Chaos

[Audio] There exists lot of chaos in Probable maximum loss.

[Audio] Probable maximum loss ( PML) is the maximum loss that an insurer would be expected to incur on a policy. The probable maximum loss (PML) represents the worst-case scenario for an insurer and helps determine the premiums that a policyholder will have to pay on their insurance policy..

[Audio] Despite the relevance of loss potential estimation for Property underwriting, no common standard has yet been adopted by the insurance industry as a whole. Underwriters employ a variety of definitions of and methods of determining Estimated Maximum Losses ( EMLs) and Probable Maximum Losses ( PMLs). In broad terms, the diverse definitions result from differences in the ways in which various levels of fire protection and fire-fighting features are taken into consideration..

[Audio] Underwriting Policy was again placed on a more conservative footing, and loss potential estimates were redefined. The various terms gave rise to the major problem, The definitions are all subjective and open to different interpretations..

[Audio] The Estimated Maximum Loss (or the EML) is an estimate of the maximum loss that can be sustained by the insurer on a single risk. That risk must be considered to be within the realms of probability. The estimate can (and usually will) ignore any "remote coincidences" even if they are possible. (That last sentence means that if something is considered particularly unlikely to happen – it should be ignored for the EML calculation)..

[Audio] Estimated Maximum Losses ( EMLs) are based on a number of assumptions: firstly, that automatic fire-alarm and extinguishing systems ( e.g. sprinklers, carbon dioxide and foam systems, etc.) are not in service, or they are non-existent. Secondly, it is also assumed that competent private and public assistance is delayed, and that the fire doors between at least two adjacent fire areas are open..

[Audio] A standard method for calculating EMLs should consider the following specific risk factors:.

[Audio] The underlying assumption is that all fire-protection systems and measures, for example automatic sprinkler systems and fire alarms, are ineffective. The assumptions made for estimating the PML can be summarized as follows:.

. In-Effective Fire Brigade. In-Effective Fire Fighting.

[Audio] From other buildings by an open space (with no tall grass, timber or any other combustible element) of 15 meters where there are no opposing openings and where the other buildings have external walls of bricks, stone or concrete (reinforced or otherwise) and are roofed with slates, tiles, concrete (reinforced or otherwise) or metal sheeting..

Single Risk Contiinued. 6.Wherever there is sloping ground coupled with a risk which, in the event of fire, could produce burning liquid, regard should be taken of the fact when assessing a single risk, notwithstanding the existence of separations as defined above. 7.These separations are considered to be adequate to prevent the spread of fire. However, where an inherent explosion hazard exists, a perfect party wall (see 3 above) cannot necessarily be considered adequate separation. Moreover, where highly explosive materials are used, even greater distances are required to provide adequate separation. 8.Where stocks are insured on a floating or declaration basis, the amount to be taken into account is the loss limit on stocks in the single risk under consideration or, where there is no loss limit, the total sum insured on stocks. Variation of this rule is allowed only in cases Where 9.the maximum value of stocks in the single risk is clearly limited by the capacity of the building or buildings, in which case the amount to be taken into account shall not be less than that related to the maximum capacity..

Difference between EML and PML. Is there a difference at all. The difference is subtle loaded with Fuzzy Logic. What are the Practical Differences between the Two Measures? The EML is calculated based on the idea that any protective equipment and/or alarms are not in service (or indeed that they don’t exist at all). It assumes that any competent assistance to deal with an event won’t arrive on time. It assumes that any fire (or other event that causes the loss) may spread freely but that any sealed wall will hold. The calculation ignores any other unlikely events (for example – there’s no effort spent calculating the risk that a plane will crash into the building). In the case of the PML it assumes that alarms and protective equipment are not in service and that there is no competent assistance (e.g. the fire brigade turns up but fails to put out the fire). It assumes the worst-case scenario wherever possible..

Different Practices with Different Insurers and Re- Insurer.

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Conceptually Speaking.

Simple Example. The facility in question is a food processing plant with extensive processing installations whose fire/explosion hazard is very high in relation to the fire load. In view of the structure type and explosion hazard, loss events are sure to spread to other areas of the plant and buildings, in particular to the areas Storage I, Production I and Production II (silo explosion). The building and plant-framing construction consists primarily of fireproof components. The facility’s exposure does not seem to be increased by neighbouring plants. It is possible for unauthorised persons, e.g. saboteurs or arsonists, to enter the premises over the unsecured, standard wire-mesh fence..

Plat Site Plan.

