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Europeans work toward loss control standards.

As more corporations insure their risks on a worldwide basis, the value of global loss control programs have become more evident. According to speakers at Risk Management Forum, multinational corporations should have global loss control programs for property, employee health and safety, and environmental risks. "The need for global loss prevention programs has, in recent years, taken on a fresh impetus as the risk manager has increasingly sought to structure the insurance buying process onto a global footing," said Stephen Simpson, chairman and managing director of Factory Mutual International in London.

Related to property insurance, the process of eliminating trade barriers in Western Europe has prompted negotiation of common fire protection standards. Unlike North America, where businesses conform to one set of standards, there are different standards in each of the 12 nations in the European Community. "Although many standards will not be fully available before the middle of the 90s, there is a good prospect that by this time we will have one single standard throughout Europe," Mr. Simpson predicted.

Even if the Europeans can agree on standards as currently proposed, they would still differ from those in North America, continuing the difficulties for multinationals trying to employ their own global standards. For example, there are significant differences between sprinkler techniques and commodity classifications for aerosols, flammable liquids in plastic containers and unwoven fabrics currently in use in North America and those proposed in Europe.

However, according to Mr. Simpson, "There is a general but slow convergence of European standards with North America. This convergence is driven by a number of factors, but perhaps the most significant is the growth in global companies and their desire to have consistent fire protection standards throughout their organization."

Differences in legislation, industry standards and cultures have also made it difficult for risk managers to employ global programs to control health and safety losses. Also, although European insurers are likely to detail how a company can lower its property insurance rates, they are not likely to offer such advice on employers liability or workers' compensation coverages, said Robert Mudge, who manages risk for Mars Ltd. in Leicestershire, England. Furthermore, he said, companies see health and safety as "low risk" exposures.

But such actions by insurers and insureds can lead to some not-so-obvious problems. Take the case of Mars. When Mr. Mudge performed safety audits at four company sites in Europe, he found many discrepancies in the degree of safety. "The results of the audits gave rise to a program of organizational and physical improvements of those sites, developed from the best practices identified," he said. Based on the knowledge and experience throughout the corporation, including accident information and other data which helps to identify and quantify risk, officials decided "to develop a series of global standards which would become mandatory for adoption by all companies in Mars."

A common program avoids the need to reinvent solutions at different operations, Mr. Mudge said. It also demonstrates a corporate commitment to health and safety, which leads to a culture encouraging further improvement.

Global programs for controlling environmental risks are unique, according to A.J. Hicks, deputy chief executive of Bowring London Ltd. In the cases of property and safety loss prevention, which may vary due to local factors such as laws, the underlying risks at identical factories in different countries are similar. "This is not true for environmental risks," he said. "Environmental risks, by definition, relate to the locations and surroundings. If you like, property and safety loss control are geared to things happening within a site or factory, whereas environmental risk management focuses on containment or controlling what leaves a factory or site, intentionally or otherwise."

Mr. Hicks, however, is not saying that a global program is impossible. He suggests that "corporate environmental standards take into account the surroundings of specific locations--or risk being too tough, too lenient or inapplicable.... There is no point imposing very tough and costly standards of protection at a facility where loss of containment or an atmospheric emission would create no risk because there is no population likely to be exposed. However, the very same plant in a built-up environment would perhaps require more stringent controls."

Two sets of standards--fundamental and quality--should be adopted, according to Mr. Hicks. Fundamental standards include physical and procedural practices related to the construction and operation of an industrial facility, such as location, construction materials, plant layout, protection systems and operating procedures. These standards should be adaptable to specific local needs. Quality standards define the quality or limit on contamination of a particular stream or emission.

"For simplicity, ease of operation and administration, a combination of fundamental and quality standards is probably the most effective way to address global environmental loss control," Mr. Hicks said.
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Title Annotation:Risk Management Forum
Author:Schussel, Mark L.
Publication:Risk Management
Date:Dec 1, 1991
Previous Article:Are risk managers bureaucrats or team players?
Next Article:Insurance markets open beyond the Eastern front.

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