MCCORMICK EIGHT GREAT MANAGEMENT … EDITOR Bob Gulla [email protected] ART DIRECTOR Jennifer Cournoyer ... Devlo Media CONTRIBUTING ILLUSTRATORS Shawn Nielsen, Rick …

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| ISSUE 2 : 2015

PROPERTY RISK AND INSURANCE SOLUTIONS FOR A COMPLEX WORLD ISSUE 2 : 2015

MCCORMICK

Shares its recipe for global success

ESTERLINE Success

with a little help from its friends

EIGHT GREAT RISK MANAGEMENT

PRACTICES

Monitor All of Your Facilities from Anywhere in the WorldYour business is your world—and for many—your facilities are located around the world. MyRisk®, FM Global’s extranet web portal, provides you with essential risk management tools and solutions to keep your business running smoothly, no matter where your business is located.

NEW FOR 2016! Harness the power of MyRisk right from the palm of your hand, with the MyRisk Mobile app. In January, registered MyRisk users can download the app from the App Store, Google Play and Windows Phone Store.

contents : ISSUE 2 2015

28 Currying Flavor with McCormickMcCormick's seasoned leadership team has emerged from a turbulent period of intense expansion with phenomenal success and just the right ingredients for good risk management.

40 8 Great Risk Management PracticesAt a recent forum, we asked nearly 200 of our clients to assemble an essential list of best practices for risk management. After a few days of intense debate, we are proud to present the fruits of all that labor.

50 On the Road Again with EsterlineRisk management is not exactly appealing. The hours are long, the pressure is high, and risk managers rarely get credit when everything goes right. But the job does get a little easier when you have a client service team on the ground who is there when you need them.

features

departments

05 Editor's Note06 Partnering with the World08 The Metrics System 10 Equipment Loss: Turbine Troubles14 Big Innovations in In-Rack Sprinklers18 The Hidden Risks of 3-D Printing22 Voices: Marsh's Caroline Woolley25 Voices: Samsung Electronics' EJ Park

EXECUTIVE DIRECTOR Johanna Hetherton

MANAGING EDITOR Bob Gulla [email protected]

ART DIRECTOR Jennifer Cournoyer [email protected]

EDITORIAL

DEPUTY EDITOR Alicia Kamm SENIOR EDITORS Kerri Germani, Patricia Iannotti, John Rufo

EDITORS Christian Campbell, Amy Carbone CONTRIBUTING WRITERS Alan Earls, Hank Giles

Stephanie Van Ness, Steve Turgeon TECHNICAL EDITOR John C. Harrington

ART

CREATIVE DIRECTOR Rebecca Marino ASSOCIATE ART DIRECTOR Nicole Caddell

DESIGNERS Elizabeth Picillo DESIGN INTERN Josh Grab

CONTRIBUTING PHOTOGRAPHERS Lou Bopp, Devlo Media CONTRIBUTING ILLUSTRATORS Shawn Nielsen, Rick Shiers

John Thomas

PRODUCTION

PRODUCTION MANAGER Sheena Carter PRODUCTION COORDINATOR Ashley Kuhar

VIDEO PRODUCTION

PRODUCERS Bob Gulla, Stephen Pine CONTRIBUTING VIDEO DIRECTION Lou Bopp, Devlo Media

Jon Ryan

CUSTOMER SERVICE AND SUBSCRIPTIONS

270 Central Ave., P.O. Box 7500, Johnston, RI 02919 USA fax: +1 (1)401 477 7010, phone: +1 (1)401 477 7744

(1)877 364 6726 (toll-free in Canada and United States) email: [email protected]

REPRINTS

Address inquiries to: Niki Swaby, intellectual property and localization

phone: +1 (1)401 275 3000, ext. 1670 email: [email protected]

CORRESPONDENCE

Send to Reason, FM Global Communications 270 Central Avenue, P.O. Box 7500, Johnston, RI 02919 USA

fax: +1 (1)401 464 9031, phone: +1 (1)401 275 3000 ext. 2185

ADVISORY BOARD

Nick Batten (Client Service and Sales) Jeffrey Beauman (Underwriting)

Chris Boston (Client Service and Sales) Karen Freedman (Enterprise Learning)

Ronald Gibson (Engineering), Louis Gritzo (Research) John C. Harrington (Engineering)

Belinda Oliver (Marketing) Duncan Reid (Client Service and Sales)

Burton Wright (Claims), Martha Young (Marketing)

WATCH THIS!on fmglobal.com/reason

Jonas GustavssonPRESIDENT, SANDVIK MACHINING SOLUTIONS FROM WORKING TOGETHER: SANDVIK AND FM GLOBAL

“ Sandvik Machining Solutions is the biggest business area in Sandvik, and we have been able to develop products and services over the years that have, in some ways, revolutionized the business. We have a fantastic competence, and we are investing heavily in both risk management and sales.”

Marifrances McGinnVICE PRESIDENT, GENERAL COUNSEL AND RISK MANAGER PROVIDENCE COLLEGE

“ In the next couple of years, there are several buildings we will be renovating and we will be incorpo-rating some of the initiatives that FM Global has shared with us. Changes are expensive but, in the long run, will mitigate cost.”

FM GLOBAL AROUND THE WORLD

FM Global products and services are available around the world. The countries listed below represent those where we regularly serve our clients.

ASIA PACIFIC Australia Bangladesh Brunei Cambodia China Hong Kong India Indonesia Japan Laos Macau Malaysia New Zealand Pakistan Philippines Singapore South Korea Sri Lanka Taiwan Thailand Vietnam

EUROPE, MIDDLE EAST AND AFRICA Albania Algeria Angola Armenia Austria Azerbaijan Bahrain Belgium Bosnia-Herzegovina Botswana Bulgaria Burkina Faso Cameroon Croatia Cyprus Czech Republic Denmark Egypt Estonia Finland France Gabon Georgia Germany Ghana Greece Hungary Iceland Ireland Israel Italy Jordan Kazakhstan Kenya Kuwait Kyrgyzstan Latvia Lebanon Liechtenstein Lithuania Luxembourg Macedonia Madagascar Malta Montenegro Morocco Mozambique Namibia Netherlands Norway Oman Poland Portugal Qatar Romania Russia Saudi Arabia Senegal Serbia Slovakia Slovenia South Africa Spain Sweden Switzerland Tanzania Tunisia Turkey Ukraine United Arab Emirates United Kingdom

NORTH AMERICA Bahamas Barbados Canada Costa Rica Dominican Republic El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Panama United States

SOUTH AMERICA Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Trinidad and Tobago Uruguay Venezuela

TO REACH THE FM GLOBAL OFFICE NEAREST YOU, VISIT FMGLOBAL.COM/CONTACT.

This publication is made available for informational purposes only in support of the insurance relationship between FM Global and its clients. This information does not change or supplement policy terms or conditions. The liability of FM Global is limited to that contained in its insurance policies.

P07001 © 2015 FM Global. All rights reserved. In the United Kingdom: FM Insurance Company Limited, 1 Windsor Dials, Windsor, Berkshire, SL4 1RS. Regulated by the Financial Services Authority.

editor’s note

Congratulations!The word you don't hear when everything is going well

As you are likely well aware, risk management and safety can be challenging and often unsexy business. When things go south, you are the first to get a phone call. But when business is humming along nicely, or you managed to weather one storm or another, well, no one calls you to say, "Congratulations, nothing is happening!" It might sound counterintuitive, but if your work isn't noticed, that's probably a good thing, especially in the

business of property insurance. Compare it to being the referee of a big sports match. Specta-tors only notice you if you are doing a lousy job. In that case, wouldn't we rather be the ref on the field who nobody notices? Both Esterline, a multifaceted electronics and advanced technology firm, and McCormick, profiled here, do the lion's share of their best work behind the scenes, in places few people notice. In partnership with FM Global, these elite companies have fanned out around the globe, while their risk management departments march alongside like good soldiers to keep up with all the growth. In this issue we follow Esterline through the California desert and watch them, in conjunc-tion with their client service team, do just that. It's grunt work, time-consuming and grueling. But no one is arguing that it doesn't need doing. Esterline faces risk every day and that risk needs to be addressed. Another client we paid a visit to, McCormick, has a global, far-reaching business model, as well. We sat down to discuss issues of sourcing, safety and supply chain with their global team. If you weren't paying attention, you could overlook the important work this group does to help the organization maintain its market dominance. So much of what our clients accomplish happens under the radar. Without a doubt, it's critical work. Those of us in the business understand full well that without good risk manage-ment, economic success is precarious at best, short-lived at worst. So, while it would be nice to get a congratulatory pat once in a while or an appreciative text for a job well done, it's not why we are in this business and it doesn't diminish the value of such important work.

Bob Gulla, managing [email protected]

READ THIS!on fmglobal.com/reason

Hershey: Kiss & TellWith the announcement of a major new manufacturing facility in Malay-sia, The Hershey Company unwraps its strategy for global growth.

USG: A Best-Laid PlanUSG, a pioneering building products giant, beats back a 500-year flood, saving millions of dollars.

Stemming the TideNew abatement equipment and sys-tems, when combined with a sound flood emergency response plan, help property owners reduce or eliminate business interruption in the face of flooding.

UNIQUE COLLABORATIONSWorldReach partnerships, in critical locations everywhere, make global expansion an easy street for clients. Here’s a tribute to a trio of those partnerships commemorating important milestones.

FM Global has relationships around the world—with clients, broker partners and WorldReach partners. Each relationship is unique and ultimately serves to benefit our policyholder-owners and keep them resilient in an uncertain world. When a client builds a facility in an area where FM Global is not licensed to do business, we partner with the highest caliber of property insurers and they provide locally admitted coverage on our behalf. These WorldReach partners are among the finest local and regional insurers world-wide and our relationship with many of them spans decades. In this issue we highlight three of these partnerships: Etiqa, Ping An and Sompo, and commemorate the anniver-sary of our partnership in providing clients protection and resilience.

WorldReach Partner: ETIQAFor more than 50 years, Etiqa has provided general insurance solu-tions along with a per-sonalized touch to the

Singapore market. Etiqa’s chief operations offi-cer, Fukhairudin Bin Mohd Yusof, describes the relationship between WorldReach partner, FM Global and the client.

How long have Etiqa and FM Global been partners? This year we celebrate a decade of unique collaboration.

How do both companies work together? FM Global provides significant business opportunities and growth in the fire and property segment—our target market. We entered a strategic partnership with them

6 REASON ISSUE 2 : 2015

How long has Sompo and FM Global been partners? The partnership dates back nearly 40 years.

How do both companies work together? Together, our companies strengthen the rela-tionships with our clients through claims handling, policy consultation and general property risk management.

What benefits do your clients realize as a result of this partnership? Clients benefit from the availability of addi-tional capacity, expert knowledge about the local standards, ease in communicating in their local language and culture, provision of other lines of insurances, and additional risk management services.

Can you give an example of how this part-nership works? About three years ago, a multinational client had a flood loss due to a damaged machine. Understandably, they wanted to remove the machine as soon as possible, but were required to wait for the claims adjuster. They were anxious about claims handling because they had difficulties communicating in English. Sompo handled the local com-munication and initial loss adjustment and FM Global handled the main loss adjust-ment. The client was able to recover from the loss quickly, with minimal business interruption.

as a WorldReach member to service clients in the Malaysian market. This partnership enables us to further expand our brand pres-ence and provide solutions and risk consul-tation services to more than 100 multina-tional companies.

What benefits do your clients realize as a result of this partnership? Our clients appreciate the FM Global mutual ownership structure, as well as the compa-ny’s core values, risk engineering services and the importance placed on long-term relationships. We are committed to full compliance with local, legal and regulatory requirements, and continuously strive to deliver excellent services and assistance to local clients and brokers.

How does this partnership work? I’ll give you an example. Recently, Etiqa and FM Global partnered to provide a competi-tive and total insurance solution to secure a local client in a specialized industry. This well-known local client required a terrorism cover which local insurers have limitations on, in terms of capacity. Moreover, they were seeking a local carrier that could cover all classes of the insurance program. Through a joint effort, FM Global was able to customize a property policy that addressed the specific needs of the client and obtain the local authority’s clearance to this cover. Etiqa also provided competitive terms on other policies to provide a total insurance solution.

WorldReach

Partner: PING ANPing An Insurance (Group) Company of China, Ltd. has devel-oped into a personal

financial services group with three core busi-nesses of insurance, banking and investment. In this interview, Marcy Mao, senior vice president, International Broker Department, dis-cusses the WorldReach partner relationship.

How long have Ping An and FM Global

been partners?

Our partnership spans more than 20 years.

How do both companies work together? Ping An issues the local policies and pro-vides local services in the China market on behalf of FM Global. To provide a compre-hensive and highly efficient program, Ping An sets up an FM Global business team with members coming from the local branches where FM Global clients are heavily located, including Shanghai, Beijing, Shenzhen, Suzhou and Guangdong.

What benefits do your clients realize as a result of this partnership? Clients benefit from a locally admitted pol-icy and officially filed insurance coverage. It’s convenient, local and officially encour-aged premium/claim payment/collection. It involves direct and localized communication and coordination with the Ping An brand image, network and capacity.

How does this partnership work?

As an example, in 2013, a severe fire acci-dent occurred that exceeded US$4 mil-lion in property loss. As soon as Ping An received notification of the accident, the head manager and claims department of the Ping An Suzhou Branch rushed to the loss site and an emergency response team was set up for loss estimation and claim-ing service. After careful consideration and discussion, Ping An arranged an immediate advance payment of US$2.4 million.

WorldReach

Partner: SOMPO Sompo Japan Nip-ponkoa Insurance Inc. is among the largest property and casualty insurers in the world

and the second-largest in Japan. Hiroshi Kida, general manager of Sompo’s International Bro-kers’ Department, discusses how Sompo and FM Global partner together to benefit clients.

