Pure Versus Speculative RisksPure risks are those risks where the occurrence of the event results at a best in no change in the situation of the individual or organization exposed to risk, though more likely causes a loss with no possibility of again. Whereas in the case of speculative risks, the outcome may be either a loss of profit. Our concern is to combat the pure risks which lead to certain loss.
Dynamic Versus Static RisksDynamic risks arise from the changes that take place in every society, that is, economic, social technological, environmental and political changes and they are closely associated with the speculative risks. The static risks are those that would exist in the absence of such changes.
Fundamental Versus Particular RisksFundamental risks are those which affect the whole of society or a major part thereof, such as uncertainties arising out of the economic or political system or natural catastrophes such as earthquakes and floods. They are both impersonal in cause and effect. Particular risks, on the other hand, affect mainly the individual or firm and arise from factors over which exert some control. However, society collectively should accept responsibility for the losses incurred by individuals arising from fundamental risks, whereas individuals should make their arrangements for dealing with particular risks. Invariably to maintain the expenditure for risk control is quiet expensive, risk management is not done for the economy which results in disaster towards a huge national loss. Examples of huge national losses are highlighted below.
Alpha Piper disasterGas leaking on the offshore Rig on 6th July 1988 at 10 P.M. Leakage of gas from the valves accumulated under the platform resulting in the death of 167 people and property loss of 2700 million dollars. 21st April 1865 -Sultanate steamer carrying 1815 people met with a severe disaster due to the Boiler leakage explosion due to overutilization of resources resulting from temporary welding at the leakage point. This led to a loss of 1238 human lives. Disaster Menu Cont – On 20th March 2001 40 Storied offshore Rig platform of Brazil coast sink after an accident, resulting in loss of human lives and property loss of 500 million dollars. Flixborough UK 1974 – Cyclohexant plant with three reactors. One of the reactors required change. To avoid cost and economy, the materials were transported from one reactor to the third reactor bypassing the second reactor. This unable to resist corrosion and temperature, as piping was of different construction, resulting in loss of human lives and property losses of unexplained dimension.
Bhopal Gas Tragedy (2nd and 3rd December 1984)40 Tonnes (MIC) leaked – Worst Industrial accident resulting in the death of 8000 people and over 5-lacs people suffered from injuries. Many died due to delayed medical treatment. This certainly recalls the saying of Mahatma Gandhi “There is more to do in life than to increase its speed” Disaster is ruination and destruction and calls for disaster control management. Unless the Government and the concerned authorities do not take initiative to control such disasters, the people of the nation and the nation will be at the mercy. Hence it calls for Risk Management at all levels and the importance of the Risks Management should be highlighted at all levels.
Let us understand the Risk Management Processes and AdministrationThe job of risk management can be broken down into the following elements which follow each other in a logical sequence
- Risk analysis risk identification and risk evaluation
- Risk control risk avoidance, risk reduction, risk retention
- Risk financing risk transfer, and insurance.
Cotton Ginning and Pressing Factories and Godowns Location HazardsFor cotton ginning and pressing factories, the location should be near cotton-growing areas, facilitating easy transport of raw materials. Exposure of kuppas and lint, in the light of size and storage in open, to transport vehicles, belching out exhaust gases from the engines makes the hazard pronounced. Similarly risks located near Railway tracks or siding face similar exposure from the exhaust of steam engines and sparks which may ignite cotton in open. This is due to the accumulation of cotton fluff under the floors which may ignite spontaneously.
Process HazardsAll the factories do not have any system of fluff or dust extraction and these would be seen depositing on motors, controls and starters and the lighting. Manual cleaning is no doubt done, but this is far away from the solution to the problem. Most of the fires are due to ignition of fluff coming in contact with the heated surface of machinery and consequent spread to stocks lying in proximity. The wiring system in some places with temporary wire suspended also contributes to fire. The motors are no doubt enclosed but still fluff enters through grill opening for air sucking to cool the motor. The seed of the lint is separated and this seed is discharged outside through a screw conveyor system located underground. But inefficient lubrication of the moving system and bearings causes fires. Static charges created due to movement of kuppas in ginneries or the screw conveyors also cause fires.
Warehouse storages:Since there is no limit to height and storages are invariable unto the roof limit. They are normally in a range with godowns adjoining and separated by non-standard partition walls. Therefore the fire load is most pronounced. In case of fire breaking out in any godowns, in the event of failure of instant detection and extinguishment the fire will gain severe intensity and start spreading. And extinguishment will be difficult. Most of the godowns of the stocks are under the key loans with the Bankers which others will have no access in case of fires until the godowns are opened. There are many instances when the fire from open storages has spread to such types of warehouses.
