3 A changing industry… …for the times they are a-changing…. Bob Dylan 1964 The Insurance Industry has undergone deep structural change over the past 50 years and is now vastly different 3

4 Tariff – whats that…? 4

5 Legislative Changes… Insurance Act 1973 Trade Practices Act 1974 Insurance Contracts Act 1984, & Insurance (Agents & brokers) Act 1984 Financial Services Reform (FSR) It is now a highly regulated industry… 5

6 Other changes… Competition Computerisation Centralisation, decentralisation Mergers and acquisitions Insurance by telephone – Call Centres & dominance of direct insurers in domestic insurance Internet & Comparison sites, & More recently, supermarkets … 6

7 Other Changes (cont)… The emergence of Brokers Changes in Claims handling Changes in Loss adjusting … – Reduction in fees creating time pressures to assess claims properly. – In house assessing & builder’s panels Change is continuing, all of which brings us to…. Which brings us to…. 7

8 Current Changes … The way in which insurance is transacted – electronically, sometimes remotely, and at speed DIY insurance – foregoing the use of a broker Electronic Underwriting Platforms – subtly shifting onus of underwriting to the broker 8

9 Question… Is the underwriting information provided by the insured complete, correct, clear and unambiguous or has it become unintentionally distorted, either through misunderstanding of the question by the insured, or of the Insured’s answers by the broker and insurer or by misinterpretation of the facts or by non-disclosure – intentional or unintentional? 9

10 Case 1: EPS Building 10

11 EPS building 11

12 Case 2: Jumping Pillow Spinal Injury 12

13 Warning Signs … 13

14 Case 3: Undisclosed occupant … 14

15 But … 15

16 Underwriting Defined – Art, Science or Skill of risk selection? Underwriting – Per Risk & Portfolio How can we be sure a risk fits the Portfolio profile? 16

17 By a Risk Survey … 17

18 Risks … Physical Risks – Construction – Occupation – Exposures, – Fire protection – Electrical systems – Security – Liability hazards –Warehousing & storage –Cooking –Dangerous goods (incl flammable liquids) –Safety procedures 18

19 Moral Risks … Insured Approach to business Type of business Housekeeping Indifference to Safety & Security Indifference Fire Risk and Prevention equipment Poor maintenance & presentation of the work place 19

20 Underinsurance… Underinsurance is a major issue in Australia… Reasons for underinsurance are many and varied, And they are complex… 20

21 Reasons for underinsurance… Lack of understanding of the actual replacement cost Confusion between market value and replacement cost Building too large or unsuitable for current operations Increased cost of reinstatement not understood Not reviewed for years – believed to be adequate 21

22 Surveying … A Risk Survey can assist by… Collecting and reporting accurate underwriting information Confirming information provided Identifying risk exposures and making recommendations Identifying the risk of underinsurance 22

23 Benefits of surveying… Insureds The Company is aware of what it is insuring Identifies exposures and assists in the Risk Management process Can identify possible underinsurance and assist in arriving at adequate sums insured Addition value adding service for them 23

24 Benefits (continued) Underwriters Ensures accurate underwriting information Identifies risk improvements Assists in risk management decisions Assists in addressing underinsurance Provides an additional value adding service to brokers & insureds 24

25 Benefits (continued)... Brokers Confirms the underwriter has an accurate description of the risk Assists in identifying underinsurance Provides an additional value adding service Protects professional indemnity exposure 25

26 Types of surveys Risk survey Recovery (Underinsurance) survey Composite – Risk & underinsurance 26

27 Survey content… Construction Occupation Housekeeping Exposures Fire control systems Electrical systems Management controls – moral risks 27

28 Massive building … 28

29 Fire Resisting Construction 29

30 Inferior … 30

31 Glass curtain buildings... 31

32 Tilt up concrete 32

33 EPS... Expanded Polystyrene Foam Sandwich panel (EPS) A sandwich of a central core of expanded polystyrene foam between steel sheets. Used in freezers cool rooms and similar buildings 33

34 EPS (Expanded Polystyrene Foam Sandwich Panel) 34

35 EPS building 35

36 EPS building 36

37 Cool rooms … 37

38 EPS Management system… Regular inspection of panels to ensure no damage Immediate repair of any damaged panels Preventative measures - impact Removal or isolation of heat/ignition sources – including switchboards Minimise and protect penetrations No attachment of items to panels – switchboards Hot Works Permit System 38

