In August of 2022, the Risk and Finance Magazine of Bolivia in its No. 61, has published an interview to Roberto Revenga, CEO at VANTEVO CLAIMS ADVISORS.
You can read the complete interview here.
Risk Management can be defined as being the set of measures an entity undertakes in order to deal with possible future contingencies, an entity being understood to be an individual or a corporation.
Some organisations tend not to consider the need to handle the risks that their activity implies, often generating negative consequences for business continuity. This presumed saving brings in its wake serious damage that in some cases can generate major losses or even the shutdown of the business.
All human activities involve risks. From the simplest actions through to the complex business operations, there is always an inherent component of uncertainty that must be understood and correctly managed.
Despite their best efforts, most organisations fail to correctly assess and quantify the risks and the impact that they might have upon their activities, bringing about a scenario in which they face risks for which they have lack the procedures and resources to weigh up and handle the same and mitigate their consequences.
Whilst there are no established rules that these processes or mechanisms must follow, it should be considered that a good risk management entails the following points:
For an efficient Risk Management process, consideration must be given to these principles to be followed throughout the organisation, regardless of its size:
At VANTEVO CLAIMS ADVISORS we are in a position to assist the Insureds to identify, control and mitigate their risks and we are certain that following COVID and its consequences, the importance to companies of Risk Management has become even more evident.
We are all well aware that ascertaining the cause of a loss event is essential in order to clarify the cover for the claim, determine liability for the same and to take measures to prevent it from happening again.
In the case of serious fire losses, sometimes given the degree of destruction caused by the fire, it is not easy to pinpoint the origin of the same, despite contracting experts in root cause investigations.
In cases of Machinery Breakdown claims, the study of their cause is less complicated, but nonetheless often requires the intervention of metallurgical or electrical laboratories, depending upon the presumed origin of the loss event.
It is only by means of a metallurgical analysis that you can verify whether the fracture process of a blade or metal part has been a slow and gradual one or sudden and unforeseeable, besides being accidental. In the first case, the loss would not be covered whilst in the second, it would be. Again we would need the assistance of a metallurgical laboratory to ascertain whether any corrosion or erosion was slow and gradual or accidental and fast, and therefore possibly covered in this latter case.
At VANTEVO CLAIMS ADVISORS, we tend to use the laboratories of Engineering Schools, since in the event of any dispute, the courts usually positively weigh the reports signed by professors, since they assume they have the knowledge and independence to issue their opinion.
There are not normally any problems with the conclusions reached in the laboratory reports, since these are usually clear and conclusive, and their conclusions are objective and well documented, and accordingly can be accepted by all the parties involved in the claim.
At VANTEVO CLAIMS ADVISORS, we usually ask that, in addition to ascertaining the “root cause” of the loss event, they suggest measures to avoid similar claims in the future and their recommendations normally are very interesting.
Company directors are becoming increasingly aware of just how important it is to carry out adequate, predictive, preventive and corrective maintenance of their plant and machinery.
Firstly, it is the best way to guarantee the efficiency and reliability of the machinery and equipment, since correct maintenance will minimise the numbers of breakdowns and consequently the loss of production time.
On the other hand, because it is required by the Insurance Policies contracted, since these exclude any claims where the instructions issued by the manufacturer of the machinery regarding inspections and maintenance have not been complied with.
It is important to highlight how it is vital that the personnel handling the machines are qualified and expert and thoroughly familiar with both the maintenance manuals as well as the manuals for their operation, shutdown and start up.
Moreover, whenever the maintenance work is carried out by third parties, that is to say by personnel from outside the company, it is essential that they respect the safety rules established by the company, since it has been proven that many losses occur during the course of the maintenance operations carried out by third parties.
Likewise, we would like to stress how it is important for the most sophisticated and critical machinery of the company (the generators, transformers, turbines….) that maintenance agreements are entered into with the manufacturers of the same. This will guarantee that you will be treated with priority in the case of a loss event and will have replacement parts available in the short term, thereby allowing you to reduce the Consequential Losses.
Thinking that if you have a maintenance contract for an important piece of machinery means that you no longer need to insure it is a serious mistake, since the Policy and the contract are complementary, and one is not a substitute for the other.
In fact, a maintenance contract is never going to cover any loss events caused by negligence on the part of the personnel, which is one of the common causes of claims, nor is it going to cover the Consequential Losses brought about by an interruption in the production as a consequence of a breakdown.
These two very important scenarios can be covered by a Machinery Breakdown Policy and its corresponding cover for Consequential Losses caused by Machinery Breakdown.
The advice of VANTEVO CLAIMS ADVISORS is that for important machines that are manufactured to order, maintenance contracts are entered into in addition to contacting a Policy, which in the event of a breakdown will guarantee a rapid repair undertaken with all the warranties.
The fundamental objective of a Risk Manager is to protect the safety of the workers, the assets and the Profit and Loss Account of their company and therefore, one of the things they must do, is to contract a suitable Policy to cover all of the company’s risks.
