By Jannie de Beer and David Vines, risk engineers at Indwe
It is often believed that risk management is a tool of insurance, but on the contrary, insurance is a tool of risk management. Insurance can be used to protect your business against losses from specific risks, but it will not reduce the risk exposure and it is on this basis that risk consultants add value.
These risk management specialists focus on the entire risk universe, ranging from operational to strategic risks, and they can be independent (employed by consulting firms, risk advisors [brokers] or insurance companies) or employed by the business. Acting on behalf of insurance companies, they serve as the eyes and ears of the insurance underwriter. Ultimately, with the support of the risk specialist, the client should receive adequate insurance cover at the best possible terms.
The purpose of obtaining risk consulting advice will assist clients with identifying their risks. Not only is this a benefit for insurance purposes, but it is also part of the risk management process.
Generally, it is accepted that the steps of risk management include understanding the scope, context and risk assessment, through identification, analysis, evaluation, treatment, monitoring and communication. Risk treatment includes removal, transfer, acceptance or the mitigation of risks. In addition to specific risk identification, risk advice ensures that clients meet all relevant regulations and legislation, such as Building Regulations (SANS 10400), the Occupational Health and Safety Act, etc.
The focus from the risk control and engineering aspect is generally concentrated on asset protection and business interruption, with the ultimate goal of preventing losses or reducing liabilities. These not only potentially threaten the future existence of the business, but will also influence future insurance costs and acceptability. This would form part of the “cost of risk” principle.
From the insurers’ perspective, risk assessments generally take into account the following aspects, from which advice is given on how risks can be improved or reduced:
Construction: This entails reviewing all aspects of building construction and identifying combustible features within the structure, albeit partitioning, ceilings, roof supports, etc. For example, within older buildings and processing risks there can be extensive timber flooring or mezzanines and the treatment of such risks is not so easy to rectify. At least combustible ceilings or partition can be replaced with noncombustible material or treated with fire retardant products, whereas it isn’t so simple to replace extensive timber flooring and fire protection measures would be critical to cater for such.
Occupation: This is an important part of the assessment, as various processes and occupancies provide differing risk profiles. These can be due to hazardous materials and general combustible fire loading within the buildings. Advice on risk improvements, such as upgrading of protection measures relating to process and storage risk on site, would be paramount in the assessment.
Protection: This involves assessing the fire and security measures in place and where these can be improved. These features mainly relate to the installation of passive and/or active protection. Passive protection generally comprises the presence of fire compartments, separation and walls, burglar bars, etc. Active protection is concerned with the installation of automatic sprinklers and fire extinguishing equipment, fire detection installations, electric fencing, burglar alarms, CCTV monitoring, etc.
Exposure: Reviewing existing external exposures from natural disasters, such as storm, flooding, lightning and hail, and ensuring that appropriate protections from such are in place. In addition, establishing exposure to neighbouring properties and their occupancies, as well as possible risks from gas and fuel tanks in the open, are further examples.
In conclusion, this article is intended as a guide to a risk assessment and what it comprises. In reality, far more detail is included in these assessments. Experienced risk consultants have extensive understanding of the majority of processes and manufacturing risks, supported with knowledge of internationally accepted codes of practice and standards, as well as “best practice” solutions.
Clients should consider having a risk assessment undertaken, as it will be of benefit to all stakeholders.
For more information or to set up a risk assessment, speak to an Indwe advisor today on 0860 13 13 14 or visit www.indwe.co.za.
Indwe is an authorised Financial Services Provider. FSP: 3425