multiplied by their probability. They
might want to keep a “poor use of
English” book, too.
Suppose Hurricane Irma had hit
Miami. The chance of that happening
at one point was about 20 percent.
The hit would have increased
estimated maximum losses by $100
billion (The Economist said).
In the alternative register, this
would be recorded as an additional
potential loss of $20 billion. Besides
deepening the data pool on which
underwriters base risk assessments,
Lloyd’s and RMS argue, such
calculations could help regulators
submit catastrophe models to stress
How sensible is all this? Not very.
Telling insureds who have never
claimed on a policy that their
premiums have tripled because of
losses they did not suffer seems
unlikely to help anyone, especially
the industry, in the long run. (Slaps
forehead, stops writing.) &
ROGER CROMBIE is a United Kingdom-
based columnist for Risk & Insurance®. He
can be reached at firstname.lastname@example.org.
Only claims made affect premium rates, right? Wrong. British insurers use a central database, the Claims and
Underwriting Exchange, to share data.
was, he did and they didn’t.
Underwriters, until now, based
premiums on events that happened.
Claims in the airplane insurance
market have lately been low, and
premiums are therefore falling. Can’t
have that, said the report, advising
underwriters to factor into their
pricing “what if” scenarios. Insurance
companies that fail to track and
record such non-events are missing
an opportunity, Lloyd’s and RMS
For emerging risks, a lack of
precedent makes pricing tricky. Many
insurers would not write terrorism
risk in the months following 9/11,
for example, because of a shortage
of historical terrorism data. Sane
underwriters took a similar line on
cyber risk for a while, until just about
every company in the world was hit,
providing a basis on which to price
the risk of it happening again, which
is about 100 percent.
The Lloyd’s/RMS report
said insurers should maintain an
“alternative-claims book,” tracking
hypothetical losses from near-misses
In its defense, the practice of
logging uninsured losses as losses is, at
least, based on real events. But Lloyd’s
and modelling firm RMS now suggest
that insurers not limit themselves to
basing premiums on actual losses,
covered or otherwise. They should
also price in fictional losses.
The Economist, which broke
the story, reported on a near-miss
between two planes taxiing at San
Francisco airport. Had one pilot not
pulled up sharply, the planes might
The Exchange records any
inquiry about a loss as a loss.
The moment you ask if you’re
insured, the conversation becomes
a “notification” and goes on your
record as a loss report, even if you
make no related claim.
Say you have pet insurance and
accidentally set fire to your cat. You
call to ask if the event is covered
on your policy, but it is not, so you
don’t claim and the insurer suffers no
loss. As a result of the call, however,
your premium rises, like the smoke
pouring off your cat.
Companies won’t discuss this
matter publicly. That’s just how it is,
so don’t call your insurance company
BY ROGER CROMBIE
BY GEORGE BROWNE
potential for a significant loss.
The incident has the potential
to develop rapidly, cause substantial
property damage and may even
affect other properties in the area.
Additionally, the hazard may require
the following in order to provide life
• Special extinguishing systems
required for fire control (cleaning
agent, foam, CO2, water mist and the
• Special detection systems
to provide detection of products
generated by a special hazards incident
(gas-specific detectors, infrared or
ultraviolet detectors, specialized smoke
What Makes a
Defining special hazards seems straightforward; the typical expectation might be that, in the event of an
emergency involving any of these hazards, there is the
and the like).
• Damage limiting construction
to allow the pressure generated by
an explosion to vent out of an area
without destroying the structure
(explosion relief panels for walls or
roofs, vents, etc.).
• A combination of any of the
The above criteria should make
many special hazards easy to identify.
Unfortunately, some special hazards
can be hidden, because the impact to
the operation is not recognized. These
hidden special hazards can include any
• The reliability of utilities such as
electric power, gas (including natural
gas or LPG), process/drinking/fire
protection water or steam.
• The vulnerability of the
electric power to the site due to
having only one transformer or
multiple transformers that are
rare and difficult to source if the
• The use of an electrically-driven
fire pump, without considering the
reliability of the power supply.
• The reliability and adequacy of
the local water supply to meet fire
• Nearby exposures that can
threaten the facility, including: fire,
explosions and spills occurring at
neighboring facilities, and wildfire
• Surrounding flood hazard and
whether or not it might leave your
facility high and dry, yet isolated and
unreachable by suppliers, shippers and
There are many other things
that can create a special hazard for
an operation, and the above list is
certainly not all inclusive. When one
begins looking to identify special
hazards, stick with the basics.
Risk is based on severity of the
impact to an operation and the
frequency with which it can occur.
High frequency and high impact
events define the highest level of risk
and are usually easy to identify. Low
frequency events with high impact
need to be qualified to see if they are a
special hazard. High frequency events
with low impact may also need to be
better defined and may or may not be a
You and your company’s policies
determine what acceptable risk is.
Look at your site and its operations
to identify and qualify vulnerabilities.
Determine which hazards are unique
and require special attention.
Large scale incident/emergencies
don’t start big; they all start with
small failures that compound on each
Identifying and resolving special
hazards is meant to contain the
incident and keep it as small as
GEORGE BROWNE is Manager of Training
Services for Global Risk Consultants. He
manages fire protection services and
develops and delivers training programs
for clients on an individual basis. He
can be reached at George.Browne@