In The Public Eye: Navigating Loss Control Within Public Power

Intro (00:00):
Welcome to the Alliant In The Public Eye Podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here is your host, Carleen Patterson.

Carleen Patterson (00:16):
Welcome back everyone, to another episode of In The Public Eye. A couple of weeks ago, we invited Aidan Heisey to the call from our Alliant Power Group to talk a little bit about some of the unique exposures around our public power clients. And because there are so many issues involved, I wanted to invite him back to talk a little bit more in detail with regard to some of the exposure issues in engineering around public power. So Aidan, welcome to our podcast today.

Aidan Heisey (00:49):
Hey, thanks, Carleen. It's great to be back again. I'll start out by reintroducing myself, I've been in the insurance business for 13 years. I've been serving public power clients for the last six years or so, and that's where I spend the majority of my time. Today, we're going to talk about a topic that is absolutely integral to the topic of property insurance, and that topic is loss control engineering. To that end, I've brought a couple of teammates, some of the great people that I work with here at Alliant. We have David Heath and also Tim Prenger along with us. David, if you could introduce yourself.

David Heath (01:26):
Hi, Carleen and Aidan, thanks for having us back. I've been in the energy insurance space for over 30 years, mainly focused on property insurance and a lot of what I've done through my career has been anchored in engineering and quality of risks stuff. That's what makes this discussion with Tim that much more interesting.

Tim Prenger (01:46):
Yes, thank you Aidan. Glad to be here with the invitation with everyone today. I'm senior Vice President of Engineering at Alliant, responsible for risk engineering management. I've been in the energy sector for 40 plus years, specifically in plant-design-build.

Aidan Heisey (02:02):
So as you can see, we've got two very well qualified people here with us to discuss loss control engineering. Tim, let's start at the beginning with you. When we talk about loss control engineering as it pertains to insurance, what exactly is it that we're talking about?

Tim Prenger (02:17):
Well, it's fundamentally the identification of risk at facilities as it exists out there. What we're trying to do is identify those risks for the underwriters, identify those for the insured, and also for ourselves to know how to mitigate those risks, to move forward, to prevent losses, to get that information documented and shared with the markets, so that we can keep a high standard of operability and minimize losses and loss control throughout the industry. And as we get involved with each of our clients, as we go out into the marketplace.

Carleen Patterson (02:52):
Ultimately, how can we drive premium, right? You know, when we're in the insurance market, how can we improve the risk?

Tim Prenger (02:58):
Well, the risk improvements can be identified through these surveys and based on the risk and as they're identified, premium can be reduced. Or in contrary, if there are risks there that need to be mitigated, may find that deductibles are higher or premium may be higher. So the goal is to, one, do exactly what loss engineering is all about, which is control losses, to get and drive those premiums down and to drive those deductibles into reasonable amounts.

Aidan Heisey (03:34):
Tim, how does the insurance company, you mentioned surveys and engineering surveys, how do they communicate any issues that they think they've found or recommendations, as far as risk control goes?

Tim Prenger (03:44):
The process involves obtaining information and documentation from the insured, going over that information, and then conducting an onsite survey where we're actually face to face with the insured at the facility and the insurer at the same time, many of the times. And we go through and evaluate the facility, through walk down, reviewing that information, risks that are identified or risk improvements that can be performed or discussed with the client, with the insured, and then they're documented. They're documented in a form where they're concise. The basis for which the risk is to be mitigated through industry standards and other accepted practices are evaluated and the insured then goes away, makes a risk benefit assessment and a commitment to improve risk.

Aidan Heisey (04:32):
These recommendations that are issued by the carrier, who else can get involved with this process, you know, to assist the insured? How can they go about this process with a little bit of help?

Tim Prenger (04:46):
We can provide that. Actually, as the brokers engineering group, we do that quite often. The insurer who is providing the risk recommendation will also provide his basis and some suggestions of how to move forward. If they don't have sufficient technical support to do that, they can go to third parties as well.

David Heath (05:04):
Yeah, I think that's interesting, Tim. One of the other things I think that we bring to the table, is that element of independence, right? When insurance company engineers go to a site, they quite often don't even write a report. Whereas when we are doing it ourselves, it's with the buyer in mind understanding what their risks are, as you said at the beginning of this podcast, to then build programs around what the buy and need is. And that's important, right? All blended in with appetite for cost and other retentions and so forth.

Aidan Heisey (05:36):
Yeah, I appreciate you tying it into the actual insurance purchasing process, because anyone who's in charge of purchasing insurance for their public power utility, they know that engineering is going to be a crucial piece of it. You've got marketing your own insurance coverage and the benefits that come along with engineering support as far as that's concerned. And then of course, you've also got the idea of let's keep my property from breaking down. When we talk about getting a third party involved, that could of course, either be your insurance broker and their engineering expertise, or you can, of course, hire a third-party consultant. Let's talk a little bit more about these recommendations that carriers may make. What about those recommendations? Are those recommendations requirements? How long do they stay on an engineering report? What can we do about those recommendations short of just fulfilling them as they're written?

