CRACKNELL RISK CONSULTING LIMITED
Case Study - Retailer A
Client and Context
- £10bn annual turnover business in the UK.
- 12 main distribution centres for retail and one for wholesale.
- The loss of one distribution centre for retail could be managed via the nearest of the other 11 sites with only nominal loss of Insurable Gross Profit and under £20m of increased cost of working over 36 months.
- The one wholesale distribution centre presents a £200m PD/BI risk over 2 years as it is not integrated with the retail operations and mitigation options are minimal.
Solution
- I delivered my expertise and experience in PD/BI risks and insurance policies using an efficient and well-established methodology.
- The majority of the information required came from the Head Office based staff that had a strategic overview of the recovery profile.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
- The BI coverage was on an Insurable Gross Profit basis. It was recommended that the retail BI placement be for Increased Cost of Working only but to remain unchanged for the wholesale element.
- The policy limit of £250m was found to be providing too much coverage and £200m was recommended.
- The wholesale indemnity period was 24 months when for retail it was 36 months. Many warehouses are some of the largest in the UK and a common 36 months indemnity period was recommended.
Case Study - Retailer B
Client and Context
- £1.6bn annual turnover business in the UK.
- Two main distribution centres (DCs) for different segments of the business; stores and direct customer delivery.
- If the key distribution centre suffered total loss, the continuity strategy is to use three smaller third party logistics (3PL) facilities within 3 months. These are known to be vacant in the region and an existing relationship exists with the 3PL.
Solution
- I delivered my expertise and experience in PD/BI risks and insurance policies using an efficient and well-established methodology.
- Both Head Office based staff and key managers at the main DC provided the necessary information.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
- The BI value declared was overstated by £30m due to optimistic sales figures being used that were not in line with sales discussed and published with analysts.
- The policy limit and interdependency limit were found to be inadequate by £25m with there being a need to spend a significant extra cost on air-freight since a large proportion of their faster moving stock lines were from China in 3 – 6 months batches. A total loss disaster at their most critical warehouse that replenished stores once or twice a week would mean a large proportion of that stock held centrally could potentially be lost and leave significant gaps in usual stock levels in stores.
- The indemnity period was for only 12 months whilst the reinstatement time for the largest distribution centre is 24 months. The 12 months was found to be adequate as the majority of the BI risk was countered by mitigation measures leaving a relatively small amount of Insurance Gross profit at risk at the outset. However, recommendations were made to add a second year of Increased Cost of Working for a relatively small policy limit.
- The Suppliers contingent BI coverage was found to only address the UK suppliers and a recommendation was provided to extend Territorial Limits to worldwide.
Case Study - Retailer C
Client and Context
- £900m annual turnover business in the UK.
- Four distribution centres feed the UK stores.
- The Scottish location generated the greatest BI risk because of its size and its proximity to a large portion of the store locations.
Solution
- I delivered my expertise and experience in PD/BI risks and insurance policies using an efficient and well-established methodology.
- The information required came from the Head Office based staff that had access to all the key data for the study.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
- Increased Cost of Working cover was being bought for £5m for 24 months.
- The Scottish site BI EML was £15m over 2 years being a combination of loss of Insurable Gross Profit, Increased Cost of Working and Additional Increase Cost of Working.
- Flexible BI coverage was recommended for £15m over a 24 months indemnity period.
Case Study - Retailer D
Client and Context
- £150m annual turnover business in the UK
- One main distribution centre for store replenishment and ecommerce.
- The business has a close relationship with a very large logistics firm with multiple sites.
- Whilst expensive, outsourcing the activities to them using a relatively close site so that some staff could be deployed there was a good mitigation strategy.
Solution
- I delivered my expertise and experience in PD/BI risks and insurance policies using an efficient and well-established methodology. The key client senior management team's time was minimised .
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
- The BI values at renewal were found to have increased by £30m.
- The policy limit at £40m was found to be £30m too low and a £70m limit was recommended. This revised figure arose from the PD/BI EML calculations.