Risk Managers should be supported by a Broker who will help and advise them in the complicated task of designing the very best Policy for their company and who are the best Insurers and Reinsurers for their purposes.
In addition the Risk Manger must be involved in drawing up and updating the company’s emergency and contingency plans. These latter, also called “business continuity plans” are essential to minimise the Consequential Losses in the case of the occurrence of a loss event.
What should Risk Managers do in the case of a major loss event? In our opinion, with the help of their Broker, they should appoint a Loss Assessor who can help, on the one hand, to minimise the Consequential Losses and normalise the production of the company after the loss event and, on the other, to help them prepare and defend the claim that must be presented to the Insurers and their Loss Adjusters following the same.
Most claims are satisfactorily resolved with the help of the Brokers, but there are others that, given their size and complexity, require the support of Loss Assessors. They are experts in claims and have experience of dealing with emergency situations such as those that arise after a major loss event, especially when their cost can be assumed – either partially or entirely – by the Insurance Company under the “Fees of the Insured’s expert” clause that is ever more frequently being found in Policies, especially in those that cover large risks.
It is even more important to have the support of a Loss Assessor in the case of the loss event occurring in a facility far from the company’s headquarters, and moreover if it occurs in a plant situated overseas.
Am expert Loss Assessor will not only help the Insured to try to avoid any loss of sales, which might bring about the loss of clients, but also to get the Insurer to agree to “payments on account” to pay the costs of repairing the damage.
It has been demonstrated that presenting a well-documented and verifiable claim assists in the speedy and amicable closing of a claim and that is why the Loss Assessor appointed by the Risk Manager to act for the Insured has such an important role to play.
Vantevo, which is an international and independent consultancy, with professional engineers and economists who are experts in major claims, can help Risk Managers to “resolve” the claim in a fast and professional manner, after which they will find their position in the company to be strengthened, since they will have demonstrated the value of their work at a critical moment for the business, as would be the case if it were to be affected by a major loss event.
A claim that is well handled and swiftly resolved works to the benefit of all parties involved in the same: the Policyholders, the Insurers, the Brokers, the Experts as well as the Risk Managers.
The above does not occur often, but it does sometimes. Indeed, we have been involved in claims in which whilst the damaged machine was being transported to a workshop to be repaired, the lorry carrying it had an accident and overturned, thereby an increase of the loss being brought about in such cases.
On other occasions, due to an error on the part of a subcontractor who had been engaged in the repair of the damage, when it came to testing the machine, it failed and the repair and recommissioning of the same was delayed by several weeks.
In cases like these we have come across some Insurers who regard these incidents as being part of the same claim, since they understand that they occurred during the process of repairing the damage caused by the first loss event. Whilst respecting this interpretation, the indemnity is paid by the Insurers and it is they who decide how the loss is to be adjusted. It is the opinion of VANTEVO CLAIMS ADVISORS, that in both cases these are different loss events, since they occur at different times, on account of different causes and brought about by different persons.
In the case of the accident during the transportation, there will be somebody responsible for the same whose Insurer must be liable for the damage caused to the lorry’s cargo. Therefore it is essential whenever a machine is to be transported so as to be repaired at an external workshop, that insurance is contracted that covers this carriage, since normally the covers of the carriers is inadequate.
In the other case, we have here an error on the part of an external subcontractor who must have a Professional Liability Policy, which should be liable for the loss and damage caused by the poor performance of the company subcontracted for the repair of the damaged machine or installation.
Unfortunately, cases such as the above are not usually considered in the General Conditions and Schedules of the Policies, when it stands to reason that the Policies ought to specify whether they should be regarded as being new claims, as we at VANTEVO CLAIMS ADVISORS believe, or as incidents of one and the same loss event.
Common sense tells us that the experts ought to consult the Insurers as to the what approach to take in these types of cases, since what tends to happen is that all the loss and damage is covered under the Policy whilst at the same time they try to recover the increased loss and damage from the third parties that were responsible for the same.
It is very important and desirable that the information provided by the expert to the Insurance Company and/or the Insured, depending upon who they were contracted by, is well organised and above all, that the Report is clear, concise and verifiable and accompanied by the most relevant documentation used by the expert.
The structure normally used by the different firms is:
We have highlighted in bold those sections of the Expert Report that we consider to be the most important.
In general terms, the Preliminary Report should be concise and issued as soon as possible, since it is important that the Insurers should know promptly the amount of the Reserve.
On the other hand, the Final Report should be as complete and fully documented as is possible, in such a way that it is verifiable by whoever has to read and approve it.
At VANTEVO CLAIMS ADVISORS, besides striving to reach agreement on a figure that is acceptable to both the Insured and the Insurers, something that we manage to achieve in the vast majority of the claims, we also suggest measures for improving the safety conditions of the risk and so as to prevent any similar losses in the future.
We also try to obtain a “payment on account” early on for the Insureds so that they might defray the costs of the repairs and the measures undertaken to minimise the Consequential Losses.
