What is Risk Engineering?
6 min

What is Risk Engineering?

A guide to the basics of unbundled property risk engineering for loss prevention, insurance, and protection against fire, equipment breakdown, natural disasters, and more.

Date: 21 Sep 2023

What is Risk Engineering?

Risk engineering is the process of identifying hazards and minimizing their damage to a business, its people, and its property. Risk engineers examine facilities, equipment, and processes to help companies develop strategies to manage risks before, during, and after an incident. Property risk engineers provide specific mitigation recommendations to company leaders so they can take immediate mitigation action and make better loss prevention strategy decisions.

Why is Risk Engineering Important?

Risk engineering reduces the possibility of serious issues such as fire, accidents, business interruption, equipment breakdown, or worker injuries. Working with experienced property risk engineers reduces operating costs and positions businesses for future resiliency. It also provides data necessary to make better-informed capital decisions aligned with the property risk tolerance of the business.

Risk engineering is particularly important for optimizing access to insurance markets. The hard property insurance market has led to disciplined business insurance underwriting, rising premiums, and a bifurcated market where businesses in natural hazard prone regions have trouble placing coverage. Sharing property risk engineering reports and showing that you’ve followed through with risk recommendations tells underwriters that you’re serious about loss prevention. That can lead to businesses gaining the best possible terms and conditions during the underwriting process.

The most effective risk engineering is conducted by independent risk engineers not insurance companies. So-called “unbundled risk engineering” is not tied to underwriting and takes a holistic approach to loss prevention by identifying hazards that may fall below the deductible of an insurance policy. It provides risk managers and company leaders with a clear understanding of the entire risk profile by identifying risks large and small.

What is an Example of Engineering Risk?

Here are some examples of property risk engineering and loss prevention at work. Let’s say a business wants to assess its fire risks at warehouses around the world. Risk engineers inspect each facility and recommend that sprinklers be installed above critical products and equipment. They may also recommend better work processes to reduce the chances of human error that could lead to a fire.

Here is another example. Property risk engineers may use infrared thermography cameras to identify abnormally high temperatures inside critical equipment such as boilers or electrical panels. Risk managers can then develop loss prevention plans long before the issue turns into a fire or makes equipment malfunction.

Perhaps a grain mill has a fire hazard in the form of combustible dust. Risk engineers can identify dust hazards, processes that make the dust airborne, possible ignition sources, and help facilities managers engineer solutions such as dust collectors or suppression systems.

What are Risk Factors in Insurance?

There are many risk factors associated with commercial insurance. One is rising rates. Commercial property insurance rates have been increasing since 2017. In fact, commercial property insurance premiums increased 20.4% in Q1 2023, according to The Council of Insurance Agents & Brokers. That represents the first 20% increase since 2001.

Another risk factor is capacity. As rates increased, underwriters have cut back on coverage for catastrophes and other issues. In areas prone to natural catastrophes, for example, underwriters are cutting back the availability of certain types of property insurance coverage.

What are the Biggest Risks Facing Property Casualty Insurers?

Property casualty insurers are facing incredible pressure due to mounting losses from natural hazards. Swiss Re Group reports that economic losses from natural catastrophes reached $120 billion globally in the first half of 2023. That’s 46% higher than the 10-year average. Climate change, increasing storm intensity, and rapidly growing property values are leading to annual insured loss growth of approximately 5% to 7%. In the United States, severe storms led to $34 billion in insured losses in the first six months of 2023 – the most ever recorded in a six-month period.

Property and casualty insurers also face economic and political instability in an ever-changing world. Wars and political turmoil can alter global supply chains – and insurers could be left paying for damage caused by ensuing business interruption. Meanwhile, cyberattacks are getting more brazen and damaging. While more businesses seek cyber coverage, insurers face an increasing amount of competition from new entrants to the industry. Cyber insurance premiums increased 28% in Q1 2022. 

Then there’s Generative AI and the unknown. As artificial intelligence gains prominence, expect deep fakes and other hazards to continue rising. Determining whether those issues are covered by insurance will be a challenge for the industry going forward.

Risk Engineering Services

Risk engineering companies offer an array of services such as fire protection engineering, infrared thermography scans, boiler and machinery engineering, natural hazard assessments, and human element risk assessments. All services are aimed at identifying risks and providing recommendations for continued improvement.

Fire protection engineering. The key to identifying and managing fire risks is a fire protection engineering assessment. During a fire assessment, risk engineers analyze your facilities and processes to determine potential hazards. Then they offer detailed recommendations to better protect against those risks. Common recommendations include the installation of sprinkler systems or improved human element programs.

Infrared thermography. To identify abnormal temperatures and potential points of failure in equipment, choose an infrared thermography scan. Thermographic inspections are non-destructive, non-invasive, and use thermal energy to find hot spots that could potentially lead to fire or equipment failure.

Equipment breakdown. To protect against machinery breakdown, have boiler & machinery risk engineers evaluate critical assets. Common recommendations are the implementation of preventative and predictive maintenance, attaining spare parts, or developing contingency plans.

Natural hazard analysis. Risk engineers can identify how well you are protected against wildfires, windstorms, convective storms, winter weather, floods, wildfire, and more. Risk engineers can help companies identify the severity and potential impact of natural hazards, and develop effective action plans. Consultants like Global Risk Consultants can even model your unique risk of climate change in 2030, 2050, and 2100.

Human element risk engineering. Minimizing human error is fundamental to any loss control plan. These include systems that manage and control hot work permits, smoking, housekeeping, self-assessments, electrical hazards, fire protection, and more. Each of these systems are designed to control ignition sources, manage the presence of combustibles, and assure systems function as intended.


Want to learn more about property risk engineering? Contact us to talk to a specialist today.

 

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