Risk Management Best Practices - IRMI.com

CIn

Wednesday, March 5, 2014Houston, TX

3:15–4:30 p.m.

RISK MANAGEMENT BEST PRACTICES FOR EMERGING RISKS

Presented by

Kenneth R. Updike, CSP, CPCU, ALCMRisk Assessment Industry Specialist,

Energy Underwriting GroupLiberty Mutual

Matt Waters, CPCU, CRISVice President and Chief Underwriting Officer,

Commercial Markets Energy BusinessLiberty Mutual

Best-in-class companies prepare for and control emerging risks by continuously quantify-ing risks, understanding how insurers evaluate risk, and doing the right things. Using ex-amples of best-in-class practices in auto fleet management, fracking, power and utility,and natural gas transmission, this session will discuss how a company can proactively posi-tion itself to streamline the insurer’s risk assessment process, to get the best results fromthe insurance marketing process, and to improve the overall cost of risk.

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Kenneth R. Updike, CSP, CPCU, ALCM Risk Assessment Industry Specialist, Energy Underwriting Group

Liberty Mutual

Ken Updike is currently risk assessment industry specialist dedicated to the Energy Underwritinggroup. He has been with Liberty Mutual for 34 years, first in the Loss Control Consulting organiza-tion prior to moving to Energy assessment. Prior to being dedicated to Energy, he worked withlarge manufacturers to strengthen their safety programs, especially concerning product liability,and with large truckers on their fleet safety programs. His energy connection started with work-ing with large utility contractors.

Mr. Updike has been involved with the Energy group since 1997 and covers customers in SIC 13oil/gas from offshore drilling to completion work including hydraulic fracturing. He also workswith customers in SIC 49 (IOUs, co-ops, and independent power) electrical generation, transmis-sion, and distribution; natural gas transmission and distribution; and water supply systems. Hecan access government databases of pipeline data. Mr. Updike also works with alternative energyapplications in geothermal, wind, and solar. Finally, he works with SIC 5984 for LPG retail distri-bution and some unrelated SIC codes related to energy.

Mr. Updike holds a bachelor of science in chemistry from the College of William & Mary and hascompleted work on the graduate level with radionuclides.

Matt Waters, CPCU, CRISVice President and Chief Underwriting Officer,

Commercial Markets Energy BusinessLiberty Mutual

Matt Waters joined Liberty Mutual in 1997 as part of the new hire underwriting training pro-gram. Prior to joining Energy, Mr. Waters has held several leadership positions across Commer-cial Market Underwriting in both specialty and national accounts. He has experience in managingcaptives, programs, energy, large national and middle market-sized accounts, and a team of riskengineers who support various commercial market segments.

Mr. Waters earned his bachelor of arts from the Ohio State University. He holds the CharteredProperty Casualty Underwriter and Construction Risk and Insurance Specialist designations.

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IRMI.com 1IRMIIRMIIRMIIRMI comcom.comco 11111

1www.IRMI.com

IRMI.com

Underwrit ing & Risk EngineeringIntegrated Approach

to Risk Selection

Presented By:

Ken Updike, Risk Assessment Specialist M at t Waters, Chief Underwrit ing Officer

Liberty M utual Insurance

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The risk control considerations highlighted in this presentation

are for illustration purposes only. We may take other safety

factors into account in evaluating and pricing a potential

customer’s operations. Because your situation could pose

unique risks, you should consult an experienced safety

specialist for risk control advice tailored to your business.

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Liberty M utual Risk Engineers’ Perspective

Where is it?

On the range, where the deer and antelope play or next to a school—in other words, “Is fencing needed?”Out of flood plain?Easily accessed for fire or spill control?

Is it maintained?

Catwalks/stairs solid?Rusty or painted?Fence, if erected, absent of holes?Full enclosure dike with a liner and vegetation controlled?

Labeled for contents? Yes or no?

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What Are the Options Available to Underwriter in Assessing Risk?

