Nigel Cairns.

Senior Risk Engineer, Aon Global Risk Consulting

Nigel works for Aon Global Risk Consulting based in London, and is a Chartered Chemical Engineer and a Fellow of The Institution of Chemical Engineers (IChemE); he is also registered as a Professional Process Safety Engineer.

Nigel joined the London market insurance industry in 2010, with 18 years’ experience in process design, plant operations and process safety within the downstream petrochemical energy sector. He started his career as a process engineer on ICI’s world-scale petrochemicals assets on Teesside in the UK, primarily on the offsite logistics and storage areas, before secondments to plant operations at ICI Australia’s Olefins complex at Botany Bay, and technical consultancy in Thailand with ICI Process Plant Services

He subsequently held a number of positions in process engineering management within ICI, Huntsman and SABIC, and was a senior Hazard Study Leader, SIL and Risk Analyst for SABIC’s UK petrochemicals and polymers plants.

Since 2010 Nigel has worked in risk engineering, primarily carrying out insurance underwriting surveys of refining, petrochemical and fertiliser assets, as well as terminals and offshore oil and gas production facilities.  He has managed key global accounts across upstream and downstream sectors, helping clients to identify risk exposures, and developing pragmatic risk based management solutions to improve risk profile.

 

Nigel was awarded the insurance industry’s 2019 Tom Redmond Trophy for his significant contribution to risk reduction within the Oil, Gas, Petrochemical & Energy Industries.

 

Your questions answered.

Lack of training and inability to make full use of the knowledge inside the company have been listed as two major reasons crisisses do still occur. In a post-covid 19 situation, what kind of lesson learned do you feel can mitigate the impact on training and knowledge sharing?

Knowledge sharing has always been a challenge to try and prevent reoccurrence of losses; whilst individuals may have generally good memories, organisations typically have poor ones. As you suggest, this may be a bigger challenge as organisations work more remotely post COVID. I wonder how many organisations have considered this as part of their COVID Business Continuity Plans? I suspect very few. Remember Longford? One of the key lessons there was the loss of plant knowledge when the Technical team was moved offsite – how have sites during COVID ensured sufficient technical knowledge still resides on the plant and doesn’t have to ‘Zoom’ in to help with plant problems?

It is important to maintain the flow of information and training in to an organisation to ensure will still get to learn from internal and external losses, and virtual platforms can still be effective in doing that. All the main bodies with an interest in PSM have some forum for best practice sharing.

What good engineering practices so Insurance Risk Engineers expect to see on surveys to mitigate losses?

When we visit sites, one of our aims is to present a picture of site ‘risk quality’, and we will do this by comparing what we see against what is regarded as good engineering practice (RAGAGEP), and rating this (e.g. traffic light system) to enable clients and underwriters to try and differentiate between risks.

We will look at management systems (e.g. process safety frameworks, MoC, PHA, operator competence assessments, asset integrity management etc.), hardware systems (asset layout, spacing, construction standards, remote isolation, trip systems etc.) and emergency response (firefighting provision, emergency planning etc.).

Where we see gaps against good practice we will make recommendations for improvements – our aim is to help the site improve and not to tell them how to operate, but ultimately, as insurers pick up the bill for any loss, if a site decides not to carry out such recommendations, and offers no alternative actions in mitigation, it may (depending on its loss record) find itself with less favourable insurance terms come next renewal.

Personally, I would always want to try and focus on the ‘left hand side’ of the bowtie – get the preventative barriers right. For me, that means well-trained and competent operators, good systems of work (control of work, isolation, shift handover etc.), good awareness of potential damage mechanisms.

What is the main cause of product loss at storage terminals?

If a site has a loss of containment, then if it results in an insurance claim of some kind (typically escalation to fire / explosion), we will hear about it. That means that it has to be a pretty big loss before we have to be notified, so many smaller losses, especially those which don’t’ result in fire / explosion may not reach our radar. Therefore, our data tends to be skewed to the larger losses.

Between 1996 and 2019 for example, the Lloyds Market Association looked at the 137 biggest downstream energy industry losses over USD 50 million – only 4 of these were at terminals (at least 3 of these were tank overfilling incidents)

The last extensive examination I am aware of in the process industry literature looking at a greater number of losses goes back about 15 years, and looked at 242 tank losses from the mid 1950s. About a third of these were as a result of lightning strikes – the next category (at about 13%) was classed as ‘operator error’, which included tank overfilling.

How do insurers determine premium levels for storage terminals?

Personally, in an ideal world, premium levels would be set by ‘risk quality’, looking at loss-record and the operator’s record on implementing improvements. But these actually play a minor role.

 

The biggest influencer is the underwriter’s access to liquidity. Post 2008 financial crisis, investor money moved out of banks and into insurance, and as a result, premiums declined year on year for about 10 years, for all ‘qualities’ of risk. In the downstream sector (refineries, petrochemicals, and also a lot of terminals and storage depots), 2017 and 2018 in particular saw a lot of losses, so premiums then started to rise – and although ‘good quality’ risks saw their premiums rise more slowly than ‘poor’ ones, the direction was still upwards, regardless of how many improvements were made. In comparison, the upstream / offshore sector has seen fewer losses in the last 10 years or so, so premiums have been less volatile.

 

Nigel Cairns