Boiler & Machinery Insurance - Bosna RE

Role of Loss Prevention & Control(LP&C) in the Insurance IndustryLP&C in Property and B&M Insurance increases protectionlevel plus risk awareness, and with that reduces frequencyand severity of losses and qualifies for insurance premiumreductions.Industry methods of LP&C are:• LP&C mandatory with Insurance Coverage (FM, old IRI System,others …)• LP&C offered by insurer on the program or outsourced to consultants• LP&C for placement & marketing of Insurance Programs (BrokerReports)• LP&C purchased by Risk Managers (Insurance Placement & LossControl)• Others …5/GE /30 May, 2008

B&M Insurance exposureInvestment t cost for Production Machinery only generates“return” in case equipment is operating. This applies tostationary and movable machinery. Physical damage andBusiness Interruption must be considered.Using the most advanced technology, applying sophisticatedand professional maintenance methods and having welltrained operators using machines & equipment carefully … Losses cannot be avoided and will happen !!!6/GE /30 May, 2008

Equipment Breakdown Insurance (EBI) /Boiler & Machinery Insurance (B&M)Traditionally called boiler and machinery insurance -covers loss resulting from the accidental breakdown ofalmost any type of equipment that operates underpressure or that controls, transmits, transforms, or usesmechanical or electrical power.Some common examples of such equipment are:Steam boilers and other pressure vessels; electricallgenerating and transmitting equipment; pumps,compressors, turbines, and engines; air conditioning andrefrigeration systems; production machinery used inmanufacturing operations; and all types of electricallypowered office equipment such as copiers and computers.7/GE /30 May, 2008

History of B&M InsuranceThe origins i of Boiler & Machinery insurance date back tothesecond half of the 19th century when the mechanization ofEverything, from transportation to manufacturing, createdthe need to protect machinery and equipment makingthese new systems possible.The insurance coverage emerged for the very first time in1866 as an add-on to the safety inspection work thatfollowed a number of tragic boiler explosions onsteamboats.8/GE /30 May, 2008

Importance of B&M InsuranceBecause B&M Insurance ranks high among the moreexoticand frequently misunderstood Property & Casualtyproducts, coverage is often not adequately addressed ininsurance programs.B&M Insurance is important in planning a comprehensiveinsurance program, because not only does such a policyprovide broad valuable protection, it complements a welldesignedgeneral commercial property insurance programto help ensure that a business or organization will surviveand continue to prosper after a major loss of that nature.9/GE /30 May, 2008

Pricing of B&M InsuranceUnlike most property and casualty coverage's wherepayment of losses and claim expenses is the largest partof the cost with Boiler & Machinery insurance, if theinspection services are done properly and followed up toassure the correction of hazards, one large cost factor isthe underwriting, inspection and loss prevention service.10 /GE /30 May, 2008

Key Considerations to B&M InsuranceKey factors to consider in integrating B&M coverage into anoverall insurance program are:Except when the same insurer is providing both the generalcommercial property coverage and Boiler & Machinery insurance(and not reinsuring the Boiler & Machinery elsewhere), the needcan best be met through the use of a Joint Loss Agreement onboth the Commercial Property and Boiler & Machineryinsurance. This attempts to eliminate joint coverage situations.The Boiler & Machinery declaration page is an important part ofthe policy, and the data on this page should be checked carefullyto make sure it is correct and complete. There are references tothe data shown on the Declarations page throughout the otherportions of the policy, so any errors or omissions on theDeclarations page can be damaging to the intended coverage.11 /GE /30 May, 2008

Limits of B&M InsuranceHow much Boiler & Machinery insurance should becarried?The amount and limits of coverage can only be estimatedby examination of the particular situation and making a“worst case” evaluation or loss projection. Avoid thecommon practice of insuring only for the value of the objectbeing covered. For most items, a covered loss can alsocause damage to property beyond the object itself. Thecost of the additional coverage does not rise proportionallywith the increased risk, so it is better to estimate on thehigh rather than the low side and insure accordingly.12 /GE /30 May, 2008