Simple Calculation. E stimated Maximum Loss This denotes the largest loss that can result from a single incident in the plant. It assumes that the initial incident is so extensive that the active protection systems are rendered inoperative, and only the passive protection facilities, such as spacing and fire proofing, are effective. A scenario with a silo explosion and fire in Storage area I has been presumed. The distance of 25 metres between Storage I and Production I is assumed to be inadequate in the event of a silo explosion. However, the admin building is adequately separated (each 50 metres ). The fire will spread to Production I and II , and completely destroy the whole production area. However, Storage II can be rescued even assuming the private/public fire fighting is delayed. The EML for Fire Property – as a percentage of the total sum insured – is calculated as follows: USD 13,000,000 x 100 = 65% USD 20,000,000.

Simple Calculation. Probable Maximum Loss This denotes the largest estimated loss resulting from a single event in the plant under reasonably adverse conditions. The underlying assumptions here are that all possible and/or required fire-safety measures are ineffective, and that no effective fire-fighting occurs. Damage is limited only by adequate separation. On the one hand, the underwriter should take into account the heavy fire load, particularly in Production area I. On the other hand, the Production I and Production II buildings are not adequately separated by a firewall. The given scenario is nearly the same as in the EML calculation. The difference is that the fire-fighting is completely ineffective. The fire spreads to Storage II and destroys it completely. The PML for Fire Property – as a percentage of the total sum insured – is calculated as follows: USD 18,000,000 x 100 = 90% USD 20,000,000.

Ground Rules ( They are not the same though ) & Prelude to the calculation.

Spatial Complex Separation. tu Oi •üitu LHR ü0!iuedas leneds tifli111TIIl].

Spatial Complex Separation ( Minimum Spacing ). 10 m Metal-Steel Metal working.

Spatial Complex Separation. Below Ground Connection.

Spatial Fire Are Separation. Measurement of distances: where buildings or open-air stores are closest to each other • Combustible substances must not be stored between buildings/stores. 09 .qo.

Structural Complex Separation. Examples Minimum Thickness Masonry 36.5 Cms Reinforced Concrete 20.0 Cms Reinforced Gas Concrete ( A variety of cellular concrete; made by injecting a gas-forming agent, usually aluminum powder, into a mixture consisting of a binding component ... 30.0 Cms.

Complex Separation Fire Wall Exposure and Requirements ( Could vary a bit ).

Fire Resistant Protected Openings in A Complex Separation Fire Wall.

Fire Resistant Window- Concepts. Smoke. Fireproof window has to protect the impact of: Flame Smoke Heat.

Structural Complex Separation. IF THE ROOF IS FIRE RESISTANT COMPLEX SEPARATION WALL SHOULD EXTEND TO THE ROOF IF THE ROOF IS NON FIRE RESISTANT COMPLEX SEPARATION WALL SHOULD EXCEED AT LEAST 50 CMS ABOVE THE ROOF EXTERIOR WALLS COMPLEX SEPARATION WALLS MUST EXCEED 50 CMS BEYOND THE OUTER WALL LEVEL OR THE ADJACENT EXTERIOR WALLS HAVE TO BE FIRE RESISTANT FOR A DISTANCE OF 5 M AROUND THE COMPLEX WALL UNPROTECTED ROOF OPENINGS SHOULD BE AT LEAST 7 MTS AWAY FROM THE COMPLEX SEPARATION WALL.

To Note. If a Risk consists of several complexes separated structurally or spatially, it must be taken into consideration that a loss event may extend beyond one complex or affected several complexes at the same time..

Structural Complex Separation. Structural complex separation ÆcgmpWex-sepatation wallsihavefo form a 'lillID rl siraightline through ali storeys angles3 exterior walls being connected with a complex wall that is puiltin an angle have to be fire-resistant for a horizontal distance of at least 7 meters..

What to consider and what not to. A PML EML Manual and Automatic Fire Extinguishing Installations No Yes Automatic Fire Detection Installations, manual fire alarms No Yes Private & Public Fire Brigade No Yes Watchmen Service No Yes Activities and Processes Yes Yes Construction and Layout Yes Yes.

Development of Fire. Different Developments of Fires otal loss Late fire alarm, no efficient Tire fighting Late fire alarm, effic;ent fire fighting Automatic fire alarm. delayed Tice fighting Automatic fire alarm, immediate tire fighting det ctio Automatic extinguishing Titne response time of fire brigade.

