Managing Risk: Going Above and Beyond the Minimum
A vessel owner who takes on paying passengers knows he or she has to meet U.S. Coast Guard requirements for safety. If corners are cut, a barge operator can develop a reputation for accidents and business could disappear. And marine companies, just like other businesses, know the value of protecting themselves against liability with insurance. Yet, in trying to cost-effectively manage risks, marine operators frequently question whether they should go beyond the minimum.
However, maintaining the status quo, spending as little money as possible, and hoping that luck doesn’t run out is not advisable. A risk strategy that involves hope is not really a risk strategy. But there are cost-effective ways to manage risk. By working closely with their insurance agent and carrier’s risk control advisors, marine operators can better understand their exposures, tap into knowledge about industry best practices, and arrive at a well-thought-out strategy for managing risk.
The Factors that Count
When insurance underwriters look at a business to determine if it is a good risk, there are a number of factors they take into account. Some are obvious. A marine operation that files numerous claims each year, often for the same type of accidents, is less attractive to an insurer than an operation that can put forward a clean loss record.
Both the underwriter and the risk control advisor look beyond the loss record, however. Just like a doctor who is performing an annual physical instead of treating a single infection, they want to understand the whole business operation and judge its overall health. There are three areas that should be examined:
1. The vessel. A ship that is well maintained and running properly is much less likely to have an accident or cause problems for a crew than a ship that has malfunctioning equipment. When the underwriter or risk control advisor looks at the vessel, he has a number of questions including, but not limited to: Does it meet the applicable minimum standards if it falls under the jurisdiction of the U.S. Coast Guard? Is it carrying the proper life-saving and fire-fighting equipment? Are all of the systems currently in working order? Is there a regular schedule for maintenance that is followed and documented?
2. Business practices. A company that has a well-established business and performs the same functions repeatedly probably has a good handle on the proper way to get the work done. One that is growing rapidly or stretching in unfamiliar directions to take advantage of new business opportunities can be more risky. The insurer asks a number of questions that range from the simple: What waterways does the vessel navigate? Where is it berthed when not in use? To the more complex: Is the vessel properly equipped to perform the work it is being used for? What security practices are in place? Are there special risks in the operation, and if so, how is the business addressing those risks? By understanding how the marine operator runs the business, the underwriter and risk control advisor can assess what risks exist and how they are handled.
3. The employees. It is important to look at the crew and both their experience and training. Just as a newly licensed 16-year-old wouldn’t typically be allowed to drive a stock car at a NASCAR event, the marine operator should have employees who are not only well trained in the tasks they are performing, but who also have a track record of working with the same type of equipment. Does the marine owner have a plan in place for training employees, orienting new hires and providing refresher courses? Does the business make sure that all licenses are current and valid? Is there a mentoring program that pairs inexperienced workers with more veteran sailors who can show them the ropes?
Turning the Assessment into a Plan
By performing this three-dimensional assessment, an underwriter and a risk control advisor can help owners develop a risk profile for a marine business, identifying both strengths and weaknesses. They can then work with marine owners to help develop a plan that makes sense for their businesses.
For example, someone who runs a vessel that ferries people down a river for a dinner cruise has to worry about Coast Guard safety regulations and having adequate rescue equipment if the vessel runs into trouble and the people need to be offloaded. But they may also have other concerns that would not affect a barge owner or tug boat operator. These might include the following:
• If they serve alcohol, they must have a plan in place for handling customers who consume too much or become combative.
• If they offer a dance floor, they may need to worry about customer falls, especially if overspray can reach the floor and make it slippery.
• If they are serving food, they have to follow procedures for storing and serving food at the proper temperature and avoiding contamination.
Another type of business might have entirely different risk concerns to address – such as navigation hazards, weather conditions, cargo sensitivity and more. An insurance agent and a carrier’s risk control advisor(s) may present a cost effective means for marine operators to identify their hidden risks and arrive at a strategy for managing those risks.
Running a Tight Ship
In the end, what a marine business owner does to run a tight ship can make a great deal of difference in the risk profile for the company. By having a program in place for maintenance and taking advantage of regular Coast Guard inspections, a vessel owner can reduce the number of things that can go wrong unexpectedly. By having proper operating procedures documented, and enforcing them with drills and consequences when they are not followed, a marine business improves the chances that the crew will take appropriate action when something starts to go wrong. And by making sure people assigned work duties have the experience to handle them, the marine owner improves the chances for trouble-free operation.
While the U.S. Coast Guard plays an important role in setting standards for marine safety and holding operators accountable; when it comes to operating a successful business and being prepared for the unexpected, a marine operator should go beyond the Coast Guard’s minimum standards. Going above and beyond the minimum, however, doesn’t necessarily require unmanageable effort or expense. By working closely with an agent and their carrier’s risk control advisors to manage risks in a cost-effective way, marine operators can help to ensure that the business will be operating profitably for years to come.