Price for it Avoid it Transfer it

Mitigate it through plan and program structure

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Industry Headlines Generate M arket Fear

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Shining a light of reason on media fear and

unknowns in the complex Energy World

Focusing on managing and underwrit ing the most crit ical concerns or risks

and then

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Key Energy Concerns/ Risks Facing Us Now

Fleet Operation and Management

• Vehicle maintenance • Driver fatigue• Driver qualification in view of growth and turnover• CSA scores

– Severity of infractions and correlation to submission– Exceeds intervention threshold in two or more areas

• Fluid haulers … what’s being hauled

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DescriptionTotal

ViolationsOOS

ViolationsViolationWeight

Tire: flat and/or audible air leak 55 15 8

Inoperative required lamps 99 10 2

Brake tubing and hose adequacy 18 8 8

Axle positioning parts defective/missing 4 7 7

Flat tire or fabric exposed 5 4 8

Anticipating Concern

Vehicle M aintenanceMaintenance

• Documenting all maintenance Mechanic/Vehicle RatioDaily Vehicle Inspection

Record (DVIR)• DOT and private passenger• Following manufacturer’s

guidelines

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I f You Really Want To Control Underwriter Heartburn …

Company management has decided that tire condition should be a priority and has taken the following steps:

1. A reduction in tire-related violations/100,000 miles by “x” percentage

2. An increase of mechanic visits to the field if equipment has been sitting

3. Repeat training of drivers on DVIR with scoring—set passing grade

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Driver Fatigue• No evidence that company considers

“oilfield HOS exemption” a given– Section 395.1(d)(2) states, in part, that in the case of specially

trained drivers of CMVs that are specially constructed to service oil wells, “on-duty time shall not include waiting time at a natural gas or oil well site.”

– Operators of CMVs that are used to transport supplies, equipment, and materials such as sand and water to and from the well sites do not qualify for the “waiting time exception”

• Fatigued driving in noncommercial vehicles is also reviewed


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Company considers fatigued driving a serious concern and has taken the following steps to control:

• A reduction in HOS violations/100,000 miles by “x” percentage

• Management takes log violations and evidence of log false reporting seriously

• In-vehicle monitoring systems are designed to track the HOS and report when a driver is approaching his/her limit

• For regular haul trips (sand, water, or produced/flowback water hauling), management has an active plan to transport a replacement driver to the site

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• No written program on driver qualification• Listed drivers who exceed MVR criteria

– No drivers have ever exceeded criteria

• MVR criteria only apply to commercial drivers• Drivers routinely carry nonemployee passengers• Customer operates 25 passenger buses or

16 passenger vans• Driver turnover above 50 percent annually• Commercial vehicles that require special license

endorsements


Driver Qualification/ Turnover

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Company considers driver selection/retention, turnover control, and accident avoidance critical to success and measures company control by:

• Written criteria apply to all drivers

• No exception to written criteria unless approved and signed off by top manager

• Management expects an annual audit of driver files to verify the program is followed

• Management has a program for pay and vacation parity when trying to hire experienced drivers

• Management has embraced new in-vehicle technology to help control its exposures

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What Other Antacids Exist?

Is there a personal use policy/agreement for company vehicle custodians?1

Is the company making use of in-vehicle technology to the maximum available?2

Is there a personal vehicle use on company business policy/agreement?3

Do annual performance reviews consider vehicle operation issues both negative and positive?4

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Special Goals for Fluid Haulers

� Establish special training for the rollover connected with high-center-of-gravity vehicles

– Identification of hard braking offenders – Indication that signaled speeding violations are used– Use of electronic logs and geo-fencing

� Audit fatigue factor created by wait times at either well site or injection well site

� Have a contractor for cleanup on retainer—get a sample for analysis

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Fleet Operation and M anagement

• An energy unit with incidental hauling exposure …not a common carrier dedicated to energy

• Limiting our pollution exposure (no pollution grants for fluid haulers) … no crude-only haulers

• Minimum of $250,000 deductible on large fleets (>500, 25 percent H or EH)

• Credits available for best-in-class clients (CAPA)

UW Risk Selection Techniques/Appetite

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Key Energy Concerns/ Risks Facing Us Now

• Fracking• Injection wells and seismic activity• Methane migration• Effective utilization of MSAs• Jurisdiction impact on litigation and public opinion

2 Lease Operations

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Oil or Gas Lease Operator

• Does the work done in-house match the information from multiple sources on the Internet or in the submission?