ISSUE 2 : 2015 REASON 7

Although good CFOs never take their eyes off spending, you need to be very careful about trying to

wring too much cost out of your supply chain. This is where big data analytics can go awry. Many CFOs deploy big data analytics to drive down supply chain costs, and often they’re rewarded on that metric. Believe me, I love cost cutting as much as the next CFO. But there’s a point of diminishing returns: If you drive your costs down to zero, your rev-enue could be zero, too. Cost-cutting techniques, such as using sole-source suppliers, lowest-cost providers, and plants in countries where labor is cheap-est, can be recipes for disaster. As your supply chain costs fall, your risk can soar. If a brittle supply chain snaps—an outage at a single site halts your product flow—costs can go

A NUMBERS GAME Big data can drive down

supply chain costs, but beware: It can also cut revenue.


supplies to your company. Another factor to consider is how much your suppliers may be susceptible to natural hazards.

Global risk dataHow can big data help you when you’re taking a macro look at your global supply chain? Perhaps you’re selecting potential new suppliers, deciding where in the world to locate your next facility or simply evaluat-ing your existing supply chain for inherent weakness. You’ll want to know about a range of risk factors, including region-specific natu-ral hazards, terrorism, corruption, economic health, emergency management capabili-ties, local supplier quality, and the integrity of telecommunications, transportation and energy supply networks. Data on these crucial variables is avail-able from a range of sources, including the International Monetary Fund, World Bank and World Economic Forum. You can com-bine it with your own data for a multifaceted analysis or a single risk score for a selected region. You can use analytical tools to com-pare and contrast different regions where you may locate a plant or where a supplier has its operations based. All of these data types are just examples of the rapidly growing wealth of informa-tion you can compile and analyze to make your supply chain sturdy and cost-effective. Remember, cost reduction is important, but you shouldn’t be aiming for the lowest day-to-day operational costs. You want to look to contain your costs over the long term by avoiding the disruptive problems that can put you out of business.

it much easier and more cost-effective for your company to contract with second- and third-tier suppliers to add needed redun-dancy to your supply chain.

Property risk dataIf you own buildings and plants around the world, you’re insuring them. In addition to getting a policy and an invoice from your insurer, you should be getting hard data per-

taining to the hazards on your properties— including fire, flood, wind, earthquake and equipment-failure risk. You should be get-ting estimated costs for eliminating (or min-imizing) those risks, scorecards as to how risky you are compared with your industry, and a range of options for prioritizing risk reduction according to criteria such as cost, cost/benefit, loss probability and revenue dependency. Let’s say your insurer’s risk engineers are collecting 1,000 data points during each visit to a client site. Those engineers do thousands of visits every year and have been doing so for decades. They should be using this massive data source to continually refine your risk assessments. You should be able to see the resulting insights on dashboards. Among the potential disruptions are natural occurrences you might be tempted to overlook. Perhaps your plant is in the heart-land, which sounds safe, but may be in the floodplain of the Mississippi River. It’s not a question of if a flood will occur, but when. Or maybe you’re on an earthquake fault line or exposed to high winds. That should be part of your supply chain risk equation, because these conditions may make it difficult to get

through the roof as you lose revenue, market share, brand value and shareholder value. Supply chain disruption often results from overreliance on a sole supplier or a key supplier that, for whatever reason, unexpectedly fails to deliver promised com-ponents. The supplier’s impairment could be physical exposures—such as human or natural hazard—or a financial exposure such as bankruptcy.

To ensure your business resiliency, you need the right level of supplier diversi-fication at cost-competitive prices. Big data analytics can help you achieve this. Here are three fields of risk-related big data to ana-lyze: the CFO’s “private access” data, prop-erty risk data and global risk data.

CFO’s “private access” dataAs a CFO, you possess a lot of data at your fingertips that others may not, includ-ing accounts payable, accounts receivable, manufacturing data, cost of goods sold, and assorted vendor records. You can com-pile this data and use analytics to uncover insights concerning both your direct supply chain and your extended one that the naked eye would miss. If you’re a car manufacturer for instance, your sound system suppliers are all unwittingly depending on the same maker of knobs. One storm, fire or bankruptcy at the knob maker’s business could disrupt your output for weeks. Analytics can reveal this needle-in-a-haystack risk before it hurts you. Analytics applied to proprietary CFO data can also help you quickly arrive at fair prices for thousands of components, making

“ How can big data help you when you’re taking a macro look at your global supply chain? Perhaps you’re selecting potential suppliers, deciding where to locate your next facility or evaluating existing weakness.”

Jeffrey A. Burchill CFO, FM GLOBAL

Jeffrey A. Burchill is senior vice president of finance and chief financial officer of FM Global.


The Tennessee Valley Authority (TVA) is one of the largest producers of electric power in the world. Originally established during the Great Depression to improve navigation on the Tennessee River and its tribu-

taries, increase economic development and generate electricity in the process, its mission shifted decisively toward power production to meet the demands for more electric power during the global conflict of the 1940s and, in particular, secret weapons development projects. After the war, as hydropower reached its full development potential, the TVA began to build conventional fossil-fuel-powered electric plants, too. One of those power stations is in Gallatin, Tennessee, a quiet community about 25 miles north of Nashville, named in honor of Albert Gallatin (a linguist and ethnologist who was a congressman, senator, United States ambassador and secretary of the treasury). TVA construction at Gallatin began in 1953 on the north bank of the Cum-berland River and was completed in 1959. Although TVA’s presence in the region and in the Gallatin community is normally unobtrusive, that changed abruptly on June 19, 1974, with a sudden calamitous equipment failure on the Gallatin II turbine generator. According to a contemporary Associated Press report, the 250,000-kilo-watt steam turbine exploded without warning, launching large segments of the machine through the roof of the building. The accident happened about 6 a.m. as the unit, which had been shut down for minor boiler repairs, was being readied for a return to service through a cold start procedure. In the immediate aftermath a TVA spokesman told reporters the generating unit “was severely damaged when a steam turbine shaft failed.”

TURBINE TROUBLESA historic equipment loss and

what could have been done differently to achieve a

better outcome.


Miraculously, no one was injured but the damage was substantial. It was clear to any observer that repairs would cost millions of dollars and the unit would be offline for a long time, leaving the plant’s three other generating units to carry the load.

Machine forensicsEngineers have long been adept at deducing the sources of equipment failures. Catastro-phes involving such a massive and expensive machine were more than a little concerning and, in the subsequent months and years, the study of the cause of the Gallatin turbine disaster clearly showed the value of some of the more advanced testing methods that have since become standard practice. Closer examination showed that the problem was actually a rotor fracture rather than simply a shaft problem. But regard-less of exactly where the failure occurred, the outcome was still spectacular, with tur-bine parts weighing up to half a ton blasted through the concrete roof. From there on, the story became a study in metallurgy, a field undergoing rapid development thanks to new research and new analysis techniques. The turbine rotor itself was made of a steel alloy originally forged from an air melted ingot in 1954. It underwent standard heat treating, conducted at 955°C. Starting in May of 1957, the com-pleted turbine unit was usually base loaded, at 225 megawatts with an internal operat-ing temperature of 566°C and an operating speed of 3,600 rpm. In June of 1974, after a total of 106,000 hours of service, the failure occurred as a result of a rotor fracture at about 3,400 rpm.

Superficially at least, there seemed to be nothing to indicate a failure was likely to occur or imminent. However, further study by investigators revealed that a cluster of manganese sulfides (MnS) had become lodged and a creep-fatigue crack grew from

the location. This problem was worsened by the embrittlement of the rotor itself after so many years of operation.

Competition and new technologyFierce competition in the industry and, even-tually, a patent dispute added another dimen-sion to the Gallatin story and its importance. Before the disaster, developments were afoot in the industry that were to prove useful in assessing the Gallatin II problem and, had they been used earlier, might have prevented the failure altogether. Metallurgical knowledge was advanc-ing rapidly and one result was that turbine makers began to use ultrasonic techniques to inspect turbine parts. By the mid-1950s, Westinghouse—the builder of the Gallatin turbine—set up a team to look into ways of using ultrasonic techniques from inside the main hollow shaft (the bore) of the turbine. Most turbine and generator rotors have a central bore that allows an access point for conducting internal physical inspections. Boresonics became the term of art for apply-ing ultrasonic testing through the bore area. Indeed, boresonic inspections promised to provide critical insights to engineers not readily available through older inspection methods. General Electric actually managed to develop this technology by the end of the

decade. This pioneering boresonic device and the methods used in the inspection of large turbine rotors began to make possible more rigorous and accurate inspections. Recognizing the need for this capability, Westinghouse gave up its own effort and instead purchased a boresonic unit from GE. Although the technology was a step forward for both companies, it was something that could only be applied during the manufac-turing process, not after the turbine was deployed. Furthermore, the machine was still comparatively limited in its capabilities, with no recording equipment to facilitate later analysis. And, it was a relatively slow process. The units consisted of just a few transducers mounted on spring-tensioned Plexiglas plates and rotated down the length of the bore. However, Westinghouse continued to use this first-generation tool into the 1970s. In part, this was a necessity. GE continued to improve its boresonic machine but declined to sell the newer versions to Westinghouse. But even more than the GE technol-ogy was clearly needed. The industry rec-ognized that in the future it would be vital to be able to conduct a boresonic test on turbines in the field. Indeed, the more thor-ough inspections of in-service machines, which boresonics facilitated, were still conducted at the factory—necessitating the disassembly of the turbine, transport to a distant location, and then a return trip and an expensive reassembly process! Another driver for further improving boresonic technology was the growing adop-tion of bottle boring—a method by which the internal bore of turbines already in service for some time are enlarged through machin-ing techniques. The process aimed to remove cumulative discontinuities that could imperil the mechanical integrity of the turbines. In 1972, frustrated by its dependence on GE for boresonic technology, Westinghouse decided to again attempt to develop its own devices, though progress on the project was very slow. Meanwhile, in 1973, an employee of Commercial Machine Works, a subsidiary

Regardless of exactly where the failure occurred, the outcome was still spectacular, with turbine parts weighing up to half a ton blasted through the concrete roof.


of Alco Standard, patented a new and promising type of boresonic device. Subsequent to Alco’s patent filing, West-inghouse again defunded its own boresonic development effort and began to budget for purchase of an Alco Standard device. The explosion of the Gallatin II turbine caused West-inghouse to immediately contract with Alco to inspect the nearly identical rotor inside Gallatin I. It was a fortuitous choice. The inspection revealed a similar discontinuity with the one ultimately associated with the failure at Gallatin II. That timely discovery probably averted a similar or worse tragedy. From there, the Westinghouse portion of the story gets more complicated because the company again reversed course and decided to build its own boresonic equipment. However, that effort, which resulted in a new generation of Westinghouse boresonic devices used at Gallatin and other TVA facilities, attracted the attention of Alco, which filed suit against both TVA and Westinghouse alleging patent infringe-ment. The lengthy, seesawing court battles that followed are, of course, beyond the scope of this article. Those issues are now in the past and boresonics con-tinues to be standard industry practice. Gallatin, as both a proof of the need for better inspections and as a testing ground for boresonic application, served as a crucial step toward safer and more reliable turbine operations. In the wake of the incident, utilities across the United States began to conduct testing of their own rotors. Subse-quently, based directly on concerns from the Gallatin disas-ter, the Electric Power Research Institute (EPRI) developed its Stress and Fracture Evaluation of Rotors (SAFER) ini-tiative, which was soon embodied in a computer program, still in use today. SAFER mixes mechanical engineering principles with finite element stress analysis, heat transfer and nondestructive evaluation (NDE) techniques as well as metallurgical insights to support ongoing analysis of operational risks. The lessons learned from the event were also transmitted internationally—further enshrining Galla-tin as an important touchstone for improving equipment and honing procedures. Eventually, it was estimated that the failure caused more than US$5 million of property loss at Gallatin and robbed TVA of power generation worth an estimated US$48 million. It was an expensive lesson but one that has doubtless helped to save much more globally in subsequent years.

These images, provided by Tennessee Valley Authority (TVA), show a shat-tered turbine housing and internal damage to turbine rotors at Gallatin II. The unit suffered a calamitous failure on June 19, 1974, an event that provided visibility into failure issues in turbines which were not well understood at the time. The sub-sequent failure analysis led to many changes in inspection and operational practices.


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EXPERT COMMENTARY: KEEPING TURBINES SAFESteam turbine losses and what you can do to mitigate, even prevent, potential turbine loss events

During the period between 1989 and 2008, FM Global clients experi-enced 17 steam turbine losses due to overspeed. These incidents alone resulted in nearly US$60 million in property damage and business inter-ruption expenses. Speed control is vital to ensuring proper and reliable steam turbine operation. An overspeed occurs when the rotation rate exceeds a safe value determined by the manufacturer—and the consequences can be serious. In the period cited, 38 percent of the incidents involved mechanical drive units, with a total repair/replace cost of more than US$22.5 million. Incidents occurred across a broad cross-section of in-dustries, including utilities, basic metals, pulp and paper, and chemical. Overspeed events are not the only concern. According to Lee Kenny, assistant vice president, senior engineering technical specialist, FM Global, problems can arise due to maintenance failures. “In an envi-ronment where everyone is trying to minimize costs, maintenance often gets short shrift,” says Kenny. Therefore, he says, you need to be sure you are maintaining turbines properly and conducting certain actions at the proper time. Because maintenance is expensive and doesn’t provide instant payback, it can be difficult to rationalize the value of the expense in the short term. Ultimately, though, a lack of maintenance is directly cor-related with increased spending in the long term in terms of equipment problems and failure. By focusing on a machine’s availability, says Ken-ny, you can make a more immediate argument for proper maintenance. “Whether it is a steam turbine or some kind of industrial machine, if it fails, you are out of production,” he says. Another practice that can help guarantee turbine reliability is to institute a program of regular testing. “Organizations should ensure that if there is a problem, they can get back into operation quickly”—and that includes knowing where to get replacement components as well as personnel with special skills on short notice, he says. It is also important to ensure employees are trained and prepared to deal with the specific challenges of turbine operations. Employees, he says, need to operate equipment within appropriate levels and, should something go wrong, be at the ready to take action. To ensure you are doing all you can to prevent turbine losses, ask yourself the following questions: Do I have trained people available to deal with all the specific challenges of turbine operations? Do they know how to operate equipment within appropriate limits? If they see things going wrong, will they flag maintenance and take action? “We have seen too many instances where a loss was the direct re-sult of someone doing something incorrectly, perhaps turning the wrong valve at the wrong time,” Kenny adds.