In fire claims, some assets are destroyed and, inevitably, must be replaced. Others, on the other hand, only sustain partial damage and can be recovered. Indeed, what tends to happen in serious incidents is that the fire directly affects some areas of the risk whilst other parts of the plant only undergo damage due to smoke, heat, the water sprayed by the Fire Brigade or by the risk’s own automatic extinguishing systems, or the corrosive gases that are formed such as HCI (Hydrochloric Acid), etc.
In these cases where the damage is only partial, it is both expedient and cost-effective to involve companies specialising in cleaning, drying, decontamination and recovery of the equipment, whether mechanical, electrical or electronic. These companies, some of which fortunately we have in Spain, for example BMS Technologies, Debeer- Belfor, Recover, etc., must intervene as soon as possible since the corrosion and oxidation processes worsen day by day. Therefore, the chances of success are far higher with an early intervention in the loss event.
Apart from minimising the Material Damage in the case of partial damage, the Consequential Losses can also often be reduced by the intervention of these firms. In fact on some occasions damaged machinery can be temporarily repaired and can then continue to operate for a few months until new replacements are obtained, thereby minimising the Loss of Profits.
In most cases both the Insurance Company as well as the Insured are very satisfied with the involvement of these companies since they can resolve what could have posed a major problem for them, such as being unable to produce over several months until the replacement machinery arrives, which in the case of complex machinery could take some 12 or 18 months.
Moreover, at VANTEVO CLAIMS ADVISORS, besides using these companies in certain loss events, we also involve companies that are specialists in salvaging partially damaged stocks, since they perform a task based upon the classifying and cleaning of the partly affected stocks that can be highly cost-effective for Insurers.
Learning the source or root cause of a loss event is, along with the appraisal of the loss and damage, the most important task of a loss adjuster in the event of a claim.
There are 3 reasons why it is essential to learn the exact origin of the loss event:
In complicated claims, such as a major fire, it is advisable to involve investigators and experts in the examination of its root cause. Fortunately, there are an ever increasing number of firms and teams specialising in this work for ascertaining the exact source of a fire. It is important to confirm that it has had an accidental origin and that we are not dealing with a loss event that was caused deliberately.
Likewise in the case of Machinery Breakdown, it is vital to involve metallurgical laboratories so that, based on the analysis of the part that initially broke, it can be determined whether it was a sudden and accidental breakage or was the consequence of a slow and gradual process. As we have stated earlier, in this second case the claim would not be covered.
Although, ideally, official laboratories or ones belonging to Schools of Engineering should be used, these bodies have the problem that they tend to take several months to provide the results of the analyses and often this is not acceptable, since the Insured and the Insurers want to know as soon as possible whether or not the claim is covered by the policy. That is why we at VANTEVO CLAIMS ADVISORS usually use private laboratories and investigators of recognised professional competence since they are able to be more agile in furnishing the outcome of their investigations.
Often we have had cases where apparently a machine has been left so damaged following a Fire or Machinery Breakdown event that it has to be replaced. However, before taking that decision, the situation must be thoroughly examined since, although the Insured may be interested in having the damaged machine replaced with a new one, as you are well aware, if the repair is both technically and financially feasible, then the insurance policies will settle the cost of the repair not that of the replacement.
The Insured can easily get a report from the machinery manufacturer explaining that the repair is not feasible and that the damaged machine must be replaced. Obviously, the manufacturer is interested in selling machines and therefore normally has no problem with issuing this type of report, which generally is pretty brief and not very technical. But if the machine is replaced, then we will be faced with a total loss, and the cost of the damage will be more than the actual value of the machine. In such a case, most policies prescribe that the actual or real value of the machine ought to be indemnified, that is to say, taking into account depreciation for age, use and obsolescence.
On the other hand, if we are facing a partial loss, or in other words, the cost of the damage is less than the actual value of the machine, then in this case the policy will indemnify the cost of the repair without applying any depreciation whereby the Insured will not have to make any disbursement whatsoever.
Another scenario that might happen in this type of loss affecting machinery is that it can be repaired temporarily, with no guarantee, so that it might withstand a few months whilst awaiting the arrival of the new machine, which often has delivery times of several months. This is expedient when the shutdown of the damaged machine will give rise to some significant Consequential Losses.
What can also be useful is to ask for a second opinion or a second report regarding the chances that the machine may be repaired when the manufacturer and the Insured propose its replacement. Likewise, companies specialising in the recovery of facilities and machinery should be contracted, as they can minimise the damage and get the machine working again, even if only temporarily until the new machine can be supplied.
This solution is highly valued by Insureds and Insurers alike, since it allows the Consequential Losses to be minimised by reducing the potential losses of sales and clients.
To summarise all the above, with Machinery Breakdown not only is it important to learn the cause of the loss event, in order for which a metallurgical analysis is often required, but also it is essential to ascertain the exact extent of the damage and confirm whether the machine can be repaired or if it needs to be replaced.
At VANTEVO CLAIMS ADVISORS we work with reputable laboratories and reliable workshops, which allows us to resolve these two questions: the origin and cause of the breakdown and the extent of the damage, clearly and precisely, thus enabling us to reach agreement with all the parties involved in the claim.