AES - How the Fortune 500 Company Reduced Risk Exposure by $37 Billion

Case Study: AES

How the Fortune 500 Company Reduced Risk Exposure by $37 Billion

How the Fortune 500 Company Reduced Risk Exposure by $37 Billion

About AES

AES is a multinational power generation company that is #313 on the 2021 Fortune 500 list. Headquartered in Arlington, VA., AES has approximately $10 billion in annual revenues, 8,162 employees, and generates and distributes electric power in 15 countries.

Challenges

With facilities and equipment around the world, AES has an incredibly complex risk profile. Generating and distributing electric power comes with a wide variety of potential dangers and safety concerns. To manage the risk profile, AES formed a captive insurance company in 2002. The company acts as the primary underwriter for a book of business with over $50 billion in total insured value. The complexity of the AES program led to several risk engineering challenges:

Global risk improvement. AES leaders wanted to reduce their risk exposure as much as possible.

The most robust knowledge of risks. AES wanted to combine internal data on equipment and facility performance with risk engineering recommendations from independent engineers. The company has an asset management team that uses artificial intelligence and machine learning algorithms to monitor thousands of parameters in equipment around the world — then delivers alerts if something is not performing at peak levels. Company leaders wanted to combine that data with recommendations from independent engineers to identify cascading events that could lead to losses, equipment failures or downtime.

Consistent approach to risk management. AES hoped to drive consistent global risk management programs to facilities across the world. That starts with identifying risks, communicating them to the company’s underwriting panel, and developing risk management initiatives to push out company wide.

Own their own metrics. With risk assessments bundled with insurance, AES did not own much of data about their facilities and risk portfolios — like specific metrics on how protected their facilities are for fire or natural catastrophes.

Data-driven decision making. AES hoped to analyze risk management metrics and make upgrades that minimize downtime, reduce the potential for worker injuries, and keep equipment running smoothly.

Solution

In 2005, AES partnered with TÜV SÜD Risk Consultants to conduct risk assessments that are unbundled from insurance and underwriting. The recommendations help AES reduce its risk exposure in several key areas. Here is a breakdown of the solution:

Risk assessments and inspections. TÜV SÜD Risk Consultants engineers have inspected more than 300 AES facilities over the course of the partnership. The inspectors have examined fire risks, boiler and pressure vessels, natural catastrophes exposure, builder’s risk programs, and used techniques like infrared thermography.

Data management and easy access. All AES risk assessment data is readily available in GRC Connect, the automated data management system created by TÜV SÜD Risk Consulting. It is easy-to-use and showcases important metrics in intuitive data dashboards and customized reports.

Plan review services. AES trusted TÜV SÜD Risk Consultants to review designs and plans for new structures or major upgrades.

Expert consultation. TÜV SÜD Risk Consultants helped AES leaders get a more robust understanding of their risk exposure and effectiveness of risk management programs.


“You will never make up in premium the money you spend on risk improvement. The true value is not having the loss. We take credit for every loss that we have never had.”
- Justin Voss, Director of Risk Engineering at AES


Results

Risk reduction. AES reduced its risk exposure by $37 billion since partnering with TÜV SÜD Risk Consulting in 2005.

Locations serviced. TÜV SÜD Risk Consultants has inspected approximately 300 AES facilities over the course of the partnership.

AES owns its data and uses it to make better decisions. AES now has access to all data so it can better analyze risks, make necessary upgrades, and make data-driven decisions. It allows leaders to focus on the areas that provide the biggest risk improvement for the lowest cost.

Condition-based maintenance. Rather than setting a time-based maintenance schedule for equipment like turbines, generators, transformers, and boilers, AES has moved to performing maintenance based on the equipment’s condition. Now, they are less likely to make a repair too soon or too late.

Executive buy-in. The C-suite understands the value of the captive insurance company and how risk engineering protects that value.

Pleased with renewal terms. Saving money on renewals is difficult in the hard, disciplined insurance market. Yet AES leaders say they have been generally pleased with renewal terms and say the risk engineering program is a big reason why.


“Over the past several years we have generally been pleased with our renewal terms and our broker indicates we are doing better than many of our peers. I believe this has a lot to do with our risk engineering program that sets us apart from the others.”
- Justin Voss, Director of Risk Engineering at AES

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