1

Engineering risk survey reports – an insight for underwriters

Eur Ing Richard Radevsky

BSc, CEng, CSci, CEnv, IntPE, FICE, FCIWEM, MEI, MIFireE, FCIArb
Technical Director
Charles Taylor
London
Richard.radevsky@ctcplc.com
www.cttechnical.com

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 2

Contents
Introduction ............................................................................................................................................ 3
The purpose of a survey report .......................................................................................................... 3
Risk surveyor ........................................................................................................................................... 3
Where the underwriters is involved in the choice of risk surveyor/risk engineer ............................. 3
Where the underwriter is not involved in the appointment .............................................................. 5
Instructions to surveyors ........................................................................................................................ 6
Source of instructions ......................................................................................................................... 6
Time and money ................................................................................................................................. 7
Survey timing ...................................................................................................................................... 7
The report ............................................................................................................................................... 8
“Reading between the lines” .............................................................................................................. 8
Co-operation ....................................................................................................................................... 8
Cultural and management style issues ............................................................................................... 9
Language ........................................................................................................................................... 10
Facts and analysis.............................................................................................................................. 10
Photographs ...................................................................................................................................... 11
What cannot be said ......................................................................................................................... 11
Recommendations ................................................................................................................................ 12
After the report is issued ...................................................................................................................... 14
Conclusions ........................................................................................................................................... 14

Acknowledgement

The author wishes to thank Doug Scott, Risk Engineering Consultant with Charles Taylor, Dr Hans
Mahrla, Stephan Lämmle Chief Underwriting Officer Engineering at Munich Re, Oscar Treceno, Head
of Engineering Speciality Lines and Foreign Countries, and Stefan Keller both of Nationale
Suisse/Helvetia for their assistance in reviewing and making many helpful suggestions for changes to
this paper.

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 3

Introduction
When underwriting an engineering risk, insurers rely on a variety of information most of which is
factual. Judgement is needed about the quality of the risk and this will be based on what the
underwriter knows from experience, intelligence about the risk and any survey report. The aim of
this paper is to help those who regularly read survey reports to be aware of the circumstances and
limitations surrounding the creation of survey reports when interpreting what they read.

The purpose of a survey report

Survey reports are intended to:

• set a risk into a context of other similar risks

• evaluate whether relevant specifications have been complied with
• identify any unusual features which might influence an underwriter
• provide more detail than an underwriting submission
• make recommendations for risk improvements

A report which makes clear that a risk is of poor quality can cause an underwriter to:

• refuse to offer terms

• charge a higher premium
• or restrict cover

Surveys can also sometimes improve the image of a risk.

Case history – For a number of years after a major city suffered earthquake damage, underwriters in
the international markets believed that public structures such as schools and hospitals (which had
suffered extensive damage) were likely to perform poorly in a future earthquake event. A broker-
arranged survey showed that since the earthquake extensive structural retrofitting had taken place
and new buildings were built to a much higher standard than before. As a result it was reasonable to
expect much improved structural performance in any future earthquake.

Underwriters should be prepared to set aside an established view where fresh information allows
them to quote a very competitive premium or offer wider cover than others who are being asked to
quote.

Risk surveyor
Sometimes underwriters are involved in the choice of a risk surveyor/risk engineer and sometimes
they are simply presented with a report.

Where the underwriter is involved in the choice of risk surveyor/risk engineer

The underwriter needs to be satisfied that the person who is to undertake a survey and produce a
report:

• understands what is to be surveyed

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 4

• has sufficient insurance knowledge

• is suitably qualified
• has experience to produce opinions which are credible and assess the risk against
international best practice standards
• is known in the insurance market
• has a good reputation
• carries professional indemnity insurance, since it is an indicator of quality because a
professional indemnity underwriter has to be satisfied that the surveyor is competent and
qualified to undertake survey work.