Tim Prenger (06:33):
Well, first off, the recommendations. Whether they're required or not, there are industry standards out there that define good operations, risk mitigation, industry accepted regulations and standards. There's a basis behind those. They get identified. They're usually accepted, as being known deficient, and improvements are made subsequent to that. Sometimes they can be somewhat arbitrary. There may be disagreement on what some of those may be, but those are ultimately resolved. They'll stay on the information for any amount of time until they're finally resolved through closeout implementation or whatever. If they're taken off the record, they would just come back again later through other surveys and evaluations likely. So, a record of them being identified, closed out and moved on is important. Many times they can be carried for some period of time, depending on what the risk is. If the risk is a moderate risk or a lower risk, takes time, longer time to get involved or implemented, that will be carried along for as long as it takes. And so there really isn't cut and dried time for it. But what's important is that they're identified and underwriters and risk evaluators feel more comfortable with the fact that risks aren't known, rather than them coming in and not knowing that there are any risks there that have not been identified. So it's really not necessarily a bad thing to have those risks and recommendations out there and documented in the reports.

Aidan Heisey (08:04):
David, let's get your perspective on this as a broker, when it comes to working with the carrier on their loss control recommendations. You know, sometimes we agree with them, sometimes we disagree with them, sometimes we may have a different solution. How does that work when it comes to communicating your plans with the insurance company and showing that you're partnering with them on their loss control recommendations?

David Heath (08:29):
Yeah, good question, right? I'll put it in the bucket of best practices. It might be the best practice through the lens of the insurance company engineer, but it might not be the best practice for that particular facility. So, it's not necessarily a right and wrong in some of these things. We need to bear in mind that when insurance company engineers go to an insured site, the value they bring is that they've had experience seeing lots of different facilities, but they don't know that one facility that they're at particularly well, certainly not as well as the operators and plant managers. So that context is important. It can also make sense, as Tim alluded, to solve a recommendation issue over a longer period of time, as budgets would allow, and certainly there's more than one way to answer the question. The point is to make sure it's a dialogue, where there's some gray area and opinion items. Tim, perhaps you'd like to comment on some of those.

Tim Prenger (09:32):
Yeah, that's the case. Then, when they're identified as a risk and there's a basis for it there. It's not, like I mentioned earlier, just arbitrary. The insurer has a concern, his engineer has a concern. There's a standard or there's something going on out there that he sees elsewhere in evaluation against peers in the industry where this may not be at the same level at the facilities, than as what we've seen elsewhere. And it's very much an open dialogue and he's certainly willing to listen to any kind of alternative that may come back because of what you state, David. It's not cut and dry. The risk can be viewed from a different standpoint, from the operator who best knows the rest of his facility. Usually, what he doesn't necessarily know is some of the other industry risks that are out there that he may not be aware of.

And that's what we bring to the table a lot of the time is, these are things we've seen out there and the nature of the type of business that we're in and the type of industry that we're in. The operators and the insured at the plant level, they want to know that information more than anybody because they know the safety implications, they know the responsibility, the loss magnitudes that can be involved, and they want to know about the things they don't know. And so it is a very much an open process. And there is another way to address really serious issues. If there is one that is a serious operational issue, you know, it would become a priority issue, priority one. However, the insurer wants to flag it and it gets resolved quickly. You know, there may not be time for a plan here. There's just an issue of compliance here that needs to be taken care of immediately. And those don't come up very often, but they do. But there is a method and a way to address them quickly. There's a way to address them over a longer period of time, through a planned action. And that gives both parties the ability to come to a good resolution.

Aidan Heisey (11:23):
There's one other question that I really wanted to ask both of you, and this is the question that comes up all the time. When I'm deciding how I'm going to move forward in responding to an engineering recommendation, one that's going to cost money to comply with, how do I account for my premium savings? Can I find out, is there some way for me to know how much money I'm going to save if I spend X amount of dollars complying with a recommendation that came from the insurance company?

David Heath (11:55):
Yeah, thanks, Aidan. That's sort of the guts of this knot that we're unraveling, isn't it? But the things to bear in mind are, we're talking about loss control, it's about losses. It's starting point isn't about premium. If we can control losses, then we can start controlling what the premium might be. But, perhaps more importantly, what it does is introduce the ability of another insurer to compete for your business. Then we are changing the narrative, we're changing the goalposts, right? We're injecting greater level of competition of insurers for your business, which will improve the overall deal that you've got. Whether it be better deductibles, better limits, better sub-limits, or a lower premium.

Carleen Patterson (12:43):
Yeah, that's something that I spend a lot of time talking to my clients about, is looking at it from a total cost of risk standpoint. And you're not going to be able to say, if I spend X on this recommendation, I'm going to save Y on my premium. It's not that cut and dried. But when you look at it from a total cost of risk standpoint, they're, you know, very much relational. It's an improved risk with the stressed property market right now, carriers are looking at how are they going to deploy their capacity? And if we can show that this particular potential insured is a better risk than, you know, that's where the carriers are going to want to put that capacity. So you're exactly right, David.

Aidan Heisey (13:28):
I think that what both of you are touching on, David and Carleen, leads me to wrap it up in a bow and say, your engineering approach needs to be an ongoing discussion. It's not black and white, here's a recommendation or a requirement, now you go do it, and then you save X amount of dollars. Be a partner with your carrier and ensure that you're going in the right direction. I think that's really the bottom line.

Carleen Patterson (13:54):
Well, thank you much, Aidan, David and Tim for joining the Public Sector podcast here at Alliant. We recognize it's a challenging time for risk managers in public entity, and we are focused on trying to provide information and tools for our risk managers as we navigate 2023 insurance renewals. So thank you very much.