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SHOCK TO THE SYSTEMA surprising innovation in in-rack sprinkler design reduces installation costs significantly without sacrificing protection

“We’re kind of blowing the top off of everything we’ve done in the past,” says FM Global’s Senior Research Engineer Kristin Jamison. The new guidelines are based on a three-year research project utilizing small-, inter-mediate- and large-scale testing as well as fire modeling technology that is continuously being developed by FM Global. The new design is based on a primary understanding of how fire develops within a storage rack as well as how the water flow from in-rack sprin-klers interacts with a fire. It also takes a revolutionary approach by using quick-response, high K-factor sprinklers. (The higher the K-factor the more water can flow through the sprinkler.) These high K-factor sprinklers have been designed for and deployed in ceiling-level sprinkler projection but are not generally used, or tested, for in-rack sprinklers.

Recently completed FM Global research has led to a new under-standing of how in-rack sprinklers

can be deployed in high-rack storage facili-ties to maximize protection and reduce cost. The research is part of FM Global’s overall business strategy to advance fire pro-tection and help clients minimize property loss. The new guidelines offer FM Global clients better, simpler, more cost-effective and flexible in-rack sprinkler options. The new protection guidelines greatly reduce the number of in-rack sprinklers needed, maximize their vertical spacing and reduce installation costs by more than 40 percent when compared to today’s in-rack sprinkler design guidelines. The guide-lines were unveiled publicly in FM Global Property Loss Prevention Data Sheet 8-9, Storage of Class 1, 2, 3, 4 and Plastic Commodities.


Historically, in-rack sprinkler systems were designed using K5.6 (K80) gpm/psi1/2 or K8.0 (K115) sprinklers. The K5.6 (K80) sprinkler dates back to the early days of sprinkler protection. By comparison, ceiling sprinklers have evolved over the years and now have values as high as K25.2 (K360). By utilizing sprinklers that were origi-nally designed to suppress fires from ceiling level, FM Global was able to dramatically alter its in-rack Data Sheet 8-9 guidance.

Fewer sprinklers, better protectionWhen protecting commodity hazards, cur-rent FM Global and National Fire Protec-tion Association guidelines (NFPA 13), as well as other codes from around the world, require in-rack sprinklers to be installed on vertical increments ranging from 10 to 15 feet (3 to 4.6 meters). The guidelines also limit the maximum storage area above the top level of in-rack sprinklers to 10 ft. (3 m). Data Sheet 8-9 now allows for in-rack sprin-klers to be installed on vertical increments ranging from 30 ft. (9.1 m) to as high as 40 ft. (12.2 m) depending on the commodity. In addition, storage heights above the top level of in-rack sprinklers can be as high as 40 ft. (12.2 m) depending on the commodity being protected and the ceiling-level sprinkler being installed. “All the sprinkler research and innova-tion over the past 30 years has been focused on ceiling sprinklers. In-rack sprinklers have been pretty much ignored,” explains FM Global’s Weston Baker Jr., assistant vice president, senior engineering technical spe-cialist. Baker works in engineering standards and oversees developments in this particular area. “We decided to leverage the relatively new ceiling-level sprinkler technology and apply it to the in-rack segment—and what we found was better performance at lower costs.” Baker said most of the research cov-ering current in-rack system designs was conducted in the 1960s and 70s. FM Global itself did nearly 50 large-scale in-rack

sprinkler tests from 1969 to 1976, which helped form the basis for today’s in-rack sprinkler installation and design guidelines. Nearly all of those tests were conducted using small K5.6 (K80) sprinklers protect-ing short storage heights—25 to 30 ft. (7.7 to 9.1 m)—compared to today’s standards.

goals, FM researchers needed to develop a new level of understanding of in-rack sprin-klers and their role in fire suppression. “The biggest questions we answered were, what is the critical amount of water needed to suppress a fire and what is the optimal flow rate and coverage area for in-

The new protection guidelines greatly reduce the number of in-rack sprinklers needed, maximize their vertical spacing and reduce installation costs by more than 40 percent when compared to today’s in-rack sprinkler design guidelines.

According to Baker, FM Global began looking into the idea of applying new, larger sprinklers to in-rack solutions in the late 2000s. FM Global, he said, began to ques-tion if the knowledge base of in-rack sys-tems was sufficient. The data was more than 40 years old and a lot had changed since those tests were conducted. Warehouses had gotten taller, the commodities being stored are quite different, and even the fire char-acteristics of cardboard and other storage materials have changed. So three years ago, FM Global launched a research project to optimize in-rack sprinkler design. “We knew there had to be a better, sim-pler way to protect commodities in storage racks using in-rack sprinklers,” Baker said. “So we committed three years, a lot of man-power, materials and time. It made sense to move forward because we knew the invest-ment would really benefit our clients.”

Ambitious goalsThe goals of the project were to maximize vertical increments of the sprinklers, increase storage heights above the in-rack systems, allow for independent in-rack and ceiling design and reduce the likelihood of sprinkler damage. All of which would greatly reduce the cost of in-rack systems. To reach those

rack sprinklers,” Jamison said. “Those were unknown phenomena. Existing in-rack pro-tection had never been optimized. So this really was a new approach. It had never been done before.” With those two pieces of information, obtained from extensive testing and model-ing, FM Global was able to more than dou-ble the vertical increments of the sprinklers. At heights of 30 to 40 ft. (9.1 to 12.2 m), the higher K-factor in-rack sprinklers are able to suppress any fire that starts beneath them. This creates a virtual floor because, the test-ing confirmed, the ceiling sprinklers won’t activate for any fire that starts below the top level of in-rack sprinklers. The amount of storage space above the top level of in-rack sprinklers is now solely based on the capacity of the ceiling sprin-klers. If the ceiling sprinklers can protect 40 ft. (12.2 m) of rack storage, for example, then a warehouse could have 40 ft. (12.2 m) of storage above the top-tier level of in-rack sprinklers. And because modeling showed and testing proved that the in-rack system and ceiling sprinklers would not be needed at the same time, they can now be independent of each other. The in-rack sprinkler system designs offered in NFPA 13 and other fire


sprinkler project, coupling experimental science and fire modeling for the first time. Modeling allowed FM Global researchers to simulate multiple scenarios, sprinkler sizes and locations. “When we started this project there were 13 open questions,” Jamison explained. “Each one of those questions could have had its own series of large-scale tests. But through the synergy of modeling and experi-mentation, we were able to answer these questions with a fraction of the resources that would have been needed for the tradi-tional approach. Modeling showed us where we needed to put the sprinklers, how to opti-mize the flow rate and hone all those param-eters which were then validated through tar-geted large-scale testing.”

A new understandingUnderstanding the in-rack sprinklers’ per-formance in the event of a fire was the big-gest challenge. Jamison said they identified 11 parameters that affect the way the in-rack sprinkler interacts with a fire. Jamison and her team needed to determine which were the dominant parameters in order to optimize the in-rack system. They studied water flow distributions, ideal sprinkler positioning, and maximum vertical and horizontal spacing. “We really had to key in on which of the parameters were most important and which were secondary,” Jamison said. “We ended up focusing on the placement of sprinklers within the racks and optimizing the activation time and water coverage area. And for the first time, we understood what the parameters were that led to in-rack sprinkler success.” Unlike ceiling sprinklers, in-rack sys-tems are dramatically affected by the com-modity itself. Water distribution from ceiling sprinklers is unencumbered by the commod-ity and is much easier to predict. That is not the case with in-rack systems. “One of the most important aspects of in-rack sprinklers is understanding, when a sprinkler is activated, where does the water go and how much water do you need to sup-

option compared to US$3.57 million under the current guidelines, a reduction of 40 per-cent. Under the new FM Global guidelines, warehouse owners could save at least US$2

per square foot (.09 square meter) because of the reduced equipment and installation costs. “Right off the bat, this new approach to in-rack sprinklers offers significant savings,” said David Fuller, FM Approvals manager, fire protection. “There are other benefits as well. It will cost less to maintain, it is more environmentally friendly, there is a reduced potential for sprinkler damage from forklifts, and it offers better fire protection.”

Fire modeling put to the testThe magnitude of the in-rack sprinkler research project was incredibly ambitious and would not have been possible without another equally ambitious project. A team of FM Global researchers, with help from scientists and academic institutions from around the world, had recently completed a five-year effort to develop cutting-edge, open source fire modeling software. The software, named FireFOAM, integrates key physical models relating to fluid mechanics, heat transfer, combustion and multiphase flows. The software was the first to incorporate the complex relationship between fire and water when a fire suppres-sion system is activated. The model can predict the impact a fire suppression sys-tem will have on a fire’s fuel source and the fire’s growth. The software allowed for an innovative approach as researchers tackled the in-rack

protection codes assume that both the ceil-ing and in-rack sprinkler systems will be activated simultaneously, thus increasing the water supply needed.

Also, because fewer levels of in-rack sprinklers are needed, they can be deployed in a way that protects them from damage. With in-racks required every 10 to 15 feet under NFPA 13 and FM Global’s previous Data Sheet 8-9, in-rack systems are sus-ceptible to damage from forklifts and other equipment, resulting in leaks and water dam-age to the commodity being stored. The new guidelines allow for a design that eliminates the mid-bay face in-rack sprinkler, which is the most likely to be struck and damaged. “We were able to confirm some things we already knew,” Baker said, “and were able to learn a lot of new things, that if you stopped to think about, really make a lot of sense.”

Greatly reduced costsThe impact of the new guidance on instal-lation costs is impressive. FM Global asked two leading fire protection and sprinkler experts, S.A. Comunale and Wiginton Fire Systems, to compare costs of the new design and installation guidelines now offered in Data Sheet 8-9 to existing in-rack sprinkler protection schemes found in NFPA 13. The two companies looked at the in-rack storage requirements for a hypothetical 500-foot by 1,000-foot (152-m x 305-m) storage facility with a storage height of 75 feet (23 meters) and a ceiling height of 80 feet (24.4 meters). The total cost of the project was US$2.11 million using the new FM Global

“ Right off the bat, this new approach to in-rack sprinklers offers significant savings. It will also cost less to maintain, it’s more environmentally friendly and it offers better fire protection.”

David Fuller MANAGER, FIRE PROTECTION

FM APPROVALS


press the fire,” Jamison said. “Water distri-bution out of an in-rack system is not uni-form. The sprinkler might be only six inches away from the commodity so you get highly localized water concentrations and at four feet away you’ll get no water at all.” To understand where the water goes, Jamison and her team conducted several water distribution tests and performed cal-culations using FireFOAM to determine optimal sprinkler placement and flow. By the time the team got to large-scale testing they had studied nearly everything associated with in-rack sprinklers. They looked at sprinkler activation, water distri-bution and suppression, activation time and the placement of face and flue sprinklers. “Early on we tried some sprinkler con-figurations that just didn’t work,” Jamison said. “But by the time we got to the large-scale tests, I would have been surprised if it didn’t work the way we had expected.”

Advancing fire protectionFM Global has a long history of working with the National Fire Protection Asso-ciation to improve its fire codes, including NFPA 13. Eventually the recommendations of FM Global’s Data Sheet 8-9 may find their way into NFPA 13 and possibly other fire protection codes. Baker and Jamison presented FM Global’s findings at the annual NFPA Conference and Expo in June. And while the process of improving NFPA 13 will unfold over the next few years, FM Global customers will be able to utilize the new protection guidelines immediately. “Section 1.5 of NFPA 13 indicates that you don’t have to implement a protec-tion scheme provided in NFPA 13 as long as you use a protection scheme equal to or better than what is offered in NFPA 13,” Baker explained. “All of the research we conducted can be used by our engineering staff on behalf of our clients to assure local authorities that our in-rack sprinkler protec-tion options meet the intent of this section so they can feel comfortable signing off, even though it’s not in the code yet.”

vs.

example of an old configuration example of a new configuration

SEE THE DIFFERENCEResearch shows that fewer but more powerful sprinklers within storage racks provide more effective fire protection for many commodities stored in ware-houses. As a result, FM Global Property Loss Prevention Data Sheet 8-9, Storage of Class 1, 2, 3, 4 and Plastic Commodities, was revised in July 2015.

THE BENEFITSn Improved fire protectionn Lower cost to installn Reduced vulnerability to damagen Protection for unlimited storage heightsn Reduced water usage and environmental impact

COST SAVINGSIn a 500,000-square-foot (46,450-square-meter) warehouse with an 80-foot (24-meter) ceiling height, the cost of installing sprinklers, pumps and water tanks could fall from approximately US$4.3 million to as little as US$2.6 million, according to contractor estimates.

THE RESEARCHNearly three years of research, conducted by our world-renowned scientists and property loss prevention engineers, included computer fire modeling at the Center for Property Risk Solutions and hundreds of small-, intermediate- and large-scale tests at the FM Global Research Campus.