Case history: A surveyor from a small survey company with no professional indemnity insurance
reported that there was no risk of explosion on a grain handling facility. The reason for this was not
explained. Such facilities are renowned to be susceptible to grain dust explosions. No details were
provided on the measures to avoid explosions and a few months after the survey the facility was
virtually destroyed by a chain reaction of explosions.

Whilst the surveyor had been negligent, in this case the underwriter should have questioned the
surveyor’s competence or impartiality. Had the underwriter identified the flaw in the survey report,
cover might have been denied, or a new survey commissioned leading to improvements in the
management of the dust explosion risk and thus avoiding the loss. In the absence of professional
indemnity insurance, the pursuit of a recovery was judged in this case to have limited prospect of
success.

A surveyor with knowledge and experience of a particular technology should be able to explain it
clearly and make insightful comments and recommendations. One who is struggling may just re-
state information they have been given or leave technical jargon unexplained.

The surveyor should have international experience to be able to set the risk surveyed into
international best practice standards, and knowledge of engineering standards that are applicable in
different countries as well as familiarity with policy clauses and codes, for example:

• European norms,
• British Standards,
• ASME 1 standards,
• ASTM 2 standards,
• FPA 3 standards and codes including the Joint Fire Code 4,
• NFPA 5 standards and codes,
• Tunnel Code of Practice 6,
• FM 7 standards,

1
ASME – American Society of Mechanical Engineers
2
ASTM – American Society for Testing and Materials
3
FPA – Fire protection Association
4
The Joint Fire Code: Fire Prevention on Construction Sites
5
NFPA – National Fire Protection Association
6
The International Code of Practice for Risk Management of Tunnel Works

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 5

• Munich Re policy and condition/endorsement wordings,

• Swiss Re policy and condition/endorsement wordings,

A surveyor’s clients may wish multiple aspects of a risk to be surveyed such as

• property exposure
• construction/erection all risks
• delay in start-up risks
• third party liability exposure
• business interruption risks
• contingent business interruption risks

Expertise is required in each aspect, if risks are to be properly considered. Reports from technical
specialists with limited insurance understanding may focus too heavily on the technology of what
has been surveyed and insufficiently on the factors that determine the quality of risk and what might
be done to manage them better.

Large insurers, reinsurers and brokers have teams of surveyors who usually work in a fairly
standardised way with defined routines and report formats including rules to govern what goes into
a report and how it is interpreted. An underwriter has to decide if their in-house team has sufficient
expertise or whether to appoint an external specialist. In-house teams may be focussed on the types
of risk that generate large numbers of surveys (and thus a predictable workload) and may not have
expertise on some types of risk. They may not be prepared or allowed to work in some territories
where there are difficult security situations. Both underwriters and the client may benefit from input
of an independent surveyor. Underwriters also need to consider the needs of the following market
who may not have the opportunity for informal conversations with the surveyor and may be
unfamiliar with reporting conventions and rating systems.

Swiss Re 8 has provided some useful guidance about the survey process in general. IMIA has analysed
risk management approaches in Construction and Erection projects9. The London Engineering Group
(LEG) has produced a standard for some types of risk survey report 10.

Where the underwriter is not involved in the appointment

When the underwriter is not involved in appointing the surveyor, it may be only when the survey
report is received that the underwriter will know who has produced it. The underwriter should go
through the same process as if they were being given a choice of surveyor before the survey and
decide on the weight they are prepared to give to the opinion of the surveyor who has written the
report.

7
FM- Factory Mutual
8
“Site inspection and claims handling in engineering insurance” Swiss Re - April 1999
9 th
Risk management approaches in CAR/EAR projects – International Association of Engineering Insurers 36
Annual Conference – Stockholm 2003 – www.imia.com
10
London Engineering Group - Erection All Risks (EAR) Surveys - A Code of Practice -
www.londonengineeringgroup.com

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 6

The underwriter should look at who has signed the report and who made the survey visit since
reports are sometimes countersigned by people who were not present during the survey. Having a
second person to review a report (the so-called “four eyes principle”) is certainly desirable but the
person making the survey inspections and conducting the survey process also requires appropriate
skills, experience and knowledge in the discipline and technology of the risk. A report produced by a
senior person whose skills and experience are inappropriate should be viewed with some scepticism.

