In this issue, we speak to Simon Thompson, Managing Director and Chemical & Life Sciences Practice Leader at Marsh, about the evolution of insurances broking, the issues of importance to the chemical industry today, and the some key risks emerging for the industry.

The background

With a heritage dating back almost 150 years, Marsh has a long and distinguished history of assisting chemical and other industry clients with their insurance. It is now a global leader in risk management, insurance broking and advisory services.

While headquartered in the New York, Marsh has over 20 offices in the UK and a network presence in 120 countries. The firm’s UK client portfolio includes start-ups, established national businesses, FTSE 100, and global companies.

“I’ve been in the risk business for over 30 years and enjoyed serving clients in a wide range of industries globally before specialising in chemical and life sciences in 2001.’’ Simon notes.

“Currently I lead our practice in the UK, working closely with my industry counterparts globally. We use our combined experience and data to assess and benchmark risk, raise best practice and drive improvements in risk and insurance solutions. This industry specialisation has proven to be a key benefit to our clients, and a differentiator for Marsh.”

How do chemical clients engage insurance brokers?

“Our focus is all about helping clients to reduce risk, and reduce the impact of an event if it happens,” explains Simon. “We specialise in creating novel solutions to address each client’s unique risk challenges. Working closely with clients we analyse their risk profiles in detail, before recommending fit for purpose insurances.

It is notable to observe how clients’ needs have changed in recent years. From being a ‘once a year’ outsourced insurance procurer negotiating and servicing insurance needs, increasingly brokers are required to act as a strategic advisor using a more intimate understanding of our clients’ businesses. Clients engage not only with our brokers but our chemical engineers, actuaries, forensic accountants and legally qualified claims specialists. We’ve become a trusted business advisor and, increasingly, an integral part of our clients’ risk teams.”

Typically, Marsh’s clients now engage them further up the ‘risk chain’, including:

Identification Building risk registers

Mitigation Validating risk management frameworks & executing projects

Quantification Risk scenario testing and evaluating financial consequences

Retention Modelling the financial tolerance and appetite of the business

Transfer Designing optimum insurance programme to transfer risk

Service and At head office and subsidiary levels

claims support worldwide

Simon explains: “This closer engagement enables us to create data-driven bespoke solutions with ‘fit for purpose’ insurance cover, and allows our claim specialists to drive the optimum response from the insurance policies, should a loss occur.

For example during a recent forensic programme review, we integrated the results of a retention study (to actuarially model the client’s risk tolerance), a natural catastrophe study of their key sites and a policy coverage review. The outcome for the client was a redesigned insurance programme achieving higher (necessary) policy limits, a lower corporate retention (deductible) and broader coverage – at a lower premium.”

Stepping up the risk management agenda

This broader approach also empowers smaller businesses to get on to the risk management ladder for compliance and governance, helps larger firms develop their existing risk strategies, and guides the risk management departments of the largest companies when dealing with less familiar new or emerging risks.

What are Important Issues for the Chemical Industry Today?

“Working with over 1,000 chemical clients globally, we regularly detect issues of concern to the industry. Three issues are of particular note right now.”

The importance of accurate insurance values

“While not limited to the chemical industry, in the aftermath of the devastating hurricanes last year, it has become apparent that many firms are inadequately insured. No financial director wants to learn their claim settlement will be reduced due to underinsurance.” says Simon.

“Many businesses use historical asset valuations, adjusted annually for insurance purposes. This model has its shortcomings.

Replacing machinery, or other assets, with new machinery and equipment that meets current industry, technology, environmental or regulatory requirements can have a higher cost than the existing asset value.

Conversely, an asset which may not be replaced at all following a loss should be insured for its actual value only, not the replacement value. This means that some firms can be over insured and are paying more premium than necessary.

Declaring accurate asset values is fundamental to avoid unwanted surprises.”

Hidden supply chain exposure

“The risks posed by complex supply chains are another chief concern. Most businesses take supply chains into account, but some don’t look far enough down the chain to quantify how the business would be financially impacted by disruption in the second or third tier.

We are helping clients in the chemical and pharmaceutical sectors to assess and quantify those risks more accurately. We also challenge the risk management and availability of alternative sources and challenge the ‘down time’ our clients expect to validate the insured business interruption indemnity periods.

More confidence in the risk management of the entire chain also encourages insurers to provide broader cover, which may be critical in a complex chain.”

Facilitating acquisitions

“In the chemical and pharmaceutical industries, we are supporting a high level of acquisitions. From mega-mergers, to smaller technology acquisitions, we work with clients to assist the due diligence process to mitigate the risks involved and provide support with integration projects.

In 2018, one frequent request from clients has been for warranty and indemnity solutions to remove some feared but unknown liabilities, such as those surrounding tax or environmental issues, from the transaction. This can provide the buyer with an enhanced status over its competitors during the negotiation and, in many cases, ultimately helps facilitate the transaction.”

What are the Key Risks emerging for the industry?


“Our clients put safety first in all things; with The International Labour Organisation estimating that there are 2.78 million work-related deaths and 374 million non-fatal work-related injuries and illnesses each year, this has never been more important.

Many of our clients are seeking the ISO 45001 occupational health and safety (OHS) accreditation. This is the new ‘gold standard’ and will be critical for firms competing for tenders and contracts, as well as increasing their level of claims defensibility when practised.

Efficient delivery of an ISO 45001 project requires cohesion among a wide range of stakeholders in the business. Marsh can help by undertaking a high-level readiness assessment of an organisation’s OHS using our knowledge of the ISO 45001 standard. This not only identifies non-conformities, but provides a clear roadmap with prioritised recommendations for aligning the organisation with the new standard, setting it on the right track for its final audit.”

Strengthening Cyber security

One of the greatest emerging risks that has now become a reality is the cyber threat. Compliance with the new General Data Protection Regulation is a top priority, but the cyber threat reaches way beyond data loss to operational safety and business disruption.

“Some businesses have for some time considered that the industry is not a specific target but NotPetya has upended this belief’’ Simon cautions.’’ Several large chemical and pharmaceutical businesses were interrupted by this industry-agnostic intrusion, one with disclosed losses close to US$1billion.’’

Marsh is complementing clients’ own security breach risk processes with loss scenario quantification of potential losses to the business and analysis of existing coverage.

“We then structure policies to supplement existing cover and close the gap for the specific client requirements. The insurance market has now matured and significant policy limits are available.

For smaller organisations an ‘off the shelf’ cyber policy can be extremely useful. Insurers provide security breach response services in addition to insurance cover. This means smaller firms can have experts on hand to help with all aspects of crisis management, from the technical aspects of getting the business up and running again, to media management – so that the business suffers the minimum of disruption.”

Brexit ‘future proofing’

“In common with all industries, the uncertainty surrounding Brexit is an issue for the insurance market, with matters of business continuity and regulatory compliance chief amongst concerns. The ability of insurers to be able to continue offering compliant EU-wide cover and provide cover for prospective new trade outside the EU is the minimum clients should expect. We are helping our clients future-proof existing insurance arrangements now, to provide the best chance of avoiding interruption before the finer details of the Brexit agreement are revealed.”

In summary

Insurance brokers are using ever more innovative ways to support their clients in the management and transfer of risks to protect their businesses. They address traditional and emerging risks to help reduce their impact and increase business resilience to survive and thrive.

Simon concludes “Our overall objective is to lower the economic cost of risk for each client. This begins with understanding the unique risks that they face. The more informed we are, the more value we can bring.”