- The indemnity period at 12 months was found to be far too short and a 24 months period was recommended.
- The unspecified suppliers cover was for £0.5m worldwide. A £1m policy limit was recommended.
Case Study - Manufacturer of Building Products
Client and Context
- Leading vertically integrated business involved in the manufacturer of low maintenance uPVC building products.
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Two business segments of extrusion/moulding with four critical locations and fabrication/distribution across four manufacturing plants and 70 distribution sites.
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Significant intergroup dependency upon the main manufacturing sites and limited make up capacity inter-group.
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Both a key suppliers and key customers exposure.
- The client felt their Property Damage and Business Interruption (PD/BI) policy limit to be excessive and required a detailed report to test this position. The current limit was based on data provided in a Property Risk Survey for the major site.
Solution
- Through meetings with Finance, Operations and Procurement representatives, I gleaned the pertinent information to enable the BI estimated maximum loss (BI EML) to be calculated after taking into account the intergroup and third party mitigation assistance.
- The Property Risk Survey reports provided the PD EML position being the potential maximum level of damage from an uncontrolled fire.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure across the quite wide spread of risk. It included eight PD/BI EMLs, one for each manufacturing plant. The Suppliers and Customers risk was quantified. Firm recommendations were put forward that enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
-The PD/BI EML was found to be 25% greater than the current PD/BI Policy limit of £130m. A £100m limit was recommended.
- The declared Gross Profit value was found to be 75% overstated.
- The Group Inter-dependency cover was dramatically too low at £500,000 and was recommended to be increased to £30m.
- The 24 month indemnity period was found to be in order for the manufacturing plants.
- The specified suppliers and specified customers policy limits were found to be outdated and revisions were put forward.
- The correct BI declaration and lower policy limit led to material premium savings. The other policy adjustments were not material in pricing the risk.
Case Study - Global Food and Nutrition Business
Client and Context
- Medium sized global food and nutrition business in Europe with three divisions and each with a non-sprinklered plant that all contain a large proportion of combustible composite panels.
- Each plant has its own distinct operation with minimal interchangeability. Mitigation assistance is mainly available from nearest competitors in the off-peak seasons.
- Two plants have peak seasons; one in the Spring and one in the Winter, when they run at 100% capacity.
- The largest plant generates 75% of the Insurable Gross Profit, heavily driven by the key raw material being contracted with no force majeure provisions, as is standard in the sector.
- The client required Property Damage and Business Interruption estimated maximum loss (PD/BI EML) values to be calculated to guide their board on the level of PD/BI coverage to buy. Insurers had already indicated if they were to be asked to increase capacity, that there would be a need for a formal PD/BI Insurance Review report to justify any change in policy limits required.
Solution
- Through structured interviews with senior Finance and Operations management personnel, I gathered the consistent key information to enable a direct contrast of the three plants.
- I worked with the Property Risk Survey reports to assess the potential maximum level of damage from an uncontrolled fire / explosion.
- I delivered a quality PD/BI Insurance Review report for use by the client and with the insurance market.
- The report set out the PD/BI risk exposure and issues clearly. It included three PD/BI EMLs, one for each plant, and focused recommendations, that enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
-The PD/BI EML was found to be 50% greater than the current PD/BI Policy limit of €100m. A €150m limit was recommended.
- The declared Gross Profit value was found to be 250% understated due mainly to a large proportion of the raw materials having to be regarded as a fixed cost.
- The 18 month indemnity period was found to be in order for two plants but the largest plant required a 24 month indemnity period.
- The Additional Increased Cost of Working cover was found to be very low at €250,000 and a €2.5m limit was recommended.
Case Study - Education and Training Business
Client and Context
- UK focused education and training business specialising in five main schools across 20 centres.
- Covid-19 forced extensive use of existing remote learning capability and on-line platforms. These were ‘beefed up’ to handle the greater volume from the 100,000 students.
