TT Club and the role of insurers

WHO CALLS THE TUNE?

SAFETY • PEREGRINE STORRS-FOX, RISK MANAGEMENT DIRECTOR AT TT CLUB, LOOKS BACK ON THE ADVANCES MADE IN MARITIME SAFETY OVER THE PAST FOUR DECADES

IT IS SOBERING to reflect that not only do incidents involving dangerous goods continue to occur with unnerving frequency but that a considerable proportion of what goes wrong is entirely preventable. This should be all the more vexing in the context of the last 40 years, with the phenomenal changes in business practices, particularly the advent and widespread adoption of electronic records and communications.

TT Club, founded more than 50 years ago, is a specialist insurer of the risks arising from all kinds of actors in the global supply chain, with particular emphasis on unitised transport. As a result, TT is well placed to provide some perspectives on the ‘state of the nation’ and progress over the decades. Nevertheless, it is worth rehearsing some insurance theory and fallacies.

At its core, insurance is about taking a share of risks that an individual or entity does not want or cannot afford to retain. Almost inevitably, cover is provided for defined risks generally within a range above an excess or deductible and subject to a financial limit. Assuming another’s risk is based on understanding, which requires full and frank disclosure to build and maintain trust.

HIDDEN COSTS Pondering these simple tenets should already reveal the twin fallacies that insurers are both paymasters and holders of all types of relevant data – and that is before remembering that insurance itself is as fragmented a market as anything else seen in the supply chain. There is currently no complete, standardised and shared data matrix covering the risks in question.

However, since TT’s mission includes making the industry it insures safer and more secure, it seeks to generate insights from incidents that it incurs. This is supplemented by publicly available information, which is delivered back to the industry in specific and general risk mitigation programmes, collaborating with other industry leaders to bring about change.

Allied to the fragmented and partial incident experience held by insurers, it is worth drawing the distinction between ‘insured’ and ‘economic’ losses. When any type of mishap occurs, there are a host of direct and indirect costs or overheads that an entity incurs, such as reputational damage, the need for emergency supplies, increased inspections, revised training and procedural introspection.

Perhaps the most intangible is the loss of management time, diverting them away from productive activity; at the lowest level this might be mending counterparty relationships, but could equally be full-on crisis management, responding to investigative or enforcement agencies, handling media and much more. One study by the UK Health & Safety Executive reported that every £1 of insured costs ‘hid’ between

£8 and £36 of further uninsured costs; whatever the multiplier used, economic losses fall heavily on the entities involved.

Thus, while it is inevitable and instructive to draw on the litany of casualties and major incidents, every near miss and all attritional losses bear scrutiny. As the judge in one recent case explained, disasters are only infrequent due to a “lack of a similar perfect storm of events, and simple good fortune”. As a result, all stakeholders are well advised to consider the potential implications of the least mishap to protect not simply their own activities but also take appropriate responsibility for others throughout the physical supply chain who may be impacted.

NOTABLE EXAMPLES To take one example: the containership DG Harmony incurred an explosion and fire in November 1998, while en route from the US to Brazil. The fire burned for three days; the ship and almost all its cargo became total loss. It transpired that the consignment of calcium hypochlorite had been packed straight off the production line, while still warm, into 145-kg (300-pound) fibreboard drums stacked three high in the container. The IMDG Code only recommended carriage away from sources of heat where temperatures exceeded 55°C. In fact, the ambient temperatures in the hold rarely exceeded 40°C, but the container still exploded.

It was found that the packing method (warm cargo in airtight drums) actually enhanced the risk of accelerating decomposition, even though it was in compliance with the (then) IMDG Code requirements. The manufacturer was held negligent by failing to research possible risks of this method of packing. It was telling that the manufacturer not only had the best knowledge about the substance’s nature, but had also previously experienced shoreside fires.

This knowledge of the manufacturer also become pivotal in the litigation following the more recent incident on MSC Flaminia in July 2012. In that case, the explicit awareness of the hazards presented by the commodity was found to have been compounded by a fatal management decision to override standard procedures. As it happened, a number of other failings prior to the container being loaded on board led to a classic rendering of Professor Reason’s ‘Swiss Cheese model’. In essence, the argument goes that incidents always result from the conjunction of a number of issues or process failures, despite measures in place to control or prevent undesirable consequences.

THE PEOPLE PROBLEM It would be entirely possible to rattle off the listing of more major incidents and casualties that have monotonously punctuated the decades – and even increased in 2019 – attempting to draw conclusions from the subject commodities, faulty decisions, broken communication protocols or failed control mechanisms. And lessons have been learned along the way, regulations have been adjusted – such as the IMDG Code becoming mandatory in 2004 or itself mandating training for all personnel involved in consigning dangerous goods – but the central problem unerringly returns to the human factor.

There may be deliberate actions taken related to cutting costs or paperwork, or simply a lack of safety culture. Many such deliberate actions verge on or are actually criminal or fraudulent; column inches have been filled with such considerations in relation to the correct classification and declaration of goods. Increasingly sophisticated processes and technologies are being devised to consistently ‘smoke out’ such activity.

Hardly less culpable in the connected global village are actions that may not be deliberate, such as unsupervised activity of those who have less experience or have not yet demonstrated competence following training. There will inevitably be pressures of time or volume. Granted, the rules can be hideously complex and open to broad and varied interpretation, and so enforcement around the world is inconsistent in application and penalty.

IT TO THE RESCUE Although avoiding human error is nigh impossible, it may be possible to reduce the likelihood of an error and prevent one triggering an event. In the supply chain process, arguably the most critical point is packing – most often done by those who have little knowledge of the entirety of the process and will not appreciate the differing physical and environmental stresses in play throughout the journey. In many instances, other actors throughout the supply chain will have to rely on what has been done at the outset. Sadly, both government and industry inspection regimes have repeatedly found that such reliance is too often misplaced on a lamentably small sample.

It may ultimately be that automation and digitisation will provide solace. Certainly, technology may well have passed a capability tipping point, with machine learning techniques enabling computers to interpret, manipulate, understand and challenge inputs and exchanges. Their ability to predict outcomes has far exceeded human capability in this regard. But never forget that computers also rely on – and even trust – humans, even though that is a marked improvement on simple good fortune. www.ttclub.com

PEREGRINE STORRS-FOX (RIGHT): INCIDENTS SUCH AS

THE EXPLOSION ABOARD THE MSC FLAMINIA (OPPOSITE)

ARE ENTIRELY PREVENTABLE BUT SADLY STILL OCCUR