Let‘s get morepractical13 /GE /30 May, 2008

14 /GE /30 May, 2008

What do you want to know about thiscustomer producing blue soccer balls?• ...• ...• ...• ...• ...15 /GE /30 May, 2008

B&M - Risk Quality Categories• Condition Quality Rating• Contingency Planning Rating• Age Rating• Accessibility Rating• Maintenance Rating• Replace-ability/Unique Equipment• Protective Devices Rating16 /GE /30 May, 2008

Condition Quality Rating Factors• Vibration• Noise• Smoking• Leaks• Band-Aid Repair• Cleanliness• Full predictive maintenance program17 /GE /30 May, 2008

Contingency Planning RatingQuestions• How well can the plant recover from a serious B/Mincident?• Do they know where to get emergency parts?• How do they modify operations to restart at least someoperations?• Do they have reserve capacity?• How much finished stock do they carry?• Have arrangements been made for other plants toproduce their products?18 /GE /30 May, 2008

Contingency Planning Rating (cont.)Actions• Documented & implemented procedures, as wellas, critical spares• Some key equipment has installed spares• Program reviewed regularly19 /GE /30 May, 2008

Age RatingQuestions• When was the machine, piece of equipment built?• Is the manufacturer still in business?• Has a life extension been done?• Determinations made by plant to estimate remaining life?• Type of maintenance that the equipment is subjected to?• Service environment?• Loading on equipment?20 /GE /30 May, 2008

Age Rating (cont.)Actions• Equipment up to x years old or overhauled within the lastz- years• Predictive maintenance program• Equipment designed for operating environment• Equipment loaded at less than 100% of rated capacity21 /GE /30 May, 2008

Age Rating (cont.)Failure Rate λ(t)EarlyLossesFor example:assembly,production,material orconstructionfailure.Occasional LossesFor example:Operating orMaintenance errorWear andTear failures.Material tiring- Better Materials- Improvedprocessconditionst 1 t 2- others …Lifetime tMeasuresProcess and QualityControl (ISO)Correct Maintenanceand OperationsLive TimecalculationsMaterial analyses22 /GE /30 May, 2008

Accessibility RatingEquipment location within a building:• Are inspection covers accessible for maintenance?• Can machine parts or entire machines be moved easily?Building location:• Access to major modes of transportation t ti such as roads,railroads, barges?• Restrictions to access due to location of buildings withinurban area?• Restrictions to access due to lack of access road toequipment?• Close proximity to repair facilities?23 /GE /30 May, 2008

Maintenance RatingQuestionsElectrical, Mechanical, and facility maintenance.• Type of maintenance done - Predictive? Preventative? Breakdown?• Maintenance information system used? Maintenance planning?• Risk based maintenance priorities?• Lockout-tagout used?• Contract maintenance, control and surveillance?• Management of change controls?• Training?i • Spare parts?24 /GE /30 May, 2008

Maintenance Rating (cont.)Actions• Witt Written program including management statementt t• Computer based system or equivalent with automaticwork order & analysis functions• All key equipment documentation maintained andreferenced by CMMS• Routine maintenance spares on hand and re-orderedautomatically• Only qualified personnel permitted to service complicatedequipment• Periodic maintenance staff training25 /GE /30 May, 2008

Replace ability / Unique Equipment• Equipment not normally found in occupancy orline of business?• Unusually designed equipment?• One-of-a-kind equipment?• Prototype equipment?• Equipment designed and built by insured?26 /GE /30 May, 2008

Protective DevicesQuestions• Boilers: Safety valves? Burner management? Fuelsafety shut-off valves? Operating controls?• Pressure Vessels: Safety valves? Rupture discs?• Mechanical Equipment: Over-speed? Limit it switches?Clutches? Brakes? Over pressure protection?• Electrical Equipment: Circuit breakers? Controllers?DC? Over voltage?• Production Machinery: Limit switches? Clutches,Brakes, DC?27 /GE /30 May, 2008