- In addition to the technology solutions, the business has good business continuity planning that involved identified alternate locations, since many students are from overseas and wanted the face to face learning and campus experience.
- The mitigation options threw into question the need to buy full BI Insurance coverage.
- The client required a formal BI Insurance Review report as a key document to review BI insurance options going forward.
Solution
- Meetings with the Finance, Operations and IT leadership led to a clear understanding that even if a key centre was destroyed in a fire, no loss of revenue was expected. This was because of the maturity of the business continuity programme that enable learning to be maintained either using technology or alternative premises.
- The BI Insurance Review report I prepared was well received by the client and the insurance market.
- The report set out the BI risk exposure and issues clearly. It included a BI Estimated Maximum Loss (EML) for the highest revenue earning centre in London, and recommendations, that enabled the client to tailor their future BI insurance coverage needs.
Value Delivered
-The BI Estimated Maximum Loss (EML) was found to be for increased costs of working (ICW) only at £5m.
- It was recommended that the current full value BI insurance coverage of £150m for loss of Gross Profit be replaced by £5m of ICW only BI cover.
- The indemnity period was set at 12 months but for the high rise nature of many of the centres, this was found to be inadequate and a 24 months indemnity period was recommended.
Case Study - Food Manufacture
Client and Context
- Very large UK food manufacturer with several sites.
- The largest manufacturing site produces 40% of total production. If this site were to suffer any major damage event, e.g. uncontrolled fire, there is limited make-up capacity in other sites.
- The client wanted to determine whether the current Property Damage and Business Interruption (PD/BI) policy limit was adequate going forward.
Solution
- As the BI Risk Consultant involved, I deployed my expertise and experience in PD/BI risks and insurance policies.
- As a long-standing client, good communications channels and records were held, streamlining my involvement.
- I used an efficient and well-established methodology to conduct this work to minimise time of the key client senior management team.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
-The PD/BI Estimated Maximum Loss (EML) was found to be 25% greater than the current PD/BI Policy limit of GBP300m. A GBP400m limit was recommended.
- The declared Gross Profit value for the various locations for the 30 month indemnity period was reviewed. It was found to be heavily overstated and it was recommended that a Gross Profit value of about 66% of the current BI value be declared.
- The client had chosen an indemnity period on a conservative basis for 30 months. With the current supply chain and labour issues, this was found to be in order.
Case Study - Mining
Client and Context
- Very large Copper and Cobalt mining operation in DRC, Africa.
- The Commodity Price for both Copper and Cobalt had a history of volatility.
- The mining activity, tailings storage facilities and suppliers exposure presented relatively low risk. The ore processing plants had some good resilience and duplication but generated the largest business interruption exposure with about 1/3rd of production at risk from a fire scenario.
- The client wanted to determine whether the current Property Damage and Business Interruption (PD/BI) policy limit was adequate going forward.
Solution
- As the BI Risk Consultant involved, I deployed my expertise and experience in PD/BI risks and insurance policies.
- I used an efficient and well-established methodology to conduct this work to minimise time of the key client senior management team.
- I delivered a quality BI Insurance Review report for use by the client and with the insurance market.
- The report set out the BI risk exposure and issues clearly and focused recommendations enabled the client to tailor their PD/BI insurance coverage.
Value Delivered
-The PD/BI Estimated Maximum Loss (EML) was found to be 20% greater than the current PD/BI Policy limit of US$500m. A US$600m limit was recommended.
- The declared Gross Profit value for the 24 month indemnity period was reviewed. It was found to be heavily overstated and it was recommended that a Gross Profit value of about 75% of the current BI value be declared.
- The client had chosen an indemnity period on a conservative basis for 24 months. The various loss scenarios were reviewed and an 18 month indemnity period was found to be suitable and was recommended. This further brought the sum insured down.
- The PD/BI Policy had a Commodity Price Cap at too low a value. A recommendation was put forward to raise this to 125% of the Copper / cobalt price used in the declared BI values.