Why trusted partnerships are valuable
If P&C Insurance has a relationship with Essity that goes back several decades, as an insurer, reinsurer of the Essity captive and as a risk management service provider.
Photo credit: Essity
Article by: Ottmar Zeizinger, Lars Freymann and Kristian Orispää
Recently, the Kostheim plant in Germany, which produces tissue products was expanded to meet increasing demand for Essity products. If Risk Engineers were actively involved in the planning and delivery stages of the project to help our valued customer, collaborating to manage risks together for the safest and most reliable results.
As a leading global hygiene and health company, Essity is dedicated to improving well-being through its products and solutions, which are essentials for everyday life. From baby care products to hand soaps and professional hygiene products, Essity is one of the world’s largest suppliers of popular brands for essential daily personal care, consumer tissue and professional hygiene products and solutions.
At their Kostheim mill Essity produces tissue products, mainly for the highly competitive German market. Sales is not directly to the end user, but to the largest consumer market chains and some other distributors.
As such products have a high ratio of volume compared to value, storage requires large and expensive warehouse capacity, either at the manufacturers site or at the customer site. Therefore, buffer stock is limited to a few days of production only, which certainly increases the risk of supply chain disruptions in case of any production problems. At the same time production machines are of such a nature, that serious damages cannot be repaired within short times.
The impact on the business interruption risk could be substantial and maintaining uninterrupted, reliable production is therefore of vital importance for Essity.
Tissue plant expansion in Kostheim, Germany
Essity initiated a large project valued at more than 100 million euro, to extend an existing plant. The project, planned to run over 2-3 years, included the installation of production equipment, including one large tissue paper machine, alongside warehouses and various modifications to the plant’s infrastructure. Altogether this project accounted for a substantial share of the company’s turnover and had to assure the competitiveness of Essity in the local market.
Such complex projects involve multiple parties, both external and internal, all providing specific fields of expertise, ranging from production, building construction, fire protection to insurance just to name a few.
Early support and ongoing collaboration
The project team was supported early in the project by the local Risk Engineer from the nearby German Branch Office of If P&C Insurance. This support is a part of an ongoing collaboration between Essity Group Risk Management and If, If being one of Essitys chosen risk management service providers. The risk engineers supported Essity in delivering the new facility in a safe and efficient way.
If's Risk Engineers assessed the possibility of property damage, and especially the business interruption risks. This resulted in several recommendations to be implemented during the construction phase and final start-up of production. Such work is done in several phases, with an increasing level of detail, to ensure reliable operations.
Local presence to the construction site proved to have a positive impact allowing If to meet the project team whenever needed. Knowledge of Essity’s business, awareness of expectations from Essity Group Risk Management and local legal jurisdiction has been a prerequisite for effective consultation regarding risk control.
The basis for all consultation has been the Essity corporate loss prevention standards, established technical standards, as well as key capabilities and know-how from If’s Risk Engineers, accumulated over decades of focused work in this respect, as the pulp & paper represents one of If’s core client industries.
Uncovering potential risks
Generally, in any major project, overall assessment of the risks is important. Essity introduced a concept with tools and processes for an overall risk assessment for some years ago to ensure that all types of risk are assessed in the project. The chosen risk management providers are a central part of this assessment with their expertise on industrial loss prevention, and with a holistic, business interruption perspective.
Rather than just installing production equipment, Essity as an organisation realizes the importance to also consider other aspects, for example relating to infrastructure, to make sure nothing is missed.
According to the initial project plan, two new main transformers were to be located close to the existing main power plant. When consulted, If’s Risk Engineers assessed the overall risk situation, revealing the potential business interruption risk, in case of a fire at any location in this area being not acceptable.
It became evident that the output of the entire new production facility is dependent upon these transformers. Should anything go wrong with the transformers, the business interruption risk would be substantial.
As soon as the issue was uncovered, all parties joined in working together to find a solution, making use of all the competence and expertise in the team. The resources required to mitigate the business interruption risk to an acceptable level was efficiently activated by the team effort.
Tackling the transformers
According to Ottmar Zeizinger, Risk Engineer at If P&C Insurance, “the two new transformers at Kostheim were built in accordance with all requirements and standards, as was the separation between the two units.” Ottmar explains, “the transformers were planned and constructed right and completed as required by German regulations and EU standards. Leading partners and expert engineers did everything correctly. What If P&C Insurance added to the equation, was that we knew this is not enough to reduce the business interruption risk of this large paper mill to an acceptable level.”
From this perspective the value of an operating transformer is immeasurable, the threat includes losing business, impacting employees, potentially shutting down the factory completely in the worst-case scenario.”