Also:• Commercial grading operations• Hunting reserve operation• Property rental• Housing trailers for workers

– Wire line reels on equipment information– Tank trailers on the list– Hazardous materials hauled on last MCS–150– OSHA serious accident investigations

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Oil or Gas Operator—What We Want To Know—Elephant in the RoomDo the wells require hydraulic fracturing, or does the operator own/operate injection wells?• Provide any operations document(s) that would give us requirements

pertaining to site grading/preparation and security needs (fencing)• Give me the number of USDW sample wells checked and the radius prior to a

well being drilled• Provide requirements for casing inspection and pressure testing prior to

fracking• Are documents kept on all chemicals (drilling, fracking, completion) with the

best information at the time and the analysis including tracers?• Do contractor MSAs have special requirements for radiological testing and

possible loss of a source?• If injection wells are owned, do others use the well?• If a third-party well is used, are there audits of its operation?

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Oil or Gas Operator—Paperwork

• Do pumpers/gaugers record site observations in addition to production and treatment info? Audited?

• If there is evidence of site trespassing, is local law enforcement alerted?

• Have well service contractors been pre-vetted? Can a pumper shortcut the system?

• Does the operator have a midstream collection system?

?

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Oil or Gas Operator

• Minimum retention of $100,000 for lease operators• Transfer of ALAE exposure—either pro rata or DWL• Limit pollution and encourage placement of stand-alone

pollution policies• Limit expansion in immature jurisdictions, Marcellus• Industry stance on seismic?• Credits available when separate pollution is placed and

controls are in place• Debits available for ownership of salt water disposal wells,

significant cementing exposure

UW Risk Selection Techniques

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I llustration of How ALAE Treatment Options Impact Risk Retention and Premium

CUSTOMER RISK

TRANSFER

CUSTOMER RISK RETENTION

LOWER PREMIUMHIGHER PREMIUM

Inside/Outside

Customer DamagesCustomer ALAE

310,00040,000

Liberty DamagesLiberty ALAE

190,0000

Umbrella DamagesUmbrella ALAE

00

Total Customer Obligations 350,000

Total Liberty Obligations 190,000

Pro Rata


350,00028,000


150,00012,000


00



Customer Pays ALL ALAE


350,00040,000


150,0000


00



Deducible 350,000Total Loss Amount 540,000Damages Only 500,000ALAE Only* 40,000Pre-Occurrence Limit 1,000,000

35%Customer

Obligations

30%Customer

Obligations

CUS

28%Customer

Obligations

*Assumes ALAE is paid before damages.

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Key Energy Risks Facing Us Now

Midstream is next on our radar… particularly shipping of crude

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M idstream Operator

• We need a list of pipeline names so we can compare to PHMSA report data

• Provide the geographic coordinates for natural gas processing facilities

• Are there any design criteria for new pipeline?– Better than expected distance between system shutoff valves– Superior water crossing criteria– Acoustical monitoring installed

• How is HCA mileage data updated?• How many miles of non-piggable pipe exist?• Are new pipeline records in a digital form?

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M idstream Operator

• Does the operator use railcars for crude oil?– Are cars owned or leased?– If owned, are third-party maintenance records audited?– If leased, are DOT111A cars required?– Are the lease companies’ maintenance records

audited?

• Do audits show that 49CFR 171 Subpart A shipper requirements met?

• Does the operator have its own sidetrack?• Does it store crude at its own or third-party

sidetrack?

?

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M idstream

• Greater program flexibility available from guaranteed cost, large deductibles, and fronts

• Excess capabilities with preferred layer of 15 × 10

• We like processing, gathering lines, natural gas transmission

• Credits available when separate pollution is placed and controls are in place

• No crude-only pipelines

UW Risk Selection Techniques

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Quest ions

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Contact Information

[email protected]

[email protected]

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Risk Management Best Practices - IRMI.com

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