Builders' risks - Shipyard risk

assessment
Gard News 191, August/October 2008
INSIGHT 191, 2008
01 AUG 2008

The JH 143 Shipyard Risk Assessment form is a tool insurers can use to find
out more about the yards they would like to insure.
Background
Over the last six to seven years the shipbuilding industry has been booming.
The number of vessels being delivered from yards has increased from year to
year and shipowners appetite for new vessels seems endless. This goes for
almost all types of vessels, ranging from the traditional bulkers and tankers to
private mega-yachts.
Simultaneously with the huge activity, the cost of steel, machinery and other
parts started to increase, resulting in enormous potential for larger claims if
something were to go wrong.
The boom seems to be a never-ending story, with most yards having full order
books until 2010-11. New yards are being developed and existing ones have
increased their capacity considerably. Prices are still increasing and the cost of
a new-building has as much as doubled for certain types of vessels in recent
years.
The increase in shipbuilding activity took its toll on insurers and the market was
hit by several major claims especially in the earlier stages of the boom, from
late 2002 to early 2004. During that period a number of claims, totalling
approximately USD 740 million, hit the insurance market, whilst total world-wide
premium for all new-buildings was believed to be in the range of approximately
USD 125 million. Claims included some of the major casualties shown in Table
1.
Project Type of Vessel Occurrence Claim amount
DIAMOND Cruise Fire USD 310 million
PRINCESS
ULYSSES Yacht Fire USD 25 million
COSTA Cruise Fire USD 20 million
FORTUNA
WESTERDAM Cruise Fire USD 75 million
Various Various Typhoon MAEMI USD 50 million
AL RIYADH Yacht Fire USD 30 million
PRIDE OF Cruise Sinking USD 228 million
AMERICA
Table 1.
Something was terribly wrong and needed to be corrected. The claims
prompted insurers to take corrective measures, as such losses could not be
sustained by the relatively small builders risks insurance market. In particular,
the fire on board the DIAMOND PRINCESS triggered a greater interest in yard
 Builders' risks - Shipyard risk assessment

safety, security and loss prevention management, methods and organisation.

The Joint Hull Committee, comprising representatives of Lloyds and insurance
companies, recommended that a new risk assessment provision be included in
policies, and this resulted in the creation of the JH 143 Shipyard Risk
Assessment form, brought into effect from November 2003. The JH 143 is a
tool insurers can use to find out more about the yards they would like to insure.
The idea behind this form was to ensure that certain standards are met by the
shipyards and should include review and testing of the safety management,
quality assurance and quality control of shipyard systems and procedures. It
shall include, but shall not be limited to:
Geographical and environmental risks;
General site condition;
Processes and procedures;
Quality assurance/quality control of the production process;
General housekeeping;
Management of subcontractors;
Permit to work systems; Emergency response plan;
Fire-fighting capability;
Shipyard equipment;
Atmospheric monitoring and control of industrial gases;
Launching and sea trials;
Site safety;
Casualty history.
The JH 143 survey calls for a suitably-qualified surveyor to perform the task,
preferably an independent surveyor. The surveyor will consult with the yard to
perform the actual survey and report back to underwriters. Any
recommendations made by the surveyor need to be implemented within a
certain time frame in order to maintain full insurance coverage.
Since its inception in 2003 many yards world-wide have undergone one or
multiple JH 143 surveys. As they were a requirement from the insurance
industry, the shipyard communitys first reaction to the surveys was generally
negative.
In many instances insurers have demanded that surveys be completed before
providing any form of coverage. The survey may be performed prior to giving
any indication of price and terms, or as a warranty to the insurance, with the
requirement that any findings by the surveyor are to be corrected within a
limited time frame.
As the years have passed the survey has become more and more common
and has eventually become a positive element in the process of entering into
an insurance agreement.

Survey findings

Now that surveys are the norm, a lot of data is available regarding the
operation of years. So, are there any issues that give rise to concern? An

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analysis of the information compiled has been carried out. In essence, the
findings can be divided into six different groups:
1. Management of sub-contractors

In modern shipbuilding a lot of the work on board the new-buildings is

performed by sub-contractors. The number of sub-contractors varies, but
nowadays they tend to constitute approximately 50 to 70 per cent of the
workforce. Although some have recurring employment on each of an individual
yards new-buildings, many work for short periods of the total construction time.
Hence, they will never be a part of the yards history, culture and pride. This
can, of course, influence the attitude towards the work being performed.
The surveys have revealed that on numerous occasions the treatment of sub-
contractors at the yard site has been different from that of the yards own
employees. The findings vary, but sub-contractors often appear to be left to
themselves, with the yard not being too interested in their whereabouts. In
many instances, sub-contractors are placed at specific locations within the yard
and perform their specialist work on-site.
With respect to safety education, the surveys have revealed that procedures for
sub-contractors were less strict than for the permanent workforce, resulting in
non-compliance with the yards own procedures and safety regulations.
Sub-contractors would often receive inadequate emergency and safety training,
which is a great concern, as they may account for the major part of the
workforce. This is probably one of the most significant findings, as it actually
jeopardises safety at the yard and increases the possibility of something going
very wrong.
Sub-contractors often use their own equipment and safety gear. These are
often found not to be in the best condition and not to have the standard
required by the yards own safety standards.
2. No smoking policy

At least one of the fires mentioned above is believed to have started because
of smoking on board. Smoking is a problem and the shipbuilding industry has
often been associated with the habit of smoking. Many yards have managed to
restrict smoking, but this is a culture which is slow to change. There are, in
essence, three types of issues which relate to smoking: smoking in general,
controlling smoking and banning smoking.
Often there are rules and regulations in place, but these are not always
enforced by yard management, which allows the workers to act as they like.
The rules are usually strict, but with no punishment for non-compliance.
Smoking in designated areas is a way to solve the smoking challenge still
such places should not be on board, but rather in safe areas on the quayside.
Construction of smoking sheds is a good solution.
From an insurers point of view, a total ban on smoking is the preferred action
to eliminate the exposure. For sophisticated and high-value vessels, like cruise

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ships, passenger ships, yachts, etc., a total ban is demanded. Many yards
today have introduced a total ban on smoking and strictly enforced the policy.
This is also in line with stricter smoking legislation in many countries, especially
in Europe.
3. Poor housekeeping and cleanliness

A lot of the surveys included reports on poor housekeeping and cleanliness.

This included the frequency of removal of garbage, especially garbage
containing hazardous waste. A lot of the waste generated by a yard contains
flammable materials and it is important to remove all such waste at regular
intervals. Many yards seemed to have a lax attitude towards waste disposal
and their procedures did not deal with these issues properly.
It is of course important to clean up any mess at the workplace and keep the
area tidy. This includes arrangement of all types of cabling, welding hoses and
similar, arrangement of lights and keeping emergency exits/escape routes free
of rubbish, equipment and tools. Shortcomings have also been noted in the
management of technical gas hoses. This should be an integral part of safety
regulations and good housekeeping.
4. Hot work

For any type of hot work being performed, a corresponding hot work permit
should be