Reducing risks for policyholders

N V Subba Rao, head, risk services, Chola MS Risk Services Ltd, shares his perspectives, expects risk mitigation services to grow with the growth of the insurance sector.
Chennai: The promoter of a popular hotel chain in India was shocked to learn that a thermal imaging study by Cholamandalam MS Risk Services Limited, part of the Murugappa Group, revealed that a new hotel had 22 'hotspots'.

Here 'hotspots' refer to those electric points that emit more than normal heat, making them trigger points for potential electrical fire accidents. The hotel chain asked Chola MS Risk Services to conduct thermal imaging studies at all its properties to be able to take corrective measures across the chain.

"No more do corporates look at risk management companies to merely to save insurance premium. Today corporates would like to be seen as responsible corporate citizens by minimising the accident risks," says N V Subba Rao, head, Risk Services, Chola MS Risk Services.

He further adds, "Rather than reducing the premium outgo there have been instances where after our risk inspection report, companies have increased their insurance coverage by paying higher premium."

Interestingly Chola MS Risk Services is instrumental in getting a sizeable business for the $2-billion Murugappa group's non life insurance company, Cholamandalam MS General Insurance Company Limited. For instance Madras Cements Limited, which initially hired the risk management company to conduct a safety audit later shifted its insurance account to Cholamandalam MS General Insurance.

An experienced hand in loss prevention and safety, Rao, 44, is a B.Tech (mechanical) and an associate of the Institute of Risk Management, UK. Earlier, while with the Loss Prevention Association (LPA) of India he had investigated more than 120 fire accidents across the country.

In 1998 he joined Chola Axa Risk Services. However, global changes in the shareholding pattern led to Axa exiting the Murugappa joint venture. When it tied up with Mitsui Sumitomo for the non-life insurance venture, it was natural for the Murugappa Group to st up an equal venture with the Japanese company for its risk management services venture.

After a lull, Chola MS Risk Services hit the growth trajectory from 2002 onwards. Today it has 25 engineers on its rolls and couple of more will be added soon. "We have conducted safety audits for 18 out of 26 fertiliser plants in India," says Rao.

Last year the company did 160 assignments including couple of overseas projects. The company also services corporates in Hong Kong, Thailand, Taiwan, Indonesia, Singapore and Sri Lanka. Chola MS Risk Services is the first Indian risk management company to be on the Kuwait Oil Company's panel of risk managers.

Here Rao talks about the risk management services business and its growth drivers. Excerpts.

On the importance of risk management services.
in India, every 48 hours a major fire resulting in loss of over Rs50 lakh breaks out. The total marine losses incurred by private general insurance companies in India for FY06 amounted to Rs1,164 crore.

Given this, risk management is an investment to protect the future value of a company by mitigating the impact of a major loss and the company's ability to generate positive return to shareholders and employees.

For instance in Hurricane Katrina that hit parts of the US, companies that have implemented engineering recommendations had eight times lower damage than the ones that chose not to implement them.

On notable achievements of Chola MS Risk Services
The manual developed by us for building petrol bunks for a multinational oil company later became the blue book for setting up such outlets here. In the case of a car carrier, the implementation of our suggestions improved its mean time between accidents from 14 to 107 days.

We do safety audits for construction, logistics, ceramics, bulk drug, cement, chemicals, paints, electronics, telecom, food processing, high rise buildings, hotels, BPO, petrochemical plants, refineries and power plants. Chola MS Risk Services will soon start green building certification.

We don't see Chola MS Risk Services marketing its services aggressively.
We will soon setting up a focused marketing department. We get our clients through word of mouth and through our website. As of now we are able to respond to the market demands. We target is medium and large sized companies. We expect good orders from overseas market. This year our focus will be on chemical industries, retail chains and power plants. Target revenue this year is $1 million. Last year the revenue was Rs2.7 crore.

How will the detariffing of non-life premium rates impact your business?
Surely the market for us would expand. In a free pricing market, insurers would demand action taken report from their customers on safety precautions. The risk management flow chart is like this — identification of risks, implementing risk reduction measures, emergency measures for containing risk and finally comes transfer of risk.

We do suggest retention and transfer in loss of profit machinery breakdown policy. We base our recommendation after studying the cash flow, maintenance history, availability of spares. It is not only premium savings we do. We also assist in companies to get adequate insurance coverage to avoid under or over insurance. It should be mentioned that we are more into risk engineering and high end consulting.

Source: Domain-b