When reviewing a risk survey report, an underwriter needs to

• Consider whether the right person has undertaken the survey and written the report
• Consider whether the surveyor was briefed about the background to the survey, the history
of the risk and areas of particular concern. (see “instructions to surveyors” below)
• Satisfy themselves that the surveyor highly values his/her professional reputation and was
not influenced inappropriately by commercial pressure. (see “source of instructions” below)

Instructions to surveyors
Source of instructions

The source of instructions for the surveyor is important, whether it be a broker, a cedant, an insurer,
a reinsurer or a company seeking insurance. Whilst a survey requires objectivity, there will also be
instances where subtle interpretations of what has been surveyed are made. Interpretations can
make a significant difference to an underwriter’s impression of a risk. At their most basic they can
express where the risk should sit on the scale of good and bad.

Surveyors will want to protect a source of regular instructions. An adverse survey report can make it
difficult for a broker or cedant to obtain cover. Of course no one is so crude as to say to a surveyor
they will only be paid if the report provides a positive impression of the risk. Nevertheless a surveyor
may be conscious that the fee or future survey instructions may be at risk if brokers/cedants or the
company surveyed receive a negative survey. This can lead to the survey report being nuanced.

In determining how much faith they put in the survey report, underwriters should take into account
any pressures to which the surveyor may have been subject. If a surveyor has been positive about a
risk in a report without justification this can occasionally lead an underwriter to insist on a second
survey by a surveyor of underwriters’ choosing with instructions to be wary.

Surveyors may also have been instructed as a result of commercial pressure on the underwriter. For
example, a broker or cedant may suggest to an underwriter that their own survey team be used.
Underwriters not wishing to upset someone who can be influential in a competitive bid situation
may agree.

Independent surveyors work under contracts and care is required that the contractual terms
governing the survey do not have an adverse impact on what a surveyor can say. It is not unusual for
surveyors to sign confidentiality agreements, since they will be shown locations and be given
information which is commercially sensitive.

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 7

Time and money

Sufficient time and money needs to be allowed if a survey report of suitable quality is to be
produced. With unrestricted access but limited time, the choice of what should be inspected can be
guided by what the surveyor considers important. If poor choices are made an unbalanced view of
the risk may result. Some risk features require particular attention, for example the tunnel sections
on a long motorway construction project. Surveys are often commissioned by underwriters with a
view to a particular aspect of the risk being scrutinised. Just because this is in the forefront of the
underwriter’s mind does not mean that it will be obvious to the surveyor. If an underwriter wishes
the survey to concentrate on something specific then it is important to say so.

Adequate time needs to be allowed for:

• Preparations including making advanced requests for information, setting an agenda,

agreeing a survey programme, obtaining a visa and/or security clearance.
• Travel, since risks may be spread over hundreds of kilometres (such as a road, railway or
pipeline) and a company’s head office can be in a different location to the risk.
• Physical inspections
• Meetings with key personnel
• Reviewing information
• Report writing

Companies offering survey services operate in a competitive market. Whilst no one wants to waste
money, an unrealistic price or time allowance (and the two are often linked) may result in a
superficial or patchy survey report or the survey being conducted by someone without the required
knowledge and experience.

For some construction projects it is not feasible to survey the whole project in a single visit. A risk
engineering programme therefore may need to review a proportion of the project on one survey
and the remainder on the next11 12. If insufficient time and money has been allowed reports may be
qualified to explain the limitations on the work that could be undertaken.

Survey timing

If an underwriter wishes to have the benefit of a recent survey report when making decisions about
renewal or to use renewal negotiations to push for risk improvements or changes in coverage,
sufficient time needs to be allowed for the survey to be undertaken and the report delivered.

