Effective PSM Implementation Can Reduce the Insurance Premium

To quantify gains is a challenge that has been faced when a process safety culture is being developed inside a company. Great efforts are made to reach commitments in process safety, capabilities development, process discipline and learning from experience. In the most of the times, the results of such efforts can be clearly observed by insurers.

For some companies, which insurance renewals are based on preventive aspects and not only on mitigating aspects, the measurement of these gains become easier. It can be explained because the assessment of the insurers includes the level of process safety culture as one of the main factors to calculate insurance premium.

Insurance for chemical, petrochemical and oil& gas plants belongs to Energy Insurance Market. Usually the Property Insurance or All Risks Insurance represents the biggest policy and the biggest premium to be paid, because this type of policy is designed to cover the assets against all risks of sudden and accidental event that would cause damages to the plant. For this reason, the greater is the process safety culture, the lower are the rates applied to define the premium. The insurance premium is defined based on the factors below:

Periodically, the insurance companies' risk engineers make surveys in industrial plants, in order to verify if the clients are protecting their assets by working in a safe way. They usually look for the best practices, positive aspects, the existence of a process safety management system implemented and if they find needs for improvement points they make a recommendations report. Each survey takes 2 to 4 days. After the assessment, the risk engineers define the risk rating of each plant, which is a grade given in accordance with the quality of the surveyed items. This rating can increase or decrease according to what is found during each survey. All the information provided by the client is taken into account for the calculation of the risk rating, where the item Management is the most representative (around 50%). The better is the assessment the greater is the risk rating, and, consequently, the better is this plant when compared with other plants of the same activity.

The consequence of having a good risk rating is that it contributes for a lower cost of the premium policy.

A set of factors related to process safety (OSHA, NFPA requirements, Best practices) are observed during the definition of risk rating, as follows:

1. Lock out / Tag out procedures

1. Trip/bypass procedures

1. Management of Change

1. Operators Training

1. Housekeeping Conditions

1. Firefighter Training

1. Permit to Work Procedures

1. Maintenance techniques

1. High risk operation ( HRO)

This means that instead of looking for only existing fire protection systems and fire brigade (which is still necessary, but not sufficient), the insurers methodology seeks to identify different aspects, as showed below:

• Plant Location (Plant Lay-out, Industrial Area Lay-out, Construction Design, Utilities, Warehouses, Storage and Transportation);

• Control and Protection (Control Room Design, Emergency Shut-Down Systems);

• Management (Organisation Structure, Operational Procedures, Permit To Work Procedures, Maintenance and Inspection Techniques, Contractors Management, Engineering Standards, Emergency Response, Safety and Security procedures);

• Fire Protection (Fireproofing, Smoke and Gas detection Systems, hydrants and other fixed protection systems)

Due to the relationship between Process Safety Management and All Risks Insurance, there is opportunity of improvement in Process Safety through response to the suggestions/recommendations from insurance companies, as has occurred in the last years. Consequently, there is also opportunity of quantifying the process safety management evolution in the industry through Risk Rating.

• Response to insurance recommendations and suggestions from previous surveys (Partially or totally, depending on each plant);
• Housekeeping improvement in industrial areas (good housekeeping conservation, short-beltings' elimination, plugs and caps installed correctly).

• Development of procedures for recruitment, selection and recycling of employees, using the existing partnership with technical centres and universities);

• Standardizing of Permit to Work procedures (different forms of each type of service: cold, hot and confined space);

• Development of Permit to Work audits, including the issue of weekly and monthly reports, for leadership analysis of gaps;

• Development of the “safety walks” where the leaders and operators make a survey across the industrial area in order the check the housekeeping;

• Improvement in trip bypass management;

• Less tier 1 and tier 2 incidents

• Limited management change

• Create chronic unease

In addition of the procedures development and review, some investments were done, such as fireproofing in structures and cable trays near hydrocarbon pumps and updating of automation system.

As a result of these actions, a significative increase of risk rating in three of the five plants surveyed has occurred. It means that, from the insurance company representatives point of view, the surveyed plants has improved the process safety quality.

This increase in risk rating is important for the company to create a better image in terms of process safety, which is highly considered during the renewal negotiation.

This result demonstrates that the actions developed to improve the quality of Process Safety can generate financial gains in insurance policy renewal. Considering that the company still has opportunity for improvements on its process safety management system, and there are some great investments being concluded, it is expected that beyond the quality improvement of process safety, other gains can be reached in the next policy renewal.

However, the experience shows that improving your process safety management quickly brings more results without spend large quantities of money and helps to avoid the occurrence of big investments to remediate damages caused by an incident.