Restarting suspended operations — larger accidents ahead?
In oilfield services, on aggregate maintenance budgets were cut by USD 20 billion last year. The COVID-19 pandemic has led to budget cuts and mothballed facilities in other industries too. There is heightened accident risks in rushed start-up actions as businesses seek to return to normal. In turn, this could lead to large losses in Property and Casualty insurance.
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- Not-well maintained facilities have a higher propensity to large accidents like fires, explosions, spills or toxic releases which can lead to large property, casualty and environmental liability claims.
High-hazard facilities like oil refineries, chemical plants, mines or power plants are inherently risky. The aim of industry standards with respect to plant design and operational procedures is to ensure safety. If the processes and installations do not comply with safety practices and standards, big accidents can happen. Keeping plants and processes safe requires ongoing maintenance by experienced and qualified staff, and time and finance to support shut-down activities with subsequent restorative and safety work. If one of these asset integrity pillars is impaired, high-consequence leakage and/or equipment failure scenarios could lead to catastrophic loss events like fires, explosions or the release of toxic materials into the environment. The result could be multi-billion losses for the insurance industry.
The COVID-19 pandemic experience has also put maintenance and inspection work under pressure. This is due to lack of availability of contractors and equipment /material. A consequence of a global economy in trouble has been a squeeze on maintenance budgets in many industries, and a delay to planned works. In the oilfield services sector alone, there was a USD-20-billion cut back in maintenance budgets last year.1 And across many industries, as a savings measure, the choice has been to mothball facilities rather than use the downtime for maintenance. In addition, qualified and experienced staff have either been laid off and/or, due to restrictions on mobility in lockdown, not able to travel to sites of work.
From a risk perspective, experience shows that the start-up phase of a mothballed facility can be the time of most acute risk. Studies indicate that in the refining, petrochemical and chemical industries, around 40–50% of process safety incidents and/or major losses occur during start-ups after a period of shutdowns and other events that occur infrequently.2 There is a risk that the start-up of mothballed facilities after the pandemic-induced interruption may take place under budget pressure: in other words, an environment in which approval for fast but not necessarily well-planned or well-resourced start-up is given.
The same applies to industries not involving hazardous materials, such as aviation, where planes that have been mothballed will be reactivated as demand for air travel picks up.3 Other than the physical maintenance of aircraft, another consideration is that pilots will resume work after a long period of no or less flying time. Human error accounts for two-thirds of root causes in aviation and other man-made accidents, and rusty flying skills as carriers ramp up their operations could be an additional risk.4
Across industries, insurers should focus their risk assessment on the three pillars of adequate funding, time and the availability of experienced and qualified staff as businesses move to return to normal post pandemic conditions.
1 Oilfild service yearly demand forecast by segment worldwide from 2019 to 2023, Statista, https://www.statista.com/statistics/1126854/oilfield-service-yearlydemand-worldwide-by-segment/
2 Restarting Operations Following Idle Periods, Swiss Re Corporate Solutions, 24 April 2020, https://corporatesolutions.swissre.com/insights/knowledge/restartingoperations-following-idle-periods.html
3 “Covid-19: Safety concerns over planes returning to service”, BBC, 15 December 2020, https://www.bbc.com/news/business-55313504
4 Human factor in fatal aircraft accidents, Department of Transport and Regional Development, Bureau of Air Safety Investigation, April 1996, https://www.atsb.gov.au/
media/28363/sir199604_001.pdf; Accident Statistics, International Civil Aviation Organization (ICAO), https://www.icao.int/safety/iStars/Pages/Accident-Statistics.