Some risks also look very different at different times of the year because of weather conditions. For
example a road construction project can be a long dry hard dusty strip in the dry seasons and a
partially flooded mud bath with unstable slopes in the wet season. The impression gained from two
reports of the same risk at different seasons can vary considerably.

11
Risk Engineering for major construction projects - Richard Radevsky Charles Taylor, International Association
of Engineering Insurers, 44th Annual Conference – Amsterdam 2011 – www.imia.com
12
London Engineering Group -Report on Risk Engineering Procedures and Protocols for Construction Risks
Issued March 2006- www.londonengineeringgroup.com

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 8

The report
“Reading between the lines13”

Before reading the technical part of any report, an underwriter should check the preliminary
statements since sometimes they can give a valuable insight into problems that have arisen with the
survey process. If the underwriter is concerned they should ask the surveyor about them.

For example, if a surveyor says in a report “time was not available to visit the………”, the underwriter
needs to consider why? Was there insufficient money available for the survey? Did the company
being surveyed conceal something? Does it matter?

During a survey there is the danger that risk owners may guide the surveyor towards locations which
look good and away from those that give a poor impression. This may not be in a conscious attempt
to deceive insurers but out of concern by a local manager that a survey report will be seen by a wide
audience including senior management. An experienced surveyor, aware of such dangers, will look
to avoid being too obviously guided about what is inspected but there can be a limit as to how far a
surveyor can push to see something which a determined manager wishes to conceal. Most
companies being surveyed will be aware of the importance of not being seen to deliberately conceal
things from a surveyor but this will not stop some from using subtle ways to try to guide a surveyor.
Such tactics can backfire if a detrimental aspect of a risk is uncovered. This can lead a surveyor to
question the credibility of both the information being provided and the managers who they are
meeting, thus raising concerns that a positive and open attitude to risk management and safety is
absent and instead there exists a culture of concealment.

Co-operation

Survey reports should also contain a statement about the level of co-operation, openness and
willingness to engage in the process demonstrated by the company being surveyed since it is an
important factor in gaining a positive impression of a risk. A lack of co-operation can suggest:

• The company being surveyed has something to hide

• The company does not understand the importance of the survey report for future insurance
cover
• Risk management is seen as a peripheral activity to be managed in a narrow way by a safety
officer rather than by senior management
• Senior management is overloaded to the extent that they do not have time to respond
properly

Poor co-operation can also come about because of poor communication between insurer, broker,
cedant, surveyor and insured leaving managers no time to prepare properly because information
was not passed to them in time.

13
“Reading between the lines” - to try to understand someone's real feelings or intentions from what they say
or write. Cambridge Idioms Dictionary, 2nd ed. Copyright © Cambridge University Press 2006.

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 9

Occasionally problems do arise with the survey process when access is denied or becomes
impossible for security reasons (such as when there is a sudden deterioration in the security
situation because of terrorist action). In such circumstances a logical justification can be provided for
a survey to be repeated.

Underwriters should check on the list of attendees set out in the report showing who was and who
was not involved in the survey. If only the safety officer and the head of the fire service are listed,
why were senior managers and directors not involved? (There can, of course be legitimate business
reasons why senior managers were not available.) Was there a lack of interest in risk management?
A safety officer is unlikely to be able to talk authoritatively about design, engineering, quality,
maintenance, operations etc.

Most reports will include disclaimers to protect the surveyor and these need to be worded
acceptably.

Cultural and management style issues

Cultural and language issues can have a significant impact on how good a report can be produced.
Risk surveys and risk engineering are not common in some areas of the world and may be regarded
with suspicion or puzzlement. Senior managers of some organisations may have little experience and
understanding of insurance and risk management. They may be feel that a surveyor is trying to tell
them how to do their job or to find fault. Others may be receptive but find it difficult to accept the
advice in the relatively open forum of a large meeting with a subsequent report.