Steps of a PML Assessment ( Fire PML ). Subdivide the Risk into fire Complexes for which the following are required: Plot Layout Plan. Building Heights. Number of Floors. Occupancy. Contents and Processes. Type of Construction ( roof, ceiling, exterior and interior walls, insulation materials ) Fire walls, complex separation walls. Distribution of values (split between buildings/machinery/goods for all complexes) Comparison of different loss scenarios worked out according to the guidelines ( whatever guidelines that your institution has agreed to follow ) PML = Scenario with the highest monetary loss.

Purpose of PML. A mechanism for increasing the capacity available for making acceptances on desirable Property risks. If it can be reliably established that the maximum loss likely to be suffered, in any one event, caused by an insured peril, is significantly below 100%, then it is permissible to multiply the values insured by the PML percentage, and then apply the underwriter's limits of authority to that percentage of the insured values..

With & Without and Example. Without Considering PML Considering PML of 50% Remarks Total Insured Value USD 50 Million USD 50 Million This maximizes capacity. This enables retention of more premium. More premium to the treaty. Increase operation’s degree of control over the risk, gaining the lead, opportunities to survey, achieve implementation of loss control measures Retention USD 2.5 Million (5%) USD 2.5 Million (10 %) Treaty Capacity ( 9 lines ) USD 22.5 Million (45%) USD 22.5 Million (90 %) Automatic Capacity USD 25 Million (50%) USD 25 Million (100%) FAC RI required for the balance USD 25 Million(50%) No need to FAC out thereby saving FAC cost.

Single Risk Method. Consider various scenarios For each scenario, create a single risk based on distances between blocks. Apply percentage damages on stocks, machinery and building. Consider the additional amount payable for various clauses in the policy – example Architects fees, Removal of Debris, additional expenses. Arrive at MD PML. Repeat the process for each scenario and arrive at MD PML for each scenario. Calculate the LOP PML for each scenario Add MD PML and LOP PML for each scenario. Pick the highest PML.

Scenarios and Selection Criteria for Scenarios. Where could a fire start? How could it spread? What could happen if…? How would construction and contents behave? What would be the resulting monetary loss?.

Factory Layout. .

Guidelines/ Thumb Rules on PML. Occupancy Class of Construction Superior Class I Class II Light Hazard 5 m 7 m 10 m Ordinary Hazard 10 m 15 m 20 m High Hazard 15 m 30 m 50 m High Piled Storage/ Storage of flammable liquids and gases 50 m.

Estimate Damage-As per Hazard. Light Hazard Superior Class I Class II Buildings 5 – 25 % 20 – 25 % 30 – 80 % Machinery 25 – 80% 25 – 80% 70 – 100 % Stocks 100% 100 % 100 %.

Let us look at a calculation now. With the plant layout in hand physically go around the plant and pinpoint possible nuclei of large conflagrations. Therefore need to examine the hazardous occupancies of each block. For eg Blow Room in Cotton Mills. Several fire nuclei would be identified and considering these as centers we then proceed to demarcate regions bringing within scope the farthest points which can be affected by spreading of a conflagration from the nuclei. These demarcated regions are called fire zones. Two Fire Nuclei could have overlapping fire zones too. Fire zones are demarcated using various rules we discussed ( distances/construction/Occupancy/Fire Load etc ) We then find out the values at the identified fire zones. The Probable % of loss and Probable Loss Amount of Fire Zones is then plotted. The Fire Zone giving the highest value of loss would represent the PML of the Risk.

Fire Zones , Fire Nuclei. ,nPhN nprw.

PML Calculation Case Study ( Paint Factory Fire Zone I ).

PML Calculation Continued ( Paint Factory Fire Zone I).

PML Calculation Continued ( Paint Factory Fire Zone II ).

Final PML. MD PML LOP PML Total Zone I 3,50,82,494 ( 54% ) 2,62,50,000 (37.5% ) 6,13,32,494 Zone II 91,33,50 ( 14 % ) 2,18,75,000 ( 31,25% ) 2,27,88,350.

PML LOP. due to due to Invisible Intangible due to abstract matter 1. 2. 3. 4. Maximum Probable Period of Interruption. The Maximum Period of Indemnity ( Contractually Agreed ). The Interruption Period ( Actually Loss Period ). The Indemnity Period ( Actual Cover Period )..

PML LOP: The Element of Time. Fire Loss Inspection and Report Debris Removal and Site Clearance Production Process reaches former level Production Process Develop to Former Level Installation of New Machinery Letting of Building / Construction of Building Dev elopement of Building Specifications Development of Machinery Specifications. Identification of New Machinery and their specs.

PML - LOP. The following risk features have strong influence on the BI PML: Bottlenecks. Interdependencies. Suppliers Risk Manufacturing Assistance. Public Utilities Shared Services Clearances, Regulations.