Protective Devices (cont.)Actions• Protection that exceeds GE Global Asset ProtectionServices and manufacturers recommended practices• Protection is properly installed, maintained, calibrated,and functioning• Written program prohibits operation without all protectivedevices in operation and prohibits continued operation inAlarm Mode unless alternate protection is in place &functioning• Lockout-Tagout program in place28 /GE /30 May, 2008

Remember the blue Ball ProductionCan you do this for everymachine or piece ofequipment?Focus on Key Equipmentis necessary !29 /GE /30 May, 2008

Key or high value B&M Objects• Key Object definition !!!!• Bottleneck• Value minimum???• Boiler & Pressure Vessels• Mechanical• Electrical30 /GE /30 May, 2008

Loss Estimates• Property Damage• Business Interruption• Daily Time Element Exposure31 /GE /30 May, 2008

Property DamageGE GAP Services predefines Loss Scenarios in the Company ProcedureManuals.Loss figures in the applied tables result from loss experience andmachine/equipment manufacturer input.The figures are country/region specific and have to be adjusted withannual cost increase factors.How To apply the GE GAPS replacement cost tables:Selection of B&M Object size or capacity Unit CostThe PD value is taken as a percentage from the Unit Cost (depending onLoss Scenario NLE, PML, MFL)The BI exposure is taken as number of days for the individual id LossScenarioThe Daily TE Exposure depends on each individual plant and must becalculated with information available.32 /GE /30 May, 2008

Pitfalls using Replacement Cost -TablesKnowing the replacement cost of key equipment is vital tosetting key equipment PMLs and MFLs. Replacement valuetables and formulas are often based on broad criteria such assize or rating.They may not include all construction-associated costs, suchas costs of foundations, mezzanines and other constructionitems necessary to operate a plant. Too strict an interpretationof valuation tables and formulas can result in false securityand inaccurate loss estimates, particularly for large,uncommon units. Errors can also be introduced whenestimating other loss-related l costs, such as those for auxiliaryequipment, labor, structural work and cleanup.33 /GE /30 May, 2008

GE GAPS - Replacement Cost Factors34 /GE /30 May, 2008

PD, BI and Daily TE exampleEXAMPLE BOILER & PRESSURE VESSELTable dated March 200135 /GE /30 May, 2008

PD, BI and Daily TE examplePML-Example: A facility has two 50,000 lbs/hr rated(Package- Type) water tube boilers. Both boilers arerequired for full production. The facility can run at 65%with one of the two boilers in service. The PML incident forany of the two boilers would be “Low water or overheatingcondition resulting in replacement of 40% of tubes. ”36 /GE /30 May, 2008

PD, BI and Daily TE exampleEXAMPLE MECHANICAL:Table dated March 200137 /GE /30 May, 2008

PD, BI and Daily TE examplePML-Example: A facility manufactures Product A (80%)and Product B (20%). The casings of Product A areproduced by a 2.000PSI hydraulic press the casings ofProduct B are produced by a new 5.000PSI hydraulicpress. There are no spare parts. The presses are notinterchangeable. Assume an incident involving Press A.Using the PML incident for a 2.000PSI hydraulic presswould be “Cracked main cylinder resulting in the need formetal stitch or weld repair.”38 /GE /30 May, 2008

PD, BI and Daily TE exampleEXAMPLEELECTRICAL Table dated January 1998Table dated January 199839 /GE /30 May, 2008

PD, BI and Daily TE examplePML-Example: A facility, which operates 24-hours perday, is powered by a single 10-MVA rated transformer(with a high side winding rating of 161 kV). A wellmaintained back-up transformer is available ailable on site.According to plant personnel, the back-up transformer canbe in full service within 6-hourshours.Assume a through fault to the main transformer resultingin de-tanking and rewinding.40 /GE /30 May, 2008

Thank You for your attention!!!Questions &Answers41 /GE /30 May, 2008