Case history: A survey of a power plant construction project was undertaken with the close
involvement of the project manager. At the wrap up meeting at the end of the survey, the surveyor
set out the recommendations for improvement that he was proposing to include in the survey
report some of which required a carefully considered response. After each recommendation was
explained, the project manager picked up the telephone to one or other members of his team and
shouted at them. He concluded the meeting by asking whether anything else needed to be changed?
This indicated to the surveyor that the project manager felt that deficiencies had been solved by
shouting at staff. For cultural reasons the surveyor felt it would not be wise to say in the survey
report that a different style of management was needed but raised the issue with the underwriter at
a subsequent meeting.

Where a difficult cultural issue arises which is adversely affecting the quality of risk management, it
may be difficult to put it into a survey report which an insured will see. When an underwriter is
informed of such an issue he/she has various options including:

• adjusting his/her rating of the risk

• advising the following market that there is an issue that is not covered by the report
• contacting the broker to suggest that the insured company could benefit from some
management training for its senior managers
• asking to see a written plan of action for tackling the issues raised in the recommendations
rather than waiting for the next survey to take place to see if improvements have been
made

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 10

Language

Holding meetings in more than one language slows the surveyor’s ability to obtain information and
obviously increases the potential for time consuming and occasionally awkward misunderstandings.
Even meetings in one language (particularly in English which is very widely spoken but by people
with very different vocabularies) can create difficulties if the level of language skills varies
significantly between the surveyor and those being surveyed. In such circumstances surveyors need
to be careful not to use overly complicated language or jargon since misunderstandings can be
caused by the use of a single key word which is not understood. It can difficult for non-native English
speakers to admit that they do not understand something. Help for native English speakers in
appreciating the problem can be obtained by reviewing the “Globish 14” website. Reports should
always be written in language that makes them easy to understand but this is particularly important
where those working for the company that has been surveyed do not have English as their first
language. Much of the survey report (and particularly the recommendations) will have been written
for their benefit. Ambiguous or unspecific terms should be avoided and all acronyms and
abbreviations should be explained.

Facts and analysis

Reports, even lengthy ones, may contain only factual descriptions of the location visited or the
business that was surveyed and not focus on issues relevant to the decisions that the underwriter
has to make, for example:

• Is the risk better or worse than required to achieve an international best practice level?
• What changes need to be made to improve the risk and how should these be undertaken?

Whilst facts may be of interest to the underwriter, it is important that reports also present
conclusions and explanations about the quality of the risk. A discussion with the surveyor may clarify
why aspects that the underwriter was particularly interested in or worried about have been omitted.

It is good practice for the surveyor to provide a draft copy of a survey report to the company that
has been surveyed so they can check it for factual accuracy and make comments on the analysis it
contains before the report is finalised. They may not agree with the views expressed in the report
and if issues are raised it may be appropriate for the surveyor to record that the company surveyed
has a different view and explain why.

Underwriters should be aware that survey reports are often not checked in detail by insureds even
when drafts are supplied. Insureds tend to concentrate on executive summaries and
recommendations. Errors may only come to light on subsequent surveys or when an issue arises and
a particular statement becomes the focus of attention. Underwriters are expected to be able to

14
Globish – English using a vocabulary limited to 1,500 words, short sentences, basic syntax, an absence of
idiomatic expressions and extensive hand gestures to get the point across. More information at:
http://www.globish.com/

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 11

identify through their knowledge of an industry, a particular technology or experience when a report
clearly contains a significant error.

Case history: A print works containing large quantities of combustible material was surveyed. The
entire works were located in a single building with no fire compartmentation and poor
detection/protection systems. The surveyor recommended an EML of 50% of the value at risk which
the reinsurer adopted. Shortly afterwards a fire caused a total loss. The reinsurer sought an opinion
about suing the surveyor for negligent advice on the EML. The reinsurer was advised that a
knowledgeable and experienced underwriter should not have simply accepted the recommended
EML when it was obvious from the description of the premises in the report that a figure of 100%
should have been used.

Where a report contains a loss calculation, rather than simply accept it, an underwriter should
consider whether the calculation is credible. If he/she has doubts, these should be raised with the
surveyor or a second opinion obtained from another surveyor.