PRINTING THE WORLD IN MULTIPLE

DIMENSIONSA research team digs to uncover

the hidden risks involved with 3-D technology

Many see 3-D printing as the next industrial revolution. Machines that can print objects, officially known as additive manufacturing, have the potential to alter the global economy, reshape the manufacturing process and create a new world

where businesses can potentially produce their own building materials, paints, plastics and even medical equipment. This new technology is slated to change how many manufacturers do business, introduc-ing new processes and materials, and altering the way manufacturing facilities are designed and utilized. While there are still many questions and unknowns, one thing is evident: 3-D printing brings with it an abundance of opportunities—and risks. FM Global is focused on understanding the risks associated with this emerging technol-ogy and helping clients protect the value their businesses create. “We’re concerned about any new technology that can introduce a new hazard that’s not covered by our FM Global Property Loss Prevention Data Sheets,” explains Dr. Franco Tamanini, head of an internal FM Global group that looks at emerging technologies. “So we’re trying to get our arms around 3-D printing from that perspective.” FM Global’s data sheets are engineering stan-dards that provide guidelines for mitigating property risk.

Fast-evolving technology3-D printing has come a long way from just a few years ago. The first commercially avail-able machines came out in 2009 and were capable of producing a plastic whistle in just a few hours. Universities, researchers and other visionaries seized on the new technology and its potential, creating a host of fully functional products using just additive manufacturing. They have already used 3-D printing to produce parts for bicycles, robots and even cars. While most of the really cool 3-D printed gadgets are only prototypes, 3-D printing has quickly advanced beyond academic and theoretical. 3-D printing is beginning to reshape the manufacturing process.


Advancements in the last six years have moved additive manufacturing well past the plastic whistle, producing parts made out of just about any material used in traditional manufacturing. Today, 3-D printers are being used to manufacture air-craft parts and produce complex construc-tion assemblies. FM Global has been tracking the advancements of 3-D printing over the last few years and this year performed the back-ground research to better understand the risks associated with additive manufacturing. “The biggest question is, are our cli-ents putting themselves at risk and not even knowing it,” posits Henry Febo, senior engi-neering technical specialist, engineering standards, FM Global.

Advanced Technology Working GroupThe research project was initiated by FM Global’s Advanced Technology Work-ing Group (ATWG), a team specifically designed to stay ahead of new technolo-gies. Working with engineers in operations around the world, the group identifies tech-nologies that might impact FM Global’s protection recommendations (see related story). Much of the work of the ATWG has been centered on advancements in fire protection and ensuring new materials and products live up to their promises. But the group also looks at emerging technolo-gies that may impact risk management as a whole. And with FM Global field engineers running into 3-D printing more and more, the group targeted 3-D printing for a more in-depth study. “The machines used in additive manu-facturing are expensive,” Tamanini said. “As the technology becomes more widespread, we expect manufacturers will have large systems of interconnected machines. That expansion will create the potential for large property loss and significant business interruption.” One reason the ATWG has kept an eye on additive manufacturing is because it introduces a completely new manufacturing

process. 3-D printers build components by depositing thin layers of material and fusing them together by heating, often through the use of lasers. The building material typically is fine, powdered metals, plastics, ceramics or glass.

Many manufacturing facilities that are venturing into 3-D printing may not have dealt with these types of materials before. FM Global has already worked with sev-eral clients to ensure that the handling, stor-age and cleanup of these materials meet FM Global standards. FM Global research-ers have also examined the additive manu-facturing process to better understand what new risks may be introduced. “One of the underlying concerns is the use of very fine powders, particularly met-als,” Febo explains. “To a lot of people’s sur-prise, if these metals get airborne and find an ignition source, they can explode and pretty violently.” Febo is an expert on combustible dust. He serves on three combustible dust commit-tees at the National Fire Protection Associa-tion (NFPA) and is a fellow of the American Institute of Chemical Engineers (AIChE). FM Global tapped his expertise because it identified combustible dust as potentially the greatest risk in 3-D printing. “Right now the dust hazards are some-what limited due to the small-scale use of 3-D printing and the nature of the process,” he said. “The printers are laying down very thin layers and then fusing them together; so typically, there isn’t a lot of dust around.” The 3-D printers Febo has studied also use an inert gas internally where the layer-

ing is done, further reducing the risk of igni-tion. Febo said the largest danger, currently, comes in cleanup. “We’ve been dealing with combustible metals for a long time so there are proce-dures in place for handling, cleanup and

storage,” Febo said. “Some clients have experience dealing with these materials and some don’t. An obvious initial step is to make them aware of the hazards. For exam-ple, cleaning out the internal passages by blowing air through the machine would be the wrong thing to do. Instead, proper clean-ing would take place with static-bonded/grounded units.” Febo said additive manufacturing is somewhat limited. Companies may have one or two machines in research and develop-ment (R&D) or may be producing parts in relatively small quantities. Currently, 3-D printers are ideal for making a small number of complex parts. The aerospace industry is using them to make internal engine parts. The precision of additive manufacturing allows these parts to be made as a single component, instead of multiple pieces in traditional manufacturing. The 3-D printed parts are also lighter and more durable. 3-D printers have also found their way into the medical field. Some companies are creating customized prosthetics that can even incorporate robotic mechanisms. “What we’re seeing right now is that 3-D printers are very good at creating com-plex shapes,” Febo said. “They are still rela-tively slow—the technology is not practical to pump out large quantities. For complex

While most of the really cool 3-D printed gadgets are only prototypes, 3-D printing has quickly advanced beyond academic and theoretical, and is beginning to reshape the manufacturing process.


machines or devices that are produced by the hundreds, it’s not a reasonable way to manufacture things.”

No significant new risksFebo explains that under current conditions, additive manufacturing doesn’t present sig-nificant new risks. The equipment can be located in a typical moderate-hazard manu-facturing operation with automatic sprinkler protection in work areas and storage rooms. Cleanup of manufactured parts should be conducted in hoods or enclosures equipped with suitable ventilation and dust collection systems, and where the alloys are combustible, basic ignition source controls should be in place. The handling of powders and their disposal should be done in accor-dance with the manufacturer’s instructions and safety data sheets. Febo says the rules for additive man-ufacturing are not much different from FM Global’s current recommendations. But he said that the evolution of 3-D print-ing has only just begun. The application of the technology is endless and if the last six years are any indication, additive manufac-turing will only get faster, more refined and more widespread. Additive manufacturing is expected to impact just about every industry, including automotive, medical, business and industrial equipment, education, architecture and con-sumer products.

Unpredictable futureAs the process improves, 3-D printing may become practical for producing items by the thousands instead of the hundreds. Instead of manufacturers having one or two 3-D printers in R&D, they potentially could fill an entire manufacturing floor. Hundreds of 3-D print-ers, linked together, churning out products. “What happens in five years when things change?” asks FM Global’s Mark Blank, assistant vice president and opera-tions chief engineer. “Someone is going to develop new techniques that make the pro-cess faster and less costly. Do they do it in

a way that introduces a mixture of materials that are more reactive?” As the role of additive manufacturing expands, so do the potential risks, says Dr. Jenny Chao, senior lead research scientist, FM Global. She pointed out that, while the current small-scale use of 3-D printers doesn’t pose a significant explosion risk, conditions could be different in a full-scale additive manufacturing environment. The storage and handling of large quantities of metal powders may require completely different protection recommendations than are being used today. “Beyond understanding the hazards associated with how our clients currently use 3D printers and what we can do to help them avoid or reduce loss, we also need to identify potential hazards that can develop as additive manufacturing rapidly evolves,” says Chao. “We have to ask ourselves, what are the innovations that will drive additive manufacturing in the future? Right now, the desire is to print large parts quickly, but there are new innovations—such as printing

parts using multiple materials from a single machine—that may completely transform 3-D printing. This change may introduce an entirely new set of hazards that we need to understand in order to protect the value of our clients’ businesses.” “One machine for prototyping is dif-ferent from full-scale production,” Chao said. “What happens when you go from little jars of powders to much larger con-tainers? What happens when stand-alone machines are replaced by hundreds that are interconnected? The hazards may be some-

thing that is not covered in our current engi-neering data sheets.” Researchers are predicting that addi-tive manufacturing will eventually redefine the entire manufacturing process. Factories will be smaller and located closer to the con-sumer, as additive manufacturing negates the benefits of large-scale production facilities. On-demand printing will reduce the need to store finished products, and raw materials in powder and liquid form will be stored in large containers. “Additive printing has been touted to be able to reduce supply chains, assembly lines and inventories,” says Chao. “Although we are not there yet, if this becomes a real-ity, our clients may be able to simply print what is needed on demand, instead of having parts shipped from a network of supply chains around the world. This implies that, in addi-tion to explosion and material reactivity con-cern, clients may also face equipment hazard issues. This has the potential to have a large impact on business continuity.”

And while it still seems like the Back to the Future promise of the hoverboard, predic-tions include the day when everyone has a 3-D printer at home. When you wear out your favorite sweater, you just print a new one. “The technology is going to continue to evolve and we’re not entirely sure where it’s going,” Blank added. “Wherever it takes us, we are committed to staying ahead of the new developments and effectively managing these changes so we can adhere to the utmost standards of property loss prevention.”

“ What happens in five years when things change? Someone is going to develop new techniques that make the process faster and less costly. Do they do it in a way that introduces a mixture of materials that are more reactive?”

Mark Blank OPERATIONS CHIEF ENGINEER, FM GLOBAL


That’s the premise behind FM Global’s Advanced Technology Working Group (ATWG), which was formed in 2007 to stay ahead of technology changes that could impact FM Global clients. The group reviews information provided by FM Global engineers around the world and then enlists research or engineering standards to further review trends that may pose new risks. “The goal is for the ATWG to be the clearinghouse for reviewing technology, not just in terms of new hazards but also loss prevention solutions,” explains committee member and Operations Chief Engineer Mark Blank. “Field and account engineers can send us information if they see change happening that they feel FM Global needs to take a closer look at.” The group monitors technology trends that have the potential to present new hazards. Changes in manufacturing techniques, equipment or even the composition of materials may create risks that are not addressed in FM Global data sheets. Prin-cipal objectives include identifying and getting ahead of technologies that pro-duce hazards before they become losses, and defining opportunities immediately in order to better serve FM Global clients. The group also looks at advances in loss prevention. It identifies new technol-ogies and evaluates their effectiveness, ensuring the new technology lives up to its promises and offers real improvement over the current technology. “Companies are constantly coming out with new products and new fire protection solu-tions,” explains Franco Tamanini, senior research fellow, who leads the ATWG. “They’ll do some testing and think they have something that works pretty well. We’ll put the technology through diverse and rigorous testing and sometimes the product isn’t as sound as claimed.” In the last eight years, the group has reviewed more than 30 technology trends. The en-gineers submit basic information and the potential impact of the new technology. The ATWG then determines if the potential impact warrants a research project or if a new standard needs to be developed for an evolving hazard. The ATWG has launched research projects to better understand trends in manufacturing and material storage. It has looked at new techniques in the manufacturing of semiconduc-tors, automated retrieval systems and their impact on storage facilities, and the potential hazards of additive manufacturing, also known as 3-D printing. “Our goal is to help clients save money,” Blank adds. “We don’t want them to invest in something that is presented as an advancement in fire protection only to find out they have to replace it in two or three years. We want to be able to provide guidance to our field engineers and our clients so they understand what is a good solution or an acceptable risk, and if it’s not, why.”

ADVANCED TECHNOLOGY WORKING GROUPAS TECH PROGRESSES, AN AMBITIOUS ALLIANCE LOOKS TO STAY ASTRIDE WITH IT

“Our goal is to help clients save money. We don’t want them to invest in something that is presented as an advancement

in fire protection only to find out they have to replace it in two or three years. We want to be able to provide guidance to our

field engineers and our clients so they understand what is a good solution or an acceptable risk, and if it’s not, why.”

Mark BlankOPERATIONS CHIEF ENGINEER


ONE ON

ONEWITH

CAROLINE WOOLLEY

fter spending 15 years in claims, Marsh’s Caroline Woolley, the global leader for the company’s new, London-based Business Interruption Centre of

Excellence, is now focused on establishing the global brokerage company’s new vision for the industry. “We want to encourage insurers to

view business interruption the same way clients do, which is any-thing that interrupts business.”

What is the motivation behind this new initiative from Marsh?We’re trying to change the conversation in relation to business interruption (BI). In the insur-ance industry, there’s a long-standing assumption that business interruption means property damage (PD) business interruption, but that’s not the way clients think. The starting point really is that we view it as clients do and regard business interruption as anything that disrupts normal, day-to-day business operations. This is important, particularly if you’re talking to someone whose main job isn’t in insurance. They view business interruption risk in this holistic way and that’s what we’re trying to do. To be a true risk advisor, we have to look at the risk first and insurance will come in later. We have to look at the overall risk, identify where insurance is available, but also look at those gaps in cover and close them where we can.

EMEA RISK AND PROPERTY PRACTICE LEADER, MARSH LTD

How has this new vision been received?Very positively from all stakeholders—including clients, risk management associa-tions, claims professionals, insurers and law-yers. Some insurers have said, “Yes, we want to completely change the way we underwrite BI.” It’s now approached in a very tradi-tional way and there are lots of changes that should be made. One of my colleagues, who has a background in liability, actually said,


“It’s funny how business interruption seems to be treated as a mere add-on to property damage.” Business interruption following a major property damage event is one of the biggest losses our clients face and it can be the most complex part. We’re just changing the focus a bit here; we’re trying to improve the PD/BI policies and then we’ll move on to the others as well. The reaction from insurers has been very positive, they’re happy to sup-port the project, they want to help.

How does FM Global rate in that regard?I see FM Global as having a more evolved definition of BI, recognizing data as an asset and therefore incorporating some cyber cover as standard. Also, for example, FM Global has “a supplier of suppliers” extension clause, which picks up interrup-tion further down the chain that usually people don’t anticipate. If there’s the word “direct” in the supplier’s extension clause, it

means “first tier only.” People don’t neces-sarily realize that, so part of this project is raising awareness of the limitations of exist-ing policies. We want to work with the rest of the industry to come up with improved solu-tions for PD/BI and beyond.