39 Impact prevention – EPS 39

40 Unprotected openings… 40

41 Occupation… Single or multiple occupancies A description of the business activities & processes Housekeeping Storage & warehousing Dangerous goods Cooking 41

42 Dangerous goods… 42

43 Gas Storage … 43

44 Gas Bottles … 44

45 Exposures… Internal - other tenants External – occupancy, proximity, construction of neighbouring businesses Separation – distance or physical barriers Environmental - land Type of area Exposures to extraneous hazards 45

46 Exposures… 46

47 Types & uses of extinguishers… TypeColour codeClass of fire WaterRedA FoamRed with blue bandA & B Dry ChemicalRed with white bandA,B,C & E CO2Red with black bandE VaporisingRed with yellow bandA & E Wet ChemicalRed with oatmeal bandA & F 47

48 Typical extinguishers… Dry Chemical & CO2 Hose reel & Dry Chemical 48

49 More extinguishers… Dry Chemical & Wet Chemical 49

50 Water on burning oil… 50

51 Sprinkler systems… The most effective way of controlling fires First sprinkler system (manually operated) – 1812 First automatic system – 1874 Grinnell system - 1881 (improvement on 1874 system) 51

52 Sprinklers… Sprinkler heads – (Red – 68 C) Blue (141 C) over deep fry 52

53 Sprinklers… Stop valves External window (Green 93 C) 53

54 Electrical systems… Switch boards & wiring checked to ensure: Switchboard – type & positioning Apparent age & condition Wiring Temporary wiring Thermographic scan Test & tag system 54

55 Electrical… Overloaded? In a joinery… 55

56 Electrical… Hot spot Wiring in old conduits 56

57 Electrical… Switchboard in pub Conduits from that switchboard 57

58 Electrical… 58

59 Management controls … Attitude Layout House keeping Cleaning & waste disposal Fire load Fire equipment Evacuation plan Maintenance – building & equipment 59

60 60 Underinsurance

61 Calculating replacement cost Estimated Replacement Cost - not a valuation To identify the risk of underinsurance… The only accurate cost is when there is a full set of plans, drawings, specifications, engineering requirements and a contractor has costed it to do the job. Even the contractor adds a contingency margin, & There are usually variations during the build. 61

62 What is in an ERC… Cost of the building Car park, driveways, fences, gates etc Cost of demolition and removal of debris Professional fees Builders mark-up Location allowance Escalation allowance GST 62

63 Example 1… Warehouses, offices, display rooms and motor wreckers: building was owner designed, engineered & built input from family & associates Drastically underinsured at $3.150 million ERC - $5.9 Million 63

64 Example 2… Retail shop… Massive construction Previously occupied as an office Purchased for $1.5 million Insured for $1.5 million ERC - $4.4 million (average); $5.0 million (quality) 64

65 Example 3 … Large farm shed Approx. 1,500 square metres Steel frame, steel clad, concrete floor Insured for $300,000 Estimated replacement cost - $1,700,000 65

66 Typical risks surveyed… Mushroom growers Flower growers Plastic extrusion factories Hotels & restaurants Take away food outlets Go Kart Club circuit Electronic component Nursing homes Cinemas & theatres Abrasive blasting works Timber mills Hardware & timber outlets Joinery factories Strata title residential Surf club Furniture carriers/stores Retail Seafood factories (EPS) 66

67 Case study – Cinema complex... 67

68 Cinema 68

69 Cinema 69

70 New steel & glass extension 70

71 Cinema – steel & glass extension 71

72 Cinema complex floor plan 72

73 73

74 74

75 Behaviour of steel in a fire... Steel loses its strength in a fire. At:... 300 degrees C it starts to lose strength 550 degrees C it has lost 60% strength 800 degrees C it has lost 90% of its strength Continues to lose strength at an increasingly slower rate until around 1,500 degrees C when it fails completely. Typical fire: 1,200 degrees C 75

76 Fire fighting equipment Classes of Fires ‘A’ – combustible materials (wood, paper, textiles, plastic, etc) ‘B’ – Flammable liquids ‘C’ – Combustible gases ‘D’ – Metals (magnesium etc) ‘E’ – Electrical ‘F’ – Cooking oils 76

77 Calculating Replacement Cost... Steps in the calculation process... Class of construction Class of Building Area of building Other inclusions in the estimated replacement cost Construction cost rates The calculaton 77

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