Photographs

Photographs are particularly useful for recording conditions during the survey and help to avoid
arguments about the presence of shortcomings. If the underwriter has doubts about an issue it may
be possible to probe this by comparing what photographs show with the words in the survey report.

It is not always possible to take photographs during a survey. Some installations are strategically
important and some companies feel that photographs may threaten their commercial secrets.
Occasionally photographs may be removed from a report before it is given to an underwriter.

If there is no reason why photographs could not be taken but there are none, then an underwriter
should check the contents list to see if they have received the complete report. Removing the
photographs (or attachment and appendices) from a report must raise a suspicion that an attempt is
being made to conceal the truth. Sometimes reports are poorly reproduced which degrades the
photographs and this can be almost as bad as having none since the evidence shown in the
photographs can be obscured.

What cannot be said

There are some things that a surveyor generally will not include in a survey report such as:

• Something a surveyor has been told by those he/she meets but on condition that this
information is not revealed
• Unauthorised/illegal activity which the surveyor suspects is taking place but if mentioned in
a report without substantiation could result in the surveyor being sued.
• Personal opinions about individuals encountered during a survey or comments that would
be culturally unacceptable.

Case history: During a survey of an industrial complex a surveyor became detached from the group
undertaking the site inspection and was for a short time just in the company of a department
manager. When away from the complex’s owners, the manager told the surveyor on a confidential

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 12

basis that he was struggling to run part of the complex safely because insufficient funds were being
made available for parts and maintenance. The surveyor was however advised during the main
survey meetings by the plant’s owners that all maintenance tasks were fully up to date and there
was no shortage of funding for spares. The surveyor found it impossible to report in writing the
conversation with the manager but instead advised the underwriter in a phone call what he had
been told.

If an underwriter becomes aware that an insured company is deliberately deceiving a surveyor, it is

reasonable to question whether they can rely on the doctrine of utmost good faith. Faced with such
a concern, an underwriter should call a meeting with the surveyor and the broker to discuss whether
the coverage can continue and if so what actions are needed to address the situation. The broker is
likely to have to play the lead role in determining whether the relationship between underwriter and
insured has been damaged beyond repair or can be salvaged.

Recommendations
It is the recommendations in a report that will normally receive the most attention. Many
recommendations involve minimal cost since they are about modifying behaviour. They can also be
controversial since complying with them can be costly or require considerable effort over a
prolonged period. In such cases underwriters should be looking for a positive response to a
recommendation including acceptance of the deficiency and a sustained willingness to commit
resources to make necessary changes.

Case history. During a first risk engineering survey of a major construction project the surveyor
observed a very poor site safety culture and recommended a series of steps to improve it. Although
the project’s managers accepted the need for changes, many months of work were needed to
change the attitudes of a large work force which had been using poor practices for years. Several
subsequent risk engineering survey reports sustained the recommendation until eventually a
marked improvement was observed.

Underwriters should evaluate the quality of each recommendation to make sure that it:

• is specific
• is achievable
• is proportionate
• provides sufficient information to explain the problem
• provides technical details of how it can be implemented
• cites references which explain that it is good practice, If possible

A company that is surveyed should understand the benefit of the various recommendations and
ideally agree with the need but this does not always happen. Wherever possible, recommendations
should be discussed during or at the end of the survey so that the company has an opportunity to
comment, to challenge or to suggest alternative solutions.

Recommendations are not conditions of policy coverage, although there are rare cases of warranties
being applied to onshore recommendations. Warranties are a more common feature offshore.

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 13

Ultimately the decision as to how much weight they are given with respect to the insurance
coverage rests with the underwriter.

Recommendations can be seen by the underwriter as vital if they address a serious shortcoming. The
underwriter and broker can occasionally act as negotiators about whether recommendations need
to be followed or how they might be modified to establish a compromise between an ideal situation
that the surveyor might recommend, and achieving enough of an improvement, at perhaps a lower
cost, for an underwriter to accept. It is possible for a surveyor to recommend measures to reduce a
risk to an unreasonable degree.