What else do you feel is surprising to many clients?Clients are surprised by the claims process in terms of the length of time to settle a BI


claim and the level of scrutiny from insur-ers. We’re promoting the inclusion of claims preparation clauses in policies. This allows the client to instruct someone to help them prepare and document their claim. Now, that’s often a forensic accounting team and we see that as an increased cost as a result of an incident. It should be part of the claim. We’re promoting the inclusion of those clauses. FM Global policies have, as far as I’m aware, nearly always had them.

You mentioned you were improving existing policies and developing new ones?Yes, with regards to PD/BI there are five key issues that have been around for some time, in relation to: value calculation, sup-ply chain, wide area damage, indemnity periods and the claim process. We are trying to provide solutions to those, once and for all. The approach that FM Global takes is usually on a gross earnings basis. But there is the option of gross profit, too, which is very good, because it improves people’s understanding of claims from around the world. The United States is different from the international region in that regard. It’s making sure that people are comfort-able with whichever basis they’re used to. Also, it helps with the indemnity period issue already mentioned. On a gross profit basis, you have to identify up front what your period of interruption might be and lots of scenario work is essential to make sure that window of opportunity to claim is long enough. We quite often see a standard 12-month indemnity period. But it’s rarely sufficient. I’ve seen enough major losses and natural catastrophe events to know that isn’t enough for a devastating event.

If you’re on a gross earnings basis, the period is based on reinstatement; it should therefore provide cover for however long it takes to reinstate the assets. That option can help, particularly in certain industries, with long lead times for specialist assets.

So it’s critical to have options. Right, and also accurate values, anything that can assist people in getting the right val-ues to avoid any under-insurance is a good thing. The solutions to most of the issues identified is pre-loss work—don’t wait for a claim to happen before quantifying your potential losses and testing the policy. Loss scenario work is vital for improving cover and managing expectations.

How do you sell this? How do you get the word out, and to what end?The ultimate benefit is certainty. That’s all anyone can really hope for. At the end of the day, we are looking at risk and we want to help risk managers manage out that risk as much as possible. We want to make sure that their insurance works as expected. Part of this work that we’re doing is managing expectations. Actually, it’s also about iden-tifying the limitations. It may appear a bit negative sometimes, but actually everybody has got to be aware of the limitations of their existing cover. If we’re talking about PD/BI, it’s a contract like any other. You have to look at the wording. We have to make sure everyone understands what is covered and, more importantly, what isn’t covered. Everyone appreciates the honesty and is instantly more comfortable with existing insurance. Then we move on to other risk. This approach is gaining the support of risk management associations around the

The ultimate benefit is certainty. That’s all anyone can really hope for. At the end of the day, we are looking at risk and we want to help risk managers mitigate risk as much

as possible. We want to make sure that their insurance works as expected.

world—starting with AIRMIC, FERMA and PARIMA—which helps us gain traction.

What motivates you? What inspires you to do this?I spent 15 years in claims, both the investiga-tion of claims for insurers and then helping Marsh clients and preparing their claims. I know what can go wrong; I know how tough it is for a business to survive a major loss. The insurance money can be a lifeline; the insurance money will fund all of the miti-gating actions and business continuity plans, therefore I want to make sure it’s sufficient. I think it’s important to improve the claims experience; having seen what can happen, I know what changes are needed. Marsh has given me the opportunity to make a differ-ence. We’ve got the ability to do that and that’s why we’re reshaping the industry in relation to BI. The response across the industry has been very positive.

But this isn’t the typical role that Marsh assumes, as the broker.Some of these projects go beyond, I sup-pose, the norm of a traditional insurance broker. This puts us in the position of being a true risk advisor. If we look at natural catas-trophe risk, for example, I’ve seen firsthand from a claims perspective just how bad it is for people involved. At Marsh, we’re doing everything we can to help people and advise them in relation to natural catastrophe risk. We want to make sure that the risk manage-ment and preparation is strong, and that insurance is in place. We have a very clear view of best practices in relation to natural catastrophe risk management and transfer. To be honest, we’re raising the profile of insurance to ensure the money is available post loss. If the insurance funds aren’t in place, what happens? What happens to the community? This is where we move on to Marsh not just being a risk advisor, but a member of these communities. We try to help organizations such as the UNISDR [United Nations International Strategy for Disaster Reduction] to make cities more resilient to natural catastrophe risk.


TALKING POINTSWITH EJ PARKVP, TEAM LEADER, ENVIRONMENT AND SAFETY TEAM, SAMSUNG ELECTRONICS

What is your role in Samsung’s insur-ance relationship with FM Global?I am vice president of Samsung Electron-ics and responsible for EH&S [environ-mental health and safety] management of the Device Solutions division. And, as you know, loss prevention is a big part of EH&S management. I manage the EH&S team based in the Giheung Complex, in Korea, covering not only three domestic sites, but four overseas sites, including Austin, Texas [USA], and three sites in China (Suzhou, Tianjin and Xi’an,) which also fall under Device Solutions.

At Samsung Electronics, property-related insurance business is managed by the EH&S team. For that reason, I have been deeply involved in the insurance con-tract process, collaborating with all other relevant functions, like finance, treasury, operations, etc.

amsung Electronics journeyed west recently to see firsthand FM Global’s testing and research center. The contingent was led by EJ Park, vice president and team leader of Samsung’s environmen-tal health and safety division. Prior to working at Samsung, Park served in a similar capacity at British American Tobacco. During their visit, Park and his colleagues took personal interest in viewing safety, loss prevention and risk management—all considered criti-

cal concepts by Samsung— through the FM Global prism.

What is Samsung’s view of loss prevention? In our area, we call this “loss prevention and protection.” Prevention literally comes first. We focus on prevention activity first because we believe all accidents are pre-ventable—as a part of the company’s safety philosophy. We are always trying to be per-fect at EH&S management; but, of course, we are not perfect. That’s why we need cer-tain measures, just in case. That is called “loss protection.” From this perspective, we have various, robust protection meth-ods at our business, including firefighting facilities, fire brigades, emergency response teams, fire training and drills, business con-tinuity planning and more. And, as a final measure, we have ade-quate insurance.

What concerns you most in terms of Samsung’s exposure to risk?All business is exposed to a variety of risks, depending on their environment. Samsung Electronics is no exception. From the per-spective of EH&S, I am sure we have a very reliable and stable safety system and activi-ties based on local legal requirements and global practices. The Samsung semiconduc-tor business started as a Korean company around 40 years ago. Now we are a top-notch global organization in not only sales revenue, but corporate citizenship as well, which is related to EH&S management.

The Samsung semiconductor business started as a Korean company around 40 years ago. Now we are a top-notch global organization in not only sales revenue, but

corporate citizenship as well, which is related to EH&S management.


As for risk exposure at our Korean sites, FM Global was already familiar with them because they—as part of their pro-cess—conducted a professional risk survey a few months before we signed the insur-ance contract. We have very integrated and concentrated manufacturing locations at our site in Hwasung, Korea, rather than a portfolio risk. We already recognized the risk, so we have a variety of loss prevention and protection systems in place.

What is your personal approach to risk management?Actually, my approach to risk is quite aligned with what Samsung is doing. In terms of my personal history, unlike typical managers at Samsung, I joined the company just two years ago, after working in many other business environments, including two multinationals, a British tobacco company and an American gas company. Samsung has been trying to improve and integrate all safety-related concepts, from hardware to software perspectives, especially over the last two years. They invested a lot of money in risk improve-ment, which I am happy about. Now I am focused more on managing people, promot-ing a safety mind-set and monitoring the working practices of all employees, includ-ing contractors. I am trying to create more balance in risk management, between fail-safe and foolproof efforts.

How do you envision FM Global facil-itating that view?Interestingly, I had a chance to work with FM Global when I was at the British tobacco company as EH&S manager. So I am rela-tively familiar with FM Global’s company culture and practices. Recently, I was very impressed with their work on the risk sur-vey. Their detailed approach here was very professional. As I mentioned, Samsung has been trying to greatly improve its various programs, including safety inspections. But we realized, after seeing FM Global’s site survey results, that there was still room

for improvement. To be honest, I am very pleased to have the insurance contract with FM Global, because it is one of the best property insurance companies in the world. Plus, I know that FM Global is compatible with us in all major areas, like insurance coverage, loss prevention advice, risk man-agement and claims services. As an EH&S guy, I am personally more interested in loss prevention and risk management, because safety is a number-one priority for me. I know you have more than 1,800 loss prevention engineers. I am looking forward to the quality service and a great safety journey with Samsung.

What is it about FM Global’s own philosophy on loss prevention that appeals to you?I know FM Global has a very well-orga-nized service program for clients, which is balanced between loss prevention and pro-

tection. As far as I know, that is different from typical property insurance companies, which are more focused on insurance cover-age and claims service. This philosophy is completely aligned with my expectations of an insurance company. I know that FM Global will help us in our journey toward managing our risk suc-cessfully, with quality services in a most effective and efficient way, in order for us to continue as the number-one player in our business segment around the world. It is a great journey with a win-win strategy.

The Samsung team witnesses a fire test on their recent trip to the FM Global Research Campus.



CURRYING FLAVOROver the last decade or so, McCormick’s extraordinary global

expansion has had flourishing effects across the organization, resulting in sharp upticks in revenue, burgeoning market dom-

inance and a big brand boost. So, how did the Fortune 1000 firm manage the risk that accompanied all of that sudden growth? No one in the business of managing risk would argue that when success comes rapidly, within a compressed time frame, it could result in significant spikes in risk exposure. Expanding a global footprint brings with it new hazards. Are they foreseeable? Is that new acquisition vulnerable to flood? Additionally, when a company is uncovering new revenue streams, it’s also con-solidating, that is, squeezing suboptimal facilities down and relocating critical operations to cut cost and accommodate the new order. That consolidation changes the value and significance of various locations, and opens up new vulnerabilities and exposure to business interruption. When revenue is flowing, profits are growing and there’s all this great economic buzz going on, it’s easy to overlook the risk and uncer-tainty that growth brings. Fortunately, McCormick, the US$4.2 billion (in annual sales) flavor giant that is fast solidifying its place at the top of its industry, understood the consequences of its growth and took action. Thanks to productive partnerships, an embrace of metrics, c-suite buy-in and smart risk improvement investments, they were able to swing the risk pendulum back to an acceptable level.

McCormick and Company’s seasoned leadership inmanaging risk has created a zesty recipe for success


Sugar ’n spiceThe global packaged spice mar-ket is roughly US$10 billion in

sales, and McCormick, the Baltimore-based firm and the world’s largest spice and flavor-ing producer, enjoys roughly 20 percent of that business. To get there, McCormick had to be aggressive, and like many elite corpo-rate success stories, they had to take their share of risks. “Global expansion is one of our growth strategies,” says Jim Radin, vice president of global supply chain for McCormick. “It brings us into countries that weren’t on our travel list 10 years ago.” Stretching into places like China, Tur-key, India and Poland inserted the company squarely into areas of the world that have not yet adopted North America’s risk manage-ment philosophy. In addition to new markets for selling McCormick products, sourcing raw materials can sometimes pose challenges. “Spices are primarily grown around the equa-tor and in countries that are much less devel-oped,” says Bob Utz, the now retired director of supply chain solutions for McCormick. “I’m talking about basic government and security issues and an infrastructure that is really not up to a higher level.” Not only that, the transportation and supply chain issues that McCormick contends with, means that moving those spices from their origin to major markets requires thou-sands of transportation lanes from the differ-ent countries into processing facilities. The network is understandably vast—a challenge to keep security tight and products in transit. For example, Utz explains, “Our cinna-mon comes from Indonesia. Then it’s trans-


loaded and shipped to Singapore, and then transloaded again and shipped from Sin-gapore to Baltimore—three legs in all that require coordination and oversight.” And that’s just for cinnamon. Many of the other spices come from various ports in India, and those spices make several other stops on the way to Baltimore. Of course, for a vast, organized, multinational like McCor-mick, while the modern-day spice routes do pose problems, it’s nothing they can’t handle. “The challenges with McCormick’s global expansion are really the typical challenges most organizations face,” says George Plesce, FM Global vice president and operations manager. “First of all, as we all know, the culture of protection isn’t the same around the world. Codes and standards don’t necessarily support that each and every time, and the quality of the risk in place isn’t at the level that we and McCormick would like it to be.” At the same time McCormick was expanding into emerging markets, it was consolidating and streamlining facilities in its major markets at home. That consolida-tion, which began a decade ago, involved the company shifting a large share of its produc-tion and storage at a single site. It was indeed smart for business. But, once all was said and done, it resulted in uneasy new vulner-abilities. If something unexpected happened in that one location—which presented issues with dust and ignitable liquids—business would have suffered serious interruption. Larry Delp is a senior project engineer with McCormick. “During this [consolida-tion], you could see that we were putting

more of our eggs in fewer baskets,” he says. “The risks we had in the past were still pres-ent, only now the impact could be greater because we didn’t have the degree of built-in redundancy amongst different sites that we had previously. In the event of a catastrophic failure at a facility, our plan was just to go to one of our other facilities. This was a more complicated option.” Once the consolidation and expansion was under way, FM Global had its share of concerns about protecting its client. McCor-mick, insurance partner with FM Global since 1967, along with longtime broker partner Marsh, began to delve into the chal-lenges that lay ahead.

In the last three years we’ve taken a STRATEGIC APPROACH TO MANAGING RISK

that we first applied domestically. We are now exporting that strategy globally.”