Look from a different angle
Ottmar states that, “As observers, we looked at the equipment installed on the site from a different angle. We were not considering the installed equipment from a delivery perspective but a 'bird-angle view' which allowed us to see the project from outside to recognise a serious business interruption risk. This warranted raising concerns and pushing partners to reconsider the installed solution from an operational loss prevention angle.”
Supporting our customer in recognising the issue with the transformers, explaining the potential business interruption risk, required opening up new discussions while the conglomerate of experts was already overloaded with work to complete the main extension project on time.
Generally, oil cooled public grid transformers of such magnitude are very reliable, but if they break down, major repair work or delivery of a new unit can take 12 to 18 months. In the common risk formula R (risk) = P (probability) x I (impact), “P” is low, but “I” is considered to be extremely high, due to very long recovery time and total shut down of a major production. This was understood and accepted by the project team.
The first and most important objective of business interruption risk reducing measures had therefore been concluded to be the prevention of damage to both transformers at the same time. For this to happen, we required a scenario where a fire in one transformer spreads to the other one.
The existing separation consisted of some distance and partly a concrete wall, but an analysis proved that this was not enough to prevent the risk, where for example an oil fire could result in an explosion which spreads to the second transformer.
“Sounds simple, but this turned out to be rather difficult,” says Lars Freymann, Senior Risk Engineer at If P&C Insurance. Adequate transformer protection requires a substantial water supply, which is usually provided by the sprinkler network, but unfortunately was not easily accessible for this application.”
Lars continues, “However, together with local power plant and fire protection personnel we finally were able to work out an effective and affordable solution. Design criteria were forwarded to a sprinkler contractor, who installed the system under the safety supervision of power plant employees.”
One of the major specifications issued by If's Risk engineers was the proof of the installation by way of appropriate full discharge tests. Though this is not a costly exercise at all, contractors and electricians are hesitant to complete these tests. For example, electricians are concerned with electrical short circuiting due to water discharged via special nozzles at meaningful pressures.
“An important recommendation by If was conduction of an actual live water discharge test. Also in this case, the discharge test let to the need of some final modification to achieve the best lost control impact of the extinguishing system.” Lars states.
Recommendation by If was providing a fire protection system to control a fire and prevent fire spread from one transformer to the second one.
Effective loss prevention
As Ottmar says; “You have to know the client and understand what is going on at their production or warehouse sites. You also have to understand the broader business circumstances, such as the corporate structure, the insurance concept, and the client’s market.
Our involvement is about giving clients a higher chance to succeed, by taking an outside-in view of projects such as this. If you look at a single recommendation for transformer risk reductions on a list of many recommendations for an individual plant or even worse for a corporation with many plants all over the world, it only tells part of the story.”
Lars concludes, “At larger industrial sites, we at If P&C Insurance try hard to not just insure the financial impact of an incident, but we support our clients by long-term oriented loss prevention services. Only if all parties involved have the chance to learn about each other and are motivated to add their own competences, then the chance for a good business success is given for the insured and for the insurance carrier. Let’s pull on the rope in the same direction.”
Rolf Mohr, Essity Kostheim - Department Manager Power Plant states, ”Since we have identified the risk of a major business interruption and have taken care of adequate loss controls, I can sleep far better.”
Loss prevention consultation during larger projects:
- Know, trust and respect one another
- Make a commitment for long-term success (when the project has ended, the relationship continues)
- Understand the client’s business, both financially and technically
- Have a sound basis of technical loss prevention skills, but know your
limits and be prepared to involve others when needed
- It was very beneficial, as it was the case in this project that the risk engineer can speak the local language!
- Be ready for surprises and changes in resourcing
- Step back, look at issues from a bird’s eye view.
- Never stop asking questions
Transformer loss prevention and protection
- Analyse business interruption risk impact for each individual unit and any units grouped together.
- Determine, control and analyse preventive maintenance and the expected remaining lifetime of each unit. E.g. gas in oil analysis conducted periodically provides an excellent basis for planning of maintenance measures and replacement planning.
- Transformers must be included in plant wide thermographic surveys (IR scanning).
- Different fire risks related to dry and oil-cooled transformers must be taken into account.
- Critical units must be fire (explosion) separated from other critical property, this can include other electrical transformers, switchgear, production or warehouse buildings.
For larger units, the surrounding should be reviewed in all three dimensions. The radius necessary could be as large as 50 meters.
- Emergency planning includes e.g. safe shut down procedures, spare units, replacement times.
- Fire risk assessment includes for example:
- Type, age, size, location of unit
- Oil/water spread: pits below, drainage,
- Steel grates above pit and below unit acting as flame arresters?
- Fire control systems may consist of adequate pressurised water spray systems at various levels and especially above the unit.
- A full-scale flood test to confirm proper hydraulic design and positioning of the nozzles.
- For a transformer located inside buildings fire detection may consist of aspirating smoke detection systems. Outside units may be monitored by robust heat sensitive detection systems.