Transcript Risk Management & Terrorism Events An Insurance Approach

26 January, 2010
Risk Management & Terrorism Events
An Insurance Approach
Ian Roy
www.marsh.com
Terrorism and the Energy Market
 Events in the Energy market are relatively rare
– Saudi Aramco Truck Bomb 1996
 Target was military
 USD 2 bbl price hike
– 2007 PEMEX pipe-line bombings, Mexico
 Small PD damage, large seepage and pollution claim.
– 2008 to 2010, 6 bombs by environmentalist in British Columbia,
Canada
– Bombs defused Mozdok-Tiblisi pipe-line
 Underwriters generally operating with 0 % loss ratios
 Historically little technical engineering involvement.
 Energy Risks perceived as low?
– Good protection due to strategic nature of assets
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Estimated Maximum Loss (EML)
Why is it important to estimate the size of potential losses in advance ?
 Insurer’s perspective:
 Client’s perspective:
– provides a quantitative measure
– supports informed decision
of the risks they are underwriting
– sets the level of capacity that can
be committed to the risk
– provides quantitative
understanding of accumulation
(e.g. location) issues
– internal governance
making regarding the design of
the insurance programme
 loss limits vs. EML
 effective use of market
capacity
– provides supportable basis for
purchase of limits of insurance
(internal governance)
– a potential means of saving
premium (loss limits)
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Terrorism Estimated Maximum Loss (EML)
 Methods available for generation of Estimated Maximum Loss (EML)
values related to Terrorism risks
– method developed to meet the requirements of project owners and
project lenders
– also applied to oil, gas, petrochemical and other types of “non
energy” related manufacturing facilities
 Supports informed decision making about purchased limits of
Terrorism insurance
 Draws upon specialist resources
– engineering/consequence modelling
– client HSE, operations personnel
– security specialists
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Risk Measurement: Estimated Maximum Loss (EML)
How big are potential losses?
Risk Measurement
Likelihood of
Losses Occurring
Assessment of Quality of
Risk Control Features
Consequences of Losses
Assessment of Quality of
Risk Control Features
Assessment of Quality of
Risk Control Features
Assessment of Quality of
Risk Control Features
Assessment of Quality of
Risk Control Features
Assessment of Quality of
Risk Control Features
Analytical risk-management approach using Consequence Tools
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Marsh EML Methodology – what it is and what it is not
 What it is
– Property loss estimate
– Business Interruption loss estimate
– 3 bomb type scenarios placed at specific site locations.
– Could consider deliberate/targeted release of inventory
 What it is not
– It is not a prediction of the terrorism attack (reasons, target or
–
–
–
–
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likelihood)
It does not identify the most likely scenarios
Does not consider rocket/airplane type attack
Does not specifically consider explosions at offices/buildings
Does not consider knock-on effects
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Marsh EML Methodology – Three generic scenarios
1. Truck containing some 4 t of a TNT type explosive igniting at one
of the entrance gates.
2. Car containing some 1 t of a TNT type explosive driven on site
and igniting near the highest value assets.
3. Human/Backpack bomb containing some 25 kg of a TNT type
explosive taken on site by a human being and igniting near the
highest value assets.
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Marsh EML Methodology – EML and the report
 EML: what we need
– Property replacement values
– Site Lay out, congestion and confinement levels
– Gate location (HW) and security checks (SW)
– External lay out (public / private roads, access to the areas)
 EML: Tools we use
– SLAM
– TNT vs. Ethylene Oxide equivalency file
 Report: what we also need
– Security hardware (gate, fences, etc.)
– Security practices on site (controls, explosive detectors, etc.)
– Security measures off site
– Terrorism simulation / drills practices
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Risk Measurement
What is SLAM?
 Risk assessment tool for clients to
facilitate ..
– Property Damage loss limits
– Business Interruption exposures
– Liability studies
 Easy to use design tool to support ...
– plant layout
– buildings location and design
 Tool to facilitate insurance placement by providing the Underwriter with a
realistic Estimated Maximum Loss based on credible events applied
consistently across the energy risk spectrum
 Developed with Shell and Imperial College London
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Risk Measurement: Consequences
Why was SLAM developed?