Open storage:Due to no proper space between storages will render fire fighting difficult. Given the vast open area and the factory in country areas, the wind movement is heavily susceptible to lightning and sometimes short circuits are caused by the sparks igniting cotton. Even the transport vehicles using diesel have their exhaust system being ineffective with a lot of gases mostly carbon monoxide produce an ignitable mixture. There are also various miscellaneous hazards resulting from the cotton business being dealt with by private owners. Who has an interest only in purchasing cotton and selling in the market? In such cases, they do not maintain fire fighting facilities in working conditions and also the storage of kuppas and bales done indiscriminately. Many instances of fires broke out in stocks held by state or center slowed bodies. There is slackness in fire fighting operations.
Textile Industry:Every section of a textile mill small or big, from cotton godowns to the storage of finished products is associated with a fire hazard. Following are the causes which mainly contribute to fire hazards in various departments or godowns of a textile mill
- Mechanical friction
- Electrical short circuit
- Electrostatic charge
- Bad housekeeping
- Human negligence
- Improper stacking and storage
- Faulty construction
- Use of flammable materials like petrol, gas, kerosene, etc.
Fire in cotton godowns may be caused due to the following reasons:-
- Spark caused at the time of stacking bales if the iron hoops collide with each other,
- Once the bales are stacked in the godowns, due to heat, the hoops expand and collide against each other causing a spark
- Due to inadequate ventilation and improper stacking of bales in the vicinity of electrical wiring.
- Due to electrostatic charges or some such causes resulting in spontaneous heat and combustion.
- Human negligence – such as throwing cigarettes, etc.
- Some cotton godowns are built on North-light principle
Processes and MachineryFire in Blow and Mixing rooms are very frequent and losses could be substantial given large quantities of cotton. The cotton bales contain several impurities like trash, broken seeds, stalk, rivets and at times iron particles and when cotton is fed into a bale opener despite magnets provided in the machines many a time the iron particles give a spark due to mechanical friction. The modern Blow room is completely automated and a spark resulting from any of the above machines spread amazingly fast to all parts of the room. The presence of wooden enclosures around machines and Hessian cloth partitions erected may help to spread the fire. Due to electrical short circuits also resulting from electrical wiring of infra-red lamps causes fire storage of loose cotton or laps near electrical switchgear may also lead to a fire in Blow room.
Carding, spinning preparatory and spinning departments are also susceptible to fire due to the following reasons:Hot pedestal bearings in the line shaft drive (if group drive is installed)which would ignite the fluff on the shaft and ceiling
- Hot licker-in side bearing pedestals,
- Friction between cyclones and doffers,
- Friction between licker-in and under casting,
- Friction between metallic belts, strap, and pulley,
- Electric spark due to a broken flexible, faulty starter, switch or stop motion mechanism and
- Static charges etc.
Some of the basic loss prevention measures are underlined hereunder to highlight Risk Management:
- The godown must be a single-story building built of non-combustible material. Exposed steel columns if any should be fireproofed with concrete.
- Provide automatic sprinkler protection or smoke detectors in the godown and plants.
- Segregation of hazardous and extra hazardous materials by perfect party walls.
- Electrical installation and fittings should be as per the standard and codes specified as per the Indian Factories Act, 1948,
- Most vulnerable departments susceptible to fire should be segregated from the rest of the departments,
- Use of combustible materials like Hessian/wooden partitions/ enclosures must be avoided,
- Storage of loose cotton/laps near electrical equipment should be avoided.
- A very high order of housekeeping should be maintained,
- Fire extinguishers and hydrant protection should be installed on each floor and/Or in all the departments of the processing units,
- All the machinery should be maintained and inspection of these machines should be done periodically,
- Provide separate room for waste and fluffs etc. and should be disposed of daily,
- Deploying expertise in fire fighting with a safety officer to monitor the plant
- Proper ventilation should be provided to control the spread of fire,
- Proper storage facilities should be provided with segregation of hazardous, non-hazardous and extra hazardous materials in separate compartments isolating by perfect party walls,
- No Smoking signboard should be displayed in the processing units and other rooms that are vulnerable to any risks.
- Providing an effective and efficient system of earthling to the metallic parts and checking regularly for proper maintenance.
Is it fair to do away with the risk management processes?No, ridiculous, one should not forget, “A loss to the insurance company is not just a loss to the insurers, but the nation as a whole. It is evident how the earlier disasters have ruined the nation and its people. It is pathetic that IRDA and the Government of India turning their nelson eyes on such vital aspects that affect the nation. Aggressive marketing of the non-life insurers has spoilt the basic objective of the insurance. Insurance being security has become a profit-making commodity for the insurers. Social obligation and objectives are defeated with stiff competition, affecting the nation and its people.
Is it not the duty of the IRDA to monitor such unethical business activities perpetrated by the insurers?There should be a certain standard to be maintained for such an insurance business that is vulnerable to the nation. It is high time that IRDA calls for all the Risks inspection reports of major corporate bodies including small scale sectors in the Industrial estates of our country which are not maintained for public safety and security. Premium rating is one aspect but risk inspection is a must and all the insuring industries should implement loss prevention measures as suggested by the professional engineers in their risk inspection reports.
Mr. P. V. Sethu
Manager, H.O., New India Assurance Co. Ltd, Mumbai
Published in The Insurance Times, April 2010