BOB CONRAD, MCCORMICK CFO

“

“McCormick has always been involved globally,” says John Koester, risk consultant with Marsh, who has been working with McCormick for 30 years. “It was an evolu-tion; there were many changes they had gone through over the years. Once they fully rec-ognized the issues they were dealing with, they embraced them and took care of them. It’s been great to see how they’ve risen to the challenge.” “One of the reasons McCormick is so successful is that they’re willing to change and evolve,” says Plesce. “They always make decisions that make sense from a busi-ness standpoint. But in many cases those decisions change your exposure to loss.


They simply had to decide how to protect the changes that had taken place and they certainly did.” McCormick, Marsh and FM Global put together a three-phase plan to help deal with those new exposures. The first contended with North America, the second with Europe, and the third, still under way, is Asia Pacific. Plesce explains: “The three-phase plan was set up to prioritize where the revenues were driven across McCormick. What we initially did was identify the most mission-critical locations and what the exposures were to loss at each of them. One track was for all of the large capital improvements. And at the same time we followed a second track, which was, ‘How do we get human ele-

ment implemented across the world where maybe it wasn’t in place?’ We also wanted to get the other locations moving and make improvements where necessary, while we waited for the capital improvements.” The triangular relationship between the three parties provided excellent checks and balances for the work that was being done. “Marsh plays an important role here,” says Radin. “They keep FM Global accountable for the value proposition they bring and they keep us at McCormick in check as well. They play a pivotal role and bring a level of independent guidance that we seek. In fact,” he says, “that triangle has kept the partner-ship with FM Global together and strong for many years.”

“

In-rack sprinklers (above, and below left) protect raw ingredients in McCormick’s Hunt Valley Distribution Center. Bob Utz, facing page, is the recently retired

director of supply chain solutions.


Looking at the numbers Over a short span of time,

McCormick developed a new resolve: to build resiliency into its business model. They had learned the lessons that new growth posed—fortunately without any real setbacks—and were intent on strengthening their risk profile. “You could see it become a greater part of the culture,” says Radin, “and what really got it going was the use of analytics, our metrics.” McCormick began employing the MyRisk® console, including RiskMark® scores and HPR [highly protected risk] des-ignations, as tools. “I will tell you I have never worked with a client who has been more seriously tracking and using those ana-lytics to show improvement on an ongoing basis,” says Plesce. “They are very driven to get all of their mission-critical locations to a highly protected risk level.” During his tenure, Bob Utz was the primary driver of risk by the numbers at McCormick. “Certainly, with the metrics that are available to us from FM Global, the RiskMark, HPR numbers and loss expec-tancy dollar amounts, we’ve been able to show a significant increase in the mitigation

efforts of risk and reduce the potential for a major business interruption.” Fortunately for the supply chain execu-tives, top brass at McCormick also take an interest in those metrics. And they are will-ing to green-light the funding that makes those numbers look even better. “With these numbers, says Utz, we could go to our man-agement committee and to our board of directors on a regular basis and show them the progress that we’re making.” Bob Conrad, CFO at McCormick, has been a part of those meetings. “In the last four or five years we’ve invested more than US$15 million globally in enhancing pro-tection at our facilities,” he says. “In the last three years we’ve taken a strategic approach to managing risk that we first applied domes-tically—obtaining HPR status for many of our facilities in the United States. We are now exporting that strategy globally.” “We refer to the FM Global program as the ‘benchmark’ risk management pro-gram,” says Radin. “In fact, when we look at other areas of responsibility, McCor-mick takes an FM Global-type approach. We apply rigor and metrics to ensure we have the right priorities and we’re making the right investments in the right locations around the world.”

“Both partners, as well as our broker Marsh, take a lot of pride in these types of success,” adds Conrad. “Our total insured value has grown 70 percent in the last six years, while our average policy rate has only gone up three basis points, which equates to a savings of roughly US$1 million in pre-mium reduction. Yet while tangible benefits are important, McCormick’s primary objec-tive is to minimize the potential for a loss that could disrupt production and impact the supply of product to customers.”

With the METRICS THAT ARE AVAILABLE TO US FROM FM GLOBAL, we’ve been able to show a significant

increase in the mitigation efforts of risk and reduce the potential for a major business interruption.”

BOB UTZ

“

(continue on page 36)


Jim Radin is vice president of global supply chain for McCormick and Company. In his cur-rent role for eight years, Jim has been with the company for 24. He came to the company as a project engineer and has been heavily involved in the company’s major projects around the world in terms of construction of facilities, especially during McCormick’s recent global expansion. That work ultimately led into the management of facilities as a factory manager, end-to-end supply chain in Europe, then supply chain globally. Jim now has responsibilities for operations in China and India as well as Europe, down to South Africa and throughout North America as well.

TALKING WITH JIM RADIN


Talk about your specific responsibilities as they relate to supply chain.It starts with procurement, then works its way through manufacturing, distribution and transportation, as well as our capital program, which is our investment program around the world, and our facilities. Part of my responsibility is to ensure that we have product available to sell in all of the major markets in which we do business. So the risk associ-ated with that and protecting our product supply from risk, whether it’s global risks—environmental or political—or physical risks that could present themselves in our factories and distribution centers.

Let’s talk about specific risks. What are some of the chief risks you’re concerned about?The risks that our FM Global program directly addresses are around our physical property and ensuring that our facilities are operable 24/7. There are some risks that fall outside that scope as well. You know, we source from just about every country around the world. Spices come from countries close to the equator. Not all of them are the most stable political environments, so that’s additional risk we have. I really focus on keeping our principal facilities operational, and protecting the assets that we have deployed around the world. I call those actually our controllable risks. And that’s specifically what the FM Global program addresses for us.

Can you talk about the engineering services at FM Global and how it has served McCormick’s business strategy?Yeah, it’s one of my favorite questions, and it leads to one of my favorite anecdotes about FM Global. I would actu-ally challenge anyone to sit in the planning meetings we have with FM Global and McCormick Resources and to quickly determine which company each person works for. The FM Global engineers have strong relationships with our factory management, with our engineering department, and they really are an extension of our own resources. We’re convinced that they have our best interests at heart when they visit any of our facilities and recommend improvements. In fact, they have actually offered more economical solutions to some of the issues that we were try-ing to engineer on our own. So that engineering service is invaluable, as far as I’m concerned.

Can you talk briefly about the global services engineering function? Moving into markets around the world, and some of these markets in places where we haven’t done business before, at least from a manufacturing standpoint, FM Global had to move with us. And what we have found is the network of resources that are available around the world have been invaluable to us, particularly since our entry point into these countries is through acquisition. And we’ve used FM Global services to help us in our due diligence process.

Can you name a specific situation where you can describe what you just explained?A specific example of using global services was an acquisition that we made in China. Now, we have been doing business in China for more than 25 years, but there was a large acquisition target that we identified a few years ago. And we brought FM Global resources into that target to be part of our due diligence team and make recommenda-tions on what we would need to do to bring that facility up to a highly protected risk status. What that then allows us to do is to build those efforts into the acquisition model so that we know exactly what we need to invest and how long it will take to bring it to an acceptable level of risk.

Have you had a loss that you could share?One story I like addresses how to view recommendations and the value of those recommendations in our facilities. We have a facility in England that, unfortunately, experienced an electrical room issue. We actually had a fire in an electrical distribution room. And, long story short, that facility was back and operational within 24 hours. So, one of the questions I got was, “If this was a highly protected risk, how did it have a fire?” And I answered, “Well, because it was a highly protected risk, it endured that and was able to get back up and running within 24 hours.” It was the recommendations that kept it contained, that kept the rest of the building operational and allowed us to recover very, very quickly, more quickly than if we hadn’t completed the recommendations made in that location.


Happy together In a relatively short

time, with incredible focus and diligence, McCormick and Company went from being an uncertain risk to a highly protected one. Despite its tremendous success, or perhaps because of it, it has gone to great lengths to protect that success and its ever-expanding market lead. It is also willing to change and evolve to account for the shifting land-scape its growing footprint creates. “The company understands that it’s just smart to do things proactively to manage risk,” says Plesce. “And that’s why they’re an ideal organization for us. Every time their expo-sures evolve through the smart things they’re doing to continue to enhance their business plan, there’s an opportunity for us to bring value. They understand the importance of protecting risk. So when they put their mind to something you can see that permeate their organization in a relatively quick period of time, and that’s awfully nice to work with.”

ers. And that’s really the foundation that our relationship is built upon. Whether it’s us, Marsh or McCormick—typically all three together—we’re all moving in the same direction.” Radin agrees. “I think we’ve hit a great level in terms of the relationship and the interaction that we have,” he says. “I believe continuing that and bringing it to an even higher level of engagement is actually going to be easy. I think we have hit the tipping point where we recognize—and FM Global recognizes—that our company cultures are very similar, our way of doing business is very similar, and our core values are very similar. That alignment is incredibly strong.”

Bob Utz believes that through the challenging work the team has managed to accomplish in a short period of time—work that has helped the risk pendulum to swing back to an acceptable place—the bond has grown much stronger. “We’ve really brought it back to a great partnership. We share a lot of information. We’re always communicat-ing and trying to make sure we have that close relationship globally at all our facili-ties, so that we know we’re doing the best we can to try to mitigate all the risks we face.” Any relationship that traverses decades—four in all so far for Marsh, McCormick and FM Global—is going to go through some turbulence. The impor-tant thing is to endure those rough patches and emerge with more strength and resolve. “We’ve been servicing the McCormick account for well over 40 years,” says Plesce. “It’s a solid partnership because we share a common goal of helping to assure that McCormick keeps product on its shelves, and keeps delivering value to its sharehold-

Larry Delp (left) with project engi-neer Varsha Patel and Bob Utz review the fire protection methodologies by FM Global utilized at this and other McCormick facilities.

John Koester of Marsh Risk Consulting has been working with McCormick on the broker side for roughly 30 years. He began his career as an FM Global engineer, servicing the McCormick account, before transitioning to a role with Marsh.

So talk to me about your background.I received a degree in engineering and started working for FM Global straight out of school. For me, it was foun-dational in terms of understanding risk assessment. FM Global provided a tremendous learning environment. They taught me an amazing amount about the world of property risk control. For many people who work in the field in one way or another, FM Global was the place where people developed those skills, then entered into other fields down the road.

You know McCormick as well as anybody. What is your opinion of the company in terms of risk quality and its views on risk?In my experience, from the late ’70s, McCormick has always been very highly focused on quality. That’s in all areas, risk control being one of them. They’ve always been very conscientious. When they get advice from FM Global engi-neering, they wait, consider, assess and apply. I’ve seen that done over the years to the current day. There have been challenges over the years, the same with any company. Companies change and in some cases they change extremely fast. It’s always a challenge to keep up with risk control as the company is zooming along. And McCormick has done a fabulous job with that.

What were your thoughts at the moment you saw the complexion of the account changing?I think it was just another evolution of the changes they had been through over the years. They had always been involved globally. But their role, what they were taking on globally—how they handled it as a company—changed. And so you get the same kind of challenge as when you consolidate facilities and put more eggs in a single basket.

So the consolidation and the expansion created greater risk management challenges.Correct. You’re going into new areas that you may not have had a big presence in. When you consolidate, you’re bringing operations all under one roof. There’s more risk in one place, and that presents challenges from both McCormick’s and FM Global’s standpoint. So there were a number of issues over the years, and I think McCormick has handled them well.

So everyone’s at the table, everyone agrees that changes need to be made, and you’re say-ing that McCormick is willing to make those changes. What was the attitude during those discussions? The attitude was always a very good one on everybody’s part. One thing that’s been great to see is the constructive partnership between McCormick, FM Global and Marsh, even in the midst of some challenges. There were times for patience, persistence and perseverance. I believe it was a fairly normal process of bringing concerns to the attention of senior management. That’s been another one of the keys to success for McCormick; there has been senior man-agement involved on McCormick’s part as well as FM Global’s. It’s at the root of a working relationship that goes back more than 40 years.

TALKING WITH JOHN KOESTER


Please elaborate on the importance of senior leadership at McCormick and the role they play in supporting the overall efforts of risk management.People often think about capital expense as a big challenge, and it is. As the capital expense goes higher, higher levels of buy-in and support are needed by the corporation. But perhaps more important is the effort on the part of staff at all levels to support the risk management process. All of it has to get carried out at all different levels. And so you can have some capital expense there and that gets tackled. But if you don’t have all the people in place to implement that, then carry it forward in a sustainable way in the years to come, you just don’t have the benefit you would like to see. And McCormick has done both of those things. They’ve supported the capital expense and the staffing, and the level of support needed there as well.

Can you tell me about the Marsh team that works on this account? We have client executive Mark Stevens. Wherever we have touchpoints with McCormick throughout the world, Mark has overall responsibility. Sharon Walker is our property advisor who really understands the insurance terms, conditions, and things that those of us in risk control don’t quite often get very involved with. And then we have teams of people on a global basis particularly in the countries where McCormick is located, to handle things locally from an insurance standpoint.

It really is about the team. There’s an extensive team at work either in the spotlight or behind the scenes making all of this happen.Yes. If people just get a glimpse of it they don’t necessarily see that. We also have a global council at McCormick that I participate in, as do others on the FM Global engineering team. There’s a very high level of participation in the McCormick world. FM Global engineering has local engineers at all the sites around the world. Altogether, you’re talking about a very large team effort.

In your work over the three decades, what impresses you about McCormick as an organization?There’s a tremendously high quality and sustainability. They’ve had a process in place for their products for many, many years and they keep improving it. They also have a long-standing tradition of partner-ship. So internally, for example, they have had what they refer to as multiple management boards, groups of people who get together to work on projects. External companies like FM Global and Marsh are also partners, with a vision toward long-term relationships. I believe this has been a key ingredient in how well this program has worked over many years.

One thing that’s been great to see is the CONSTRUCTIVE PARTNERSHIP BETWEEN

MCCORMICK, FM GLOBAL AND MARSH, even in the midst of some challenges. There were times

for patience, persistence and perseverance. JOHN KOESTER, MARSH RISK CONSULTING

“


Varsha Patel, Larry Delp (center) and Bob Utz in a key facility called the Spice Mill, standing near large containers of McCormick products.