EML evaluation aspect
SLAM versus TNT models
 Modelling approach
Fundamental, deflagration-based, tuned to Loss
History
 Plant type
Sensitive to inherent risk type
 Plant layout
Penalises poorly laid out or highly congested plant
 Source terms
Volume-based structures … requires less mass for
an equivalent explosion
Centred on process structures
 Explosion epicentres
 Pressure-distance profile
Matches observed "far-field" effects
 Damage assessment
Differentiates between buildings, tankage and
process plant
 Loss History
Models small/large release events … models
major losses
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Fire & Blast Damage Allocation
Overpressure
(bar)
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Process Plant
Tankage
Buildings
Machinery
>0.7
100
100
100
80
0.70 – 0.35
80
100
100
40
0.35 – 0.20
20
100
100
-
0.20 – 0.10
5
50
100
-
0.10 – 0.5
-
-
50
-
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Example – Truck Bomb parked on public road
Adjacent to Strategic high value asset – EML USD 380 million
11
1
5
8
9
3
18
16
16
8
5
2
16
20
4
2
1
19
16
13
14
13
6
7
16
4
6
10
5 14
17
15
7
3
6
9
17
11
11
11
15
15
0
500m
15
15
11
12
16
10
10
15
15
16
15
10 10
10 10
10 10
10 10
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Example – Car Bomb driven into assets
Assumed that in heart of the strategic asset – EML USD 290 million
11
1
5
8
9
3
18
16
16
8
5
2
16
20
4
2
1
19
16
13
14
13
6
7
16
4
6
10
5 14
17
15
7
3
6
9
17
11
11
11
15
15
0
500m
15
15
11
12
16
10
10
15
15
16
15
10 10
10 10
10 10
10 10
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Example – Bag Bomb Carried on-site
Assumed that in heart of the strategic asset – EML USD 130 million
11
1
5
8
9
3
18
16
16
8
5
2
16
20
4
2
1
19
16
13
14
13
6
7
16
4
6
10
5 14
17
15
7
3
6
9
17
11
11
11
15
15
0
500m
15
15
11
12
16
10
10
15
15
16
15
10 10
10 10
10 10
10 10
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Re-build times and Business Interruption
The following outlines likely interruption periods following damage on a typical process plant
Overpressure
(bar)
Process Plant
Buildings
Cooling
Towers
Heavy
Machinery
Tankage
Average Site
Guide Interruption Months
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>0.70 bar
18 to 36
12 to 15
6 to 9
9 to 12
18 to 24
0.35 bar
18 to 24
9 to 12
6 to 9
9 to 12
18 to 24
0.20 bar
6 to 9
0
6 to 9
9 to 12
6 to 9
0.10 bar
3 to 6
0
6 to 9
6 to 9
3 to 6
0.05 bar
0
0
3 to 6
0
0
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Terrorism Estimated Maximum Loss (EML): Property Damage
A three step approach:
1 Threat & Vulnerability analysis
– potential threats identified with assistance of security consultants
(location specific)
– modes of likely attack identified with security consultants
2 Project risk profile generated
– probability and direct consequences of attack evaluated
 e.g. high explosive blast effects, vapour cloud explosion
– EML calculated
3 Risk mitigation
– review security procedures and security infrastructure
– elemental system re-design (apply control systems) to mitigate risks
and reduce calculated EML
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Terrorism Estimated Maximum Loss (EML)
Without effective vehicular access controls
Without Effective Controls
(Limited Threat Mitigation)
EML (Ineffective Access Controls)
Threat Scenario:
1.
Large Truck Bomb (4 tes TNT)
detonated at EPF access gate
3.
140
Car Bomb (1 tes TNT) detonated
inside main process area
Bag Bomb (25 Kg TNT) handcarried in to process area and
detonated
120
USD millions
2.
USD 142 mm
160
100
80
60
40
4.
Explosion following deliberate
release of LPG from storage bullets
located on main site
20
0
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Threat Scenario
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Terrorism Estimated Maximum Loss (EML)
With effective vehicular access controls in place
Threat Scenario:
1.
Large Truck Bomb (4 tes TNT) detonated at
access gate
EML (Effective Access Controls in Place
USD 22 mm
3.
Car Bomb (1 tes TNT) detonated inside main
process area
25
20
USD millions
2.
Bag Bomb (25 Kg TNT) hand-carried in to
process area and detonated
15
10
5
4.
Explosion following deliberate release of LPG
from storage bullets located on main site
Current Controls:
0
Scenario 3
Scenario 4
Threat Scenario
Current Controls:
• Earth berm around site
• Sniffer dogs
• 24/7 armed access control/search points
• Personnel ID and vehicle access control systems
• Hardened search & hold areas
• Vetting & background checks of local staff
• Blast walls at access points
• Permit system for zoned work areas on site
• Restricted/dedicated “onsite only” vehicles kept
inside perimeter
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Risk Management and Terrorism Events
 Marsh have developed procedures and methodologies for EML
evaluation
 Combined with a view of:
– Likely modes of attack
– Adequacy of safeguards
 A Risk Profile can be generated
 Mitigation plans can be applied or reviewed
 Elemental system re-design can be conducted
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