Underwriters should pay greater attention to what has been recommended than simply to the
number of recommendations. Risks can appear to have improved significantly if a large number of
easy to implement recommendations have been complied with but this may leave the more
important ones outstanding.

There may be a temptation to deal with risk problems outside the survey report. Indeed, if a
problem can be eliminated quickly then there is nothing wrong with the survey report setting out
what was wrong and how the situation has been improved since it was identified. But it would be
inappropriate for the surveyor to leave out mention of the original problem and only report on the
improved situation or to report that a problem has been solved simply because a company expresses
an intention to make improvements.

Often a surveyor’s actions will be sufficient to motivate an insured to make necessary improvements
in risk management. The underwriter can however reinforce recommendations by expressing
concern (often through the broker), by drawing an insured’s attention to a specific and relevant
policy condition which might be breached if action is not taken or by reminding an insured of their
general duty to take reasonable care to avoid losses.

Case history: During a survey of a railway construction project the risk engineering surveyor
recommended that fire protection systems be active when systems were energised during testing
and commissioning in the coming months. The project advised that this was already planned. At the
next risk engineering survey, some months later, energised systems were observed under testing
with no active fire protection systems and the previous recommendation had to be repeated with its
category increased to a priority level. The underwriter also raised the prospect that this omission
risked breaching a policy condition.

Underwriters should be aware that a survey report may not get to staff at the location surveyed but
may instead be retained by the company’s insurance team where action on recommendations will
not necessarily follow. If details of the actions taken in response to a recommendation are supplied
this gives the best indication that the survey process is being taken seriously.

Survey reports should contain information on the status of recommendations made in previous
reports. If recommendations have been ignored, it is a sign of a poor attitude to risk management or
insufficient attention to the risk survey process. Occasionally a situation may deteriorate requiring
the emphasis and priority given to the recommendation to be increased. A surveyor can only
comment on previous recommendations if they are made available. A report should say if they have

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015
 14

been requested but not supplied or that no previous survey has taken place and there are no
previous recommendations.

After the report is issued

Occasionally a survey will reveal something which the underwriter considers unacceptable. If this
leads him/her to conclude that the risk is different from what he/she had expected to such a degree
that the risk would not have been underwritten had the facts been known, then this is likely to be
taken up with the broker. In extreme circumstances this may lead an underwriter to withdraw cover.
More frequently an underwriter may insist that a change is made or a recommendation is followed
within a limited time period indicating that, if action is not taken, this may have a detrimental impact
on coverage for any claim associated with the shortcoming that has been identified.

Case history: During a survey of a project to convert an operational simple cycle gas fired power
plant to combined cycle, it became apparent that in the operational area of the plant, gas was being
vented which was drifting into the construction area where hot work was taking place. A
recommendation was made to stop gas venting or install continuous gas monitoring.

Where there is a very poorly managed and unsafe situation with the potential for a large loss
underwriters are justified in acting decisively. In this case, after considering the situation, the
underwriter advised the insured that damage caused by an explosion resulting from ignition of
vented gas would not be viewed as an unforeseen event and any resulting claim would be
repudiated.

Whilst the risk surveyor has no authority to make any decision that has an impact on policy
coverage, the underwriter does have that power if there is a breach of a policy condition.

Conclusions
In an ideal world it should be possible to take what is said in a risk survey report at face value. In
reality, the circumstances in which reports are commissioned and surveys are carried out are not
consistent and quality varies. Underwriters need to be aware of the subtle ways in which a report’s
contents might be manipulated to make a risk look good without telling a lie. Underwriters need to
know when to ask questions, when to challenge a conclusion and when there is a serious problem
requiring action that may strain commercial relationships.

Armed with the guidelines provided in this paper, a skilled and experienced underwriter should be
able to work out what limitations apply to a report and decide whether he/she can live with them.

Engineering risk survey reports – an insight for underwriters – © Charles Taylor Technical 2015