EIGHT GREAT RISK MANAGEMENT

PRACTICES

At a recent sponsored forum, we asked nearly 200 of our clients, hailing from a wide array of indus-tries, to indulge in an important exercise. We asked them to identify the most critical risk manage-ment concepts, discuss them in detail, and then develop a blueprint that every resilient organiza-tion should follow.

Many of our clients share our philosophy of resilience. The core of resilience is the knowledge that the majority of loss is preventable. We recently convened a group of nearly 200 risk man-agement leaders from several large, well-known firms across a spectrum of industries to discuss best practices in risk management. These professionals offered their experience and expertise on the benefits of resilience. Together they identified a handful of key focus areas for every organi-zation intent on creating, or maintaining, a tangible culture of resilience. While we assembled this group, we did not influence the proceedings. Rather we allowed our clients to dictate the discussion and determine its outcomes. What follows is the result of this candid forum, the eight crucial risk management components that every resilient organization should focus on.


Developing a property conservation policy is one of the first best practices our risk management lead-ers recommend. A property conservation policy is

a risk manager’s philosophy on why, and ultimately how, to protect business assets and revenue streams.

This philosophy must align with the fundamental tenets of the organization in terms of strategy, corporate culture,

and current practices and policies. For a property conserva-tion policy to be effective, it also must be documented and

supported by senior management. A property conservation policy should be customized to address

the precise nature of a company’s business. It should identify common hazards and mitigation techniques in the industry. Moreover, it should reveal

interdependencies within an organization, contain a vulnerability assessment of the company’s supply chain and include contingency plans for critical customers and suppliers. It should contain new acquisition procedures, project management standards for managing change and information on how losses and claims will be handled. It should include plans for gaining and sustaining support from the highest levels of man-agement and for implementing effective training programs so employees have the knowledge they need to use this policy. The policy should not be one-size-fits-all. Local facilities should have the opportunity to adapt the policy in a way that best suits their particular circumstances. A well-developed property conservation policy is a risk manager’s playbook. It ensures that the company fully understands the risks it’s facing, how best to mitigate those risks and how to minimize business disruptions in the event of a loss. Fellow risk managers, industry groups, and FM Global’s field engineers and client service teams are great resources for developing a property conservation policy. And, a good policy won’t sit in a drawer and be dusted off every few years; it will be a living document that drives the risk management and loss prevention of an organization.

1. DEVELOP A PROPERTY CONSERVATION POLICY

My philosophy is that I have to know the risk, I have to

examine the risk and I have to mitigate the risk. Also, I know

that I must have partners who buy into that philosophy and

will assist me in doing those three things.

MARIFRANCES MCGINNVICE PRESIDENT, GENERAL COUNSEL

AND RISK MANAGERPROVIDENCE COLLEGE

Hershey’s risk management program walks in stride with

our strategic plan of the organization.

MEGAN MARSHALLDIRECTOR OF RISK MANAGEMENT

THE HERSHEY COMPANY

Insurance alone is not enough to manage business risk. In fact, insurance is a means of managing risk for relatively few corporate risks. From a busi-ness standpoint, risk processes and controls need to be embedded in busi-

ness process from strategy through business operations into regulations and business ethics. For the insurers there is a large amount of regulation

and compliance requirements. Controls are part of the day job.”

PAUL TAYLORPRESIDENT, RISK MANAGEMENT OPTIONS LIMITED

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‘‘ ‘‘


Risk management is not an academic exercise, our panel warns. A quality risk management program continuously works to lower the risks a company faces. Risk improvement begins with identifying key risks and hazards and then making a compelling case for proposed improvement measures. If a risk manager has been successful in gaining upper management support and driv-ing a culture of loss prevention, then implementing individual risk improvement programs will be a much easier task. Increasing the sensitivity to loss exposures helps build a loss prevention culture throughout the company. Publicizing case studies of real losses, prominent industry losses and the compa-ny’s own loss history or near misses can help pave the way for investments in risk improvements. In establishing priorities, our panel of experts recommends attacking easily accomplished improvements first. This can establish risk improvement as an achievable goal. It also helps to widely convey the results of a risk improvement program, share success stories and recognize those involved in the program. Creating incentives for risk improvements is also important. This can be done by offer-

ing financial incentives for risk improvements or fostering healthy competition between plants or facilities. This can be accomplished via benchmarking using a simple

internal grading system, a program like RiskMark®, safety incident rates or other applicable tools.

A risk manager should be able to detail how risk improvements will positively impact revenue, market share,

reputation or environmental concerns. The risk man-ager should also identify needed benchmarking data

and establish success metrics so the impact of the improvements can be quantified.

Continued support from upper management will help maintain risk improvement as a prior-ity. Anticipating obstacles and objections, set-ting expectations with senior officers, project managers and loss control personnel, and obtaining executive sponsors for top priori-ties are proven ways to keep risk improve-ments on the front burner.

2.ACHIEVE RISK IMPROVEMENT

Changes managed proac-tively and continuous risk im-provement will help to ensure

that the business is robust in the face of materializing

threats. This will translate into the protection of the revenue-

generating operations and, hence, the bottom line.

ANDY BRYSONGROUP INSURANCE AND RISK MANAGER

COBHAM PLC

‘‘

We put a step-by-step game plan together to overhaul the sprinkler system. Clearly, top management and shareholders in the company believed in the sprinkler program because our people were at stake. For me, that was very satisfying. We never even talked about money, they just said we have to do it, and we went ahead and plotted the entire program, put in the budget and proposal, and did it. It demonstrated

real commitment from the corporation, top management and shareholders, that they care about our people sitting in our part of the world, thousands of miles away from them.

SWEE LEONG LIMPRESIDENT, LEVITON CHINA

‘‘


Effective risk management cannot be achieved in a vacuum. The best practices of the top risk managers involves tapping a vari-ety of resources, both internal and external, and when appropriate, sharing experiences and expertise with trusted advisors and net-works. Top risk managers pull together internal groups to ensure business continuity and resil-ience. A multi-department team represent-ing key areas—audit, facilities management, legal, human resources, operational health and safety, security and IT—can ensure risk management is a companywide endeavor. Tapping internal departments helps ensure that a risk management plan is comprehensive and all vital operations are involved in contin-gency planning and disaster recovery. Internal experts can also identify risks that a risk man-ager hasn’t accounted for, ensuring the com-pany’s risk assessment is all-encompassing. Enlisting senior management sponsor-ship is another good practice, according to our panel. Ask senior management to promote risk management in stewardship meetings, and to help integrate risk management goals into key performance indicators. Top risk managers also look beyond their internal resources. Our panel recom-mends tapping outside experts, including FM Global. FM Global’s engineering and client service departments allow clients to leverage FM Global’s expertise and research. FM Global’s risk service testing and Risk Reports are excellent resources for identify-ing key risks and hazards. Other third-party resources include bro-kers and policy reviewers, adjusters and risk consultants who can help a risk manager con-duct the proper due diligence. Best practices includes obtaining peer guidance at safety and insurance conferences, risk management forums and policy workshops. For instance, systemic threats to a global supply chain mean that an individual business can be affected by outside forces. In such cases, by coupling your knowledge of risk with your supply chain experts’ knowl-edge, you will improve the resilience of your company.

3. LEVERAGE INTERNAL AND EXTERNAL RESOURCES

Our common goal is to mitigate losses and make the process as smooth and cost-efficient as possible. It’s easier to convey that mes-

sage within the organization, to ensure that a risk control program is in place. We want to engage the entire organization, not just the

engineering group, or safety and security, but general management, local management as well as finance—because ultimately an event

will have financial ramifications and impact across our organization.

FABRICE FUENTESDIRECTOR, TREASURY PENSION AND INSURANCE, PHILIP MORRIS INTERNATIONAL

‘‘

Relationships are extremely valuable to Hershey, and I am most proud of the relationships we’ve forged. We look to build strong partnerships that cross multiple years, so that as the insurance

marketplace or other emerging risks ebb and flow, we can make sure our program also remains dynamic.

MEGAN MARSHALLDIRECTOR OF RISK MANAGEMENT, THE HERSHEY COMPANY

‘‘

The one thing I absolutely love is how hands-on FM Global is with our properties, through inspections, through walking the sites, especially during construction. They are such an asset to what we do. Brandy-wine is really moving forward in construction and development, and

there are a lot of unique challenges we’re coming up against. Brandy-wine has always been a commercial real estate company, but now we are dabbling in student housing, luxury residential, multifamily, pools on rooftops, green roofs and automated parking. So there have been a lot of unique things we’ve started that FM Global has come in and

helped with.

KIRSTEN SHAWNRISK MANAGER, BRANDYWINE REALTY TRUST

‘‘


I’m a little outspoken and have very high energy. I’m extremely direct and I do a lot of hands-on training. The more I can communicate to my team, the more they can communicate to their team. Communication is

key for me. If I can get in their heads, they will remember what I said and better communicate with our tenants. It’s really

important to make sure everybody is on the same page, because you never know when you’re going

to have a true emergency situation.

KIRSTEN SHAWNRISK MANAGER

BRANDYWINE REALTY TRUST

Communication is the key to almost any initiative. The goal of top risk managers must be establish-ing a strong risk management culture throughout the organization by effective communication. Doing so demands buy-in and ongoing support from the highest levels of management. Once that is gained, organizations must then avoid complacency by paying meticulous attention to the objectives and time frames established.

To strengthen the risk management case and encourage continuous improvement, risk managers

must develop metrics to prioritize and report to the company leaders and at the operations level.

Consider a business impact analysis, which will help frame the risk management message in financial terms.

Quantifying exposures in terms of cost of potential loss ver-sus cost of risk improvement will help hold the interest in risk

improvement initiatives. At the operational level, focus on the threat of unplanned production outages.

Successful risk managers are able to communicate across the organization that managing risk is of the highest priority and should be “top of mind” for every

single employee. Encourage buy-in from top managers by sharing risk assessments with senior executives. Our panel recommends looking for clever solutions for overcoming global issues, as well as language and time zone barriers. In addition, they recommend careful examination of the communication methods that work in each organization. Today’s workers are inundated with email and many plant workers don’t have continuous daily access to computers. Consider com-municating via text, intranet, company magazine or other vehicle. The best practices of our expert panel include weekly or monthly e-bulletins with the latest company-focused risk management news and co-worker driven reward programs for an individ-ual risk improvement effort. Other best practices include central “communications stations” that serve as gathering spots for departments to share risk management information and constantly monitoring communications and any feedback provided by users.

4.COMMUNICATE AND IMPLEMENT A PLAN EFFECTIVELY

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5. MANAGE GLOBAL INSURANCE/ RISK MANAGEMENT PROGRAMS

An insurance and risk management program must be global. It can’t only be focused on domestic offices or ignore remote locations. A worldwide program, with all its com-plexities, is a must, our experts agree. Once again, support from top levels of manage-ment is vital in mandating worldwide com-pliance with an insurance and risk manage-ment program. Be sure your constituencies understand the expectations, as well as the benefits, of a global program. Our panel recommends employing strong corporate policies to centrally place insurance and assign responsibility. These policies will ensure local entities will not establish their own policies. Risk managers should nurture solid relationships with local entities and convey to them that premium is not necessarily the most important attribute. Our panel explains that consistent terms and conditions are often what’s key. Risk managers should also cultivate relationships with controllers, as they usu-ally have the pulse of an organization. Risk managers can then leverage these relation-ships when managing acquisitions and divestitures globally. Our experts recommend protecting stakeholders by gaining senior management sign-off for any activities that go beyond corporate risk management. They recom-mend using brokers and insurers to augment the company’s internal capabilities. Brokers and insurers can help deliver the company’s risk management message and ensure the program is compliant and has adequate capacity. They can also stay on top of regu-latory changes and conduct annual reviews of global risk management programs. Finally, our panel recommends sharing claims stories internally with all stakehold-ers, no matter their location, so everyone can learn from a loss experience and feel owner-ship in the risk management function.

The underwriting challenges are different. We comply with all local regulations, currency regulations; billing and paying premium can

be a challenge. We consider compliance to be nonnegotiable. There are so many regulations in place all over the world. But that can be

resolved by working with your WorldReach® partners. Local issues come from having a global program.

JON KINGMANAGER, RISK CONTROL AND LOSS PREVENTION, PHILIP MORRIS INTERNATIONAL

‘‘

We have one main objective: to ensure we understand our exposures so that they can be adequately managed. One challenge is to en-

sure we use a uniform yardstick, while recognizing local constraints. Circumstances vary from big markets to small markets, high-volume

production to specialized production, highly automated to largely manual processes. The same solution cannot necessarily be applied everywhere. That means everyone has to have the same awareness

of risk in order to drive continuous risk improvement. To deal with this challenge we need to constantly communicate. We’ve created a train-

ing program to share fundamental risk engineering and methodolo-gies to a broad audience across PMI. We’ve been very pleased with

the outcome of those trainings, with high satisfaction rates from the attendees. We also see increased activity to implement risk recom-

mendations in areas where we have presented in our seminar.

FELIPE DANTAS MANAGER, RISK MANAGEMENT AND INSURANCE, PHILIP MORRIS INTERNATIONAL

‘‘


An important best practice recommendation of our panel is measuring success. It is key to gaining upper management’s support, as well as an ongoing commitment to risk management throughout the organization. To measure success, risk managers need to understand the total cost of risk, which includes premium, claims below deductible, internal costs, external vendor costs and reputational risk. Risk managers need to establish appropriate tracking metrics, and then consistently measure the program’s progress. There are several metrics our panel recommends for tracking suc-cess, including FM Global’s RiskMark®. RiskMark is a fact-based ana-lytics tool to help companies quantify and manage property risks. It enables risk managers to precisely understand the risk of major property loss at each facility, the potential business impact and the best solutions to address these vulnerabilities. Other metrics to measure success include claims closure and rec-ommendation completion rates. Measurement could also include track-ing movement in percent of highly protected risks and tracing progress on established risk improvement plans or on a current vulnerability that risk management is looking to improve. These metrics should be presented to management and key stake-holders. This can be done through communication vehicles like a score-card or annual report. The reporting should use succinct prose and persuasive quantitative data, such as premium savings, costs vs. expen-ditures, and positive reports from regulators. When presenting this type of information, take care to tie risk to sustainability, and if appropriate tie achievements in the areas of envi-ronmental health and safety (EH&S) and life safety. External auditors, loss control specialists, insurers and brokers can help measure risk management success as well as help present on the results favorably. Our panel recommends communicating basic expectations across the entire organization and providing recognition when significant mile-stones are reached.

6. MEASURE AND REWARD SUCCESS

Good risk management practices enhance shareholder value. You don’t have to think in terms of disasters happening or their adverse effects being avoided.

Effective supply chain risk management should be embedded in a well-run business and I think, overall,

this will positively affect the share price.


COBHAM PLC

We made a significant upgrade to sprinkler protection in our Kleve, Germany, facility. The

project was not cheap. To justify the project, we took a look at the value of the property and, more importantly, the business inter-ruption cost to that facility to see how that would impact AMETEK. The impact on us

for not completing this recommendation in the event of catastrophic failure or fire at this

facility would greatly outweigh the cost of the installation. The overall impact on AMETEK shareholder value was a critical factor that

helped sell this project.

MARK SCHEUERDIRECTOR, COMPLIANCE

AMETEK, INC.

‘‘

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To leverage trends, you first must identify them. Our panel recom-mends expanding an organization’s risk horizon to investigate risks that are typically beyond insurance, such as geopolitical concerns or brand reputation. Identifying important trends and understanding the issues rel-evant to them can help a risk manager develop appropriate ways to mitigate these new risks. To be successful, risk managers must be integrated into the business phases of the planning process, which will require establishing credibility with senior executives and oper-ations leaders. Risk managers should seize every opportunity to gain the ear of these most influential audiences, and use that access to explain the most compelling risks and offer mitigation measures. Risk managers should look two to three years ahead, and rec-ognize core and noncore risks. Among the fastest-growing trends concerning today’s risk managers are cyber risk, political risk and climate change (specifically, the effect of a dwindling water supply on business continuity and resilience). Risk executives should view all new technology through a prism of risk management. For instance, privacy concerns are cur-rently top of mind as large-scale information breaches are rampant. The widespread use of cloud computing is fueling such concerns. Risk managers should ask, “What risk does this technology present to my organization?” and “Which suppliers hold critical data relative to my business?” Risk managers also need to manage supply chain risks. They should critique the business continuity plans of suppliers, and their suppliers, and look for gaps. The same should be done for criti-cal customers. Risk managers should execute detailed analyses in cases where a supplier or customer will significantly impact the company’s business. Just-in-time supply chains require exceptional resiliency.

7. STAY ON THE LEADING EDGE OF TRENDS

[What keeps me awake] is mitigating losses, ensur-ing business continuity and running cost-efficient

programs. There’s a tendency to feel at ease, to be complacent. You need that spark to stay abreast of

changes, constantly improving processes and use of our resources. It’s a complex environment, so we

need to keep pace with those changes and make sure we can respond in a most effective manner.

FABRICE FUENTESDIRECTOR, TREASURY PENSION AND INSURANCE

PHILIP MORRIS INTERNATIONAL

‘‘

Once an organization has outsourced elements of its manufac-turing operations to third parties, it reduces the influence it has

on the risk management process. If there’s an effective busi-ness impact analysis (BIA) conducted, it will highlight the most

significant of these outsourced nodes, but once you get to tier two or three, even an effective BIA will struggle to achieve that

granularity.


COBHAM PLC

‘‘

Supply chain risk and reputation are intrinsically linked to share price. Consider the companies

who were impacted in 2008 when a ship’s anchor dragged through some of the subsea communica-

tion cables in the Indian Ocean, which in turn dis-rupted operations in India and the Middle East. The event also affected offshoring operations for many

organizations. It is clear that reputation affects share price. My view is that an organization’s share

price is best managed by its reaction to a crisis. The way you handle your public relations, staff com-

munications and the actual incident will all have an effect on share price.

EDWARD SHERLEY PRICEHEAD OF BUSINESS CONTINUITY

EXPERIAN

‘‘


8. BEST PRACTICES FOR THE “PART-TIME” RISK MANAGER

Many organizations have only “part-time” risk managers, meaning their daily work involves other

responsibilities, such as treasury or operations. Though challenging, this situation does not necessarily mean the

risk management program has to be any less effective than with a full-time risk manager. Still, a “part-time” risk manage-

ment function typically demands a smaller-scale, more easily man-aged program.

To ensure even a “part-time” risk management program is top-notch, our panel recommends the following best practices:n Get support from the top. Nothing will make the risk management job more effective

than getting that support before a significant loss occurs.n Make site visits to locations with critical operations to understand their vulnerabilities

and raise awareness of risk management. These visits go a long way toward ensuring the acceptance of a risk management program throughout the organization.

n Develop a simple, deliverable risk management policy, establishing processes or proce-dures to address frequent challenges, and adapting practices that work well in one part of the business and replicating them in other areas.

“Part-time” risk managers should also utilize internal and external resources when-ever possible. Brokers, insurance carriers and FM Global account engineers can be valu-able resources. Our panel also recommends utilizing benchmarking and Risk Reports to highlight risk, influence decision-making and prioritize risk improvement capital expendi-ture allocation.

Esterline looks for partnerships with our brokers and our different carriers to match our needs across the world. It’s really important for

us because we have a very small risk department, so we push a lot of that out to the business units. We partner with different carriers like FM Global that can help. They can be there to guide us, be there as a

sounding board, and be there to help us when we build or remodel. We use our partners a lot.

KRISTEN CARNEVALIDIRECTOR OF TREASURY AND RISK

ESTERLINE CORPORATION

‘‘


Faced with the challenge of doing a big job with a small staff, Esterline’s Kristen Carnevali found that entrusting her client service team with

some heavy lifting was the quickest and easiest way to get things done. So far the formula has yielded excellent results.

MAKING ITLOOK EASY

Kristen Carnevali enjoys a quick lunch with her client service team, Will Arnold and Melony Ellsworth, above, and on a whirlwind tour of a handful of Esterline’s major

facilities in California. Carnevali is director of treasury and risk at Esterline.


risten Carnevali is logging serious miles across the California desert in a black SUV. She doesn’t seem to mind driving much and she knows the territory. She and her engineering team do this circuit a few times annually. The travel lends

itself to some funny moments, including her internal dialogue about her driving. “Oh, I better slow down. These guys are going to get mad at me for driving too fast,” she says, referring to the caravan she’s lead-ing. “I promised myself I wouldn’t speed. As my husband would say, ‘Just stay with the flow of traffic and you won’t get in trouble.’” Despite the brisk pace, the scenery—vast mounds of ecru sand and bulky moun-

tains dotted with scrub brush—provides a good distraction. Carnevali works for Esterline, a spe-cialized manufacturing company based in Washington state (USA) serving principally the defense and aerospace markets, where she is director of treasury and risk. Boast-ing 13,000 employees, Esterline is a leader in this sector and they own—mainly through acquisition—dozens of companies. Managing risk in an organization like this is grueling. The company has operations worldwide, many of which have unique and varying approaches to health, safety and property conservation. Since assuming the responsibilities pre-siding over the risk side, Carnevali has seen Esterline actively acquire companies world-wide and grow exponentially.

“Being a global company is truly chal-lenging; we have large manufacturing sites in multiple countries all over the world,” says Carnevali. “Knowing that, it’s impor-tant for us to have a strong insurance partner that is also a global company and has part-ners positioned globally to work with the local entities in all of our countries. It’s a challenge, but it becomes a little easier when I have a partner like FM Global.” Roughly half of Esterline’s subsidiaries are located outside the United States, includ-ing Mexico, France, the United Kingdom, Canada, India, China and Morocco. In some of those locations, Esterline works through FM Global’s WorldReach® network to get the job done. “The great thing about working with WorldReach partners is that we can be con-

Honestly, my account engineer and FM Global field engineers are my principal resource. Will Arnold is my first call when

I need something, or when we need to work through an issue. Either he responds himself or he gets in touch with a local engineer with the right knowledge to take care of it.

KRISTEN CARNEVALIDIRECTOR OF TREASURY AND RISK

ESTERLINE


fident we are achieving compliance in those different countries,” says Melony Ellsworth, the FM Global account manager working with Esterline. “We currently have multiple policies beyond the master policy we issue to provide that local insurance coverage for Esterline’s properties. Another benefit of hav-ing WorldReach partners is that we have a standard underlyer, that is, a standard policy form. So when Kristen looks at the policies in place internationally, they are essentially a mirror image of what she has seen on the mas-ter form. It makes it so much easier for her.” Commitment to global compliance is a must-have for Esterline, due to the nature of the work the company does. The Esterline team is always focused on compliance and requires the same from its partners. Another advantage of teaming with a global insurance company is their capacity, not only to have the policy in place, but also

the people to keep track of recommendations, needs and progress. “Honestly, my account engineer Will Arnold and FM Global’s field engineers are my principal resource,” says Carnevali. “Will is my first call when I need something or we need to work through an issue, and he either responds himself or he gets in touch with a local FM Global engi-neer with the right knowledge to take care of it. FM Global handles a lot for me so I don’t have to visit all of those locations myself. I couldn’t do it alone. But FM Global allows me to streamline my process and keep it simple.” Arnold, the main engineer on the account, agrees. “Esterline is very in tune with what’s going on at all of their facili-ties, but they also don’t have the internal resources to constantly monitor and manage the risk in each of their operations them-selves. This, though, is by design. Esterline

places trust in highly vetted, preferred ven-dors in a variety of business areas, in lieu of hiring more internal staff. This approach has many benefits when you have a world-class partner like FM Global. Moreover, Esterline relies heavily on their broker, Marsh, and on their carriers, both in property and in other lines of busi-ness, to help them manage risk. What we get to do for them is provide their own internal information by visiting the sites and collect-ing the data, and we use that data to provide reliable risk management advice.” When the Esterline and FM Global team get a chance to travel together they can accomplish quite a bit. On this occasion, for instance, Carnevali is traveling with both Arnold and Ellsworth. “When I tour facili-ties with Will, he can point out certain things and talk to me about the field engineering reports that he reviews,” says Carnevali. “He can talk to me about the recommendations and why they want to see something done. He can also point out the recommendations they gave us that we put in place and imple-mented.” Another challenge faced by Esterline and other global companies is developing a consistent view of risk management and loss prevention. For example, in some locales, active loss prevention and risk mitigation aren’t quite as common. Communication is key and it’s important to understand how and why perspectives on the role of insurance may differ. “Getting everyone comfortable and on the same page is often critical to the success of our insurance programs,” says Carnevali. “Letting them know what insurance we carry, why we carry it, why we have certain limits, and the philosophy of our carrier are all issues we need to discuss at length.”


Over the course of two days, Carnevali and her account team visited three aerospace and defense facilities, all located south and east of Los Angeles. One facility is responsible for produc-ing combustible material used for defense products, a second deals with the meticulous assembly of intricate electronics, and a third takes raw materials, mixes them into spe-cially formulated elastomer products, then shapes the material into various aerospace seals and clamping products. The team, decked out in safety garb, tours each of the facilities together, look-ing closely at manufacturing processes and discussing the potential risks of each one. Arnold is clearly familiar with the manufac-turing processes in each of the facilities, and he takes a lot of time explaining each one. For a busy risk manager, guidance like this is invaluable. Says Will Arnold: “We get to see more of the changes at these facilities and catch potential issues early. Simply by being on-site together, we can discuss what we’re seeing, and this communication helps us to understand the risk together.” At Esterline, Kristen Carnevali also has treasury responsibilities, so she wears numerous hats. “For that reason,” says Arnold, “I think she has a great appreciation for what her brokers and her carriers can provide to her. She’s really happy to look at

how we view risk and take on a collaborative approach to minimizing that risk.” The mutual advantage is clear. The cli-ent service team focuses on the engineering and underwriting, while Carnevali enjoys the benefit of not only seeing her local facil-ity people, but also building a worthwhile relationship with her insurance company. Together they can start knocking out items on their list. For Carnevali, the relationship she has with her account team is key to the program’s success. Not only does the team make the effort to accompany her on site visits like they’re doing here, but they also manage to chat casually throughout the year. They both hap-pen to be based in office buildings located in close proximity to each other. “One of the benefits we have is that Esterline’s office is right across the street in Bellevue, Washington,” Ellsworth adds.

“I sit down with Melony and Will at least quarterly,” says Carnevali. “We’ll go through outstanding items, potential things we could correct. Sometimes I’ll say, ‘Okay, name 10 items we could knock out this policy year.’ We discuss them and strive to get them done. The best thing is, we actually accomplish them. We would love to get all of our facilities up to highly protected risk (HPR), that’s our goal. It proves we all mean business.”


Find this exclusive video coverage on our magazine website!

Working Together Esterline + FM GlobalEsterline’s lean and mean risk management team, led by Kristen Carnevali, and supported by FM Global, might be small in number, but it’s big at heart. Its success has come thanks to active communication and a talented crew.

“Voices” videosJim Radin of McCormick and John Koester of Marsh

Working Together McCormick + FM Global McCormick’s enormous and successful global expansion brought about significant risk mitigation challenges. But with corporate support, a solid broker relationship and a collaborative effort with their FM Global client service team, McCormick managed those challenges with skill and effectiveness.

FIND this video coverage on our magazine website, fmglobal.com/reason.

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