The link between insurance and the main aim of BINDT
16/12/2011
by Cameron SinclairThe following article has been prepared with the aim of stimulating debate with, and the engagement of, BINDT’s stakeholders. The views expressed in this article are the author’s own personal views, which do not necessarily reflect the views of BINDT.
Does the need to buy insurance promote the advancement of the science and practice of engineering?
This was the question considered by the West of England Branch members at its meeting on 12 October 2011. It seems that there may be no definitive, objective answer to the question, though of course you might disagree and hold a very firm view one way or the other (in which case, please get in touch). Either way, I think it is a question worthy of debate and it highlights the need, I believe, for BINDT to better engage with the insurance industry.
So, what is the link between insurance and BINDT’s principal aim? The link is regulation.
Statutory regulations, and the authorities who enforce them, help drive improvements in the reliability of plant and equipment, principally by setting goals with respect to health, safety and environmental risks, ie the risks must be as low as reasonably practicable. This regulatory pressure promotes the advancement of the science and practice of engineering because it creates a market for increasingly reliable products (plant and equipment, for example) and services (NDT and condition monitoring, for example).
Insurance can have a similar positive effect. The premium you pay is linked to the amount of uncertainty (about the reliability of your plant and equipment, for example) and your claims history. So, organisations with a relatively poor claims record with respect to business interruption, property damage or personal injury, to name but three insurance covers they may have in place, will pay a higher premium.
Anyone running an organisation will understand, and be committed to, keeping operating costs to a practicable minimum, including insurance premiums. Therefore, insurance exerts a regulatory pressure to ‘raise the bar’ in terms of plant and equipment reliability, which, in turn, promotes the advancement of the science and practice of engineering by creating a market for increasingly reliable products and services.
One example of insurance as an effective, albeit indirect, regulator is motor insurance. I would suggest that the risk of increased insurance premiums is a greater disincentive for most drivers to speeding than the risk of a one-off fine or ban or, indeed, the risk of having an ‘accident’!
Similarly, I would suggest that the financial risk to organisations of civil litigation, arising from, say, an accident at work, is greater now than the risk associated with enforcement action by a regulator arising from the same incident. In other words, insurance is, albeit indirectly in most cases, becoming a more dominant regulatory force in industry.
So, in principle, insurance promotes the advancement of the science and practice of engineering. However, there is also an argument that insurance interests impede the advancement of the science and practice of engineering.
Insurance companies control and profit from the claims industry. Without ‘accidents’, there would be no insurance industry. So, does that create an inertial force opposing the advancement of the science and practice of engineering?
What we can take as read is that, first, the hierarchy of risk management should be: eliminate, then reduce, then isolate, then control, then insure the risk that’s left; and, secondly, as the science and practice of engineering advances, the remnant risk reduces. But, is that reduction in remnant risk in the insurers’ interests?
Take the motor insurance example again. Has the science and practice of engineering reached a stage where motor vehicles could automatically respond to risk factors, such as weather conditions, proximity of other vehicles and pedestrians and hazards on the road ahead, so that the likelihood of collisions is engineered down to virtually zero? I suspect so.
But are there vested interests impeding progress? As the late humourist, Alan Coren, once quipped: “The ‘act of God’ designation on all insurance policies, which means roughly, that you cannot be insured for the accidents that are most likely to happen to you”.
Furthermore, might any resistance to change apply to other areas of plant and equipment risk? Are there unrealised, yet beneficial, applications of NDT and condition monitoring because of a lack of regulatory (including insurance) pressure? If that could be the case, we should debate it.
The stance that the insurance industry might take is that the regulatory pressure of insurance is a helpful by-product and that it is not their role to promote the advancement of the science and practice of engineering. They might, quite rightly, say that generally they are reactive and insure the remnant risk as described above. They might also point out that they do, in many cases, take a more proactive role and do often insist that risk improvement actions are taken as a condition of providing insurance cover. But, if prevention is better than cure, should insurers be systematically driving more risk improvement?
The challenge for BINDT is to find ways in which the insurance industry can more proactively help promote the advancement of the science and practice of NDT and condition monitoring. That entails finding ways that benefit the insurance industry as well as the NDT and condition monitoring industry and society as a whole. Your help would be much appreciated.
If you have a view on this, please respond to cameron.sinclair@bindt.org
