Building and running a business is a process that involves risks. Unexpected force majeure crises such as fire or storm, stock crash, IT system failures or even illness of prime staff directly affect the efficiency of your operations. This may eventually result in losing out on important customers or even going out of business altogether. Identification of risks, assessing risk, insuring against risks and preventing risks are the top key pointers to consider when it comes to risk management and loss prevention in business. These parameters will aid in minimizing the potential impact of a hazard or even prevent it from happening in the first place.
According to Allianz Global Corporate & Specialty Claims Review, fire/explosion accounts to 59% of 1,807 Business Interruption claims across the globe, as per data analyzed in the period 2013-2018. As a result, a company may have to bear a cost as high as $6.7mn to overcome such a situation. According to the same study, technical or human factors add to 88% BI losses more than natural catastrophes. This could physically destroy a business.
Why is it important to plan for a possible crisis?
None of us can be immune to a crisis, be it a self-made one or one that comes from larger events like a product malfunction, natural catastrophe, security breaches, or a global public health event. Whatever may be the trigger, the impact of such events could be huge on the company and its future. Businesses that adopt risk mitigation measures, cope better with crises and develop operational resilience to minimize disruption to business and its customers. This proves to customers, insurers, and investors that your company is responsible and robust enough to withstand challenges that may be thrown at you, giving you an edge over your competitors.
The omnipresent risk of explosion
Industrial fire, hot work, electrical hazards, etc. are some of the prevailing basic reasons for accidents due to fire and explosion. To quote one such incident in the Energy industry is the explosion that shook the Philadelphia Refinery on June 21st, 2019. This refinery converts crude oil to high octane gas and the explosion had completely destroyed its alkylation unit leading to a planned closure of the financially troubled plant.
Image Source: firesystems.net
The Tianjin explosion that was caused entirely due to human mismanagement, accentuated the need for strategic business interruption (BI) and contingent business interruption (CBI) insurance coverage. However, CBI insurance does not stand as a remedy for addressing the key risks of fire and explosion nor does it promise to eliminate any financial loss from sub-tier disruptions or their rippling effects on your supply chain. Proactive measures such as event monitoring, visibility and risk management in your supply chain would aid to mitigate income losses from day-to-day disruptions.
Disasters like fire and explosion may happen due to plenty of reasons often because the managers and employees may not be aware of the risks encircling them in their everyday work environment. Fire and explosions are particularly disruptive to sectors with high levels of interconnectivity and concentrations of risks in single locations, such as automotive, semiconductor and petrochemicals.
Analyzing more than 1,800 large BI claims totaling over $3.2 billion from 68 countries between the year 2010 to 2014, AGCS’s “Global Claims Review 2015: Business Interruption In Focus,” finds that both the severity and frequency of BI claims is increasing and BI now accounts to a higher proportion of the overall loss than was the case ten years ago.
“You can always tell which clients have experienced a serious fire loss before from those who haven’t,” says Stephen Clark, Global Technical and Expertise Manager Property Risk Consulting at AGCS, citing complacency as a primary cause of many large losses. In his view, diligence and repetition are key in preventing and reducing the impact of a fire.
While fuel explosion incidents may have a low probability, on occurrence, they lay a high impact on businesses including casualties, property damage, business interruption, loss of customers, financial losses, environmental contamination, loss of reputation, fines and penalties by regulators and lawsuits filed against the business by those impacted. To insulate a business and its surrounding community from such grave risks, it is imperative to take appropriate prevention measures.
In today’s volatile environment, Contingent Business Interruption (CBI) is becoming all the more sensitive as shareholders and customers are more risk-averse, thereby leading them to look for tailored BI solutions and protect them from risks. Building resilience and responsiveness become key values in entrepreneurship. And in the journey through risk, prevention is the real driver to safety.
Loss prevention agencies urge that we should not look away from risks because no action is dangerous in itself. When statistics point to loss from specific hazards, it becomes imperative to secure your business from those hazards or risk becoming one among those statistics. In the case of fuel storage explosion, prevention is possible. Reach out to us to know how you can protect your employees, assets, and business.
Reference: investopedia.com – causes for BI infoentrepreneurs.org – Crisis Management agcs.allianz.com https://www.resilinc.com/blog/fire-brimstone-managing-contingent-business-interruption- increasingly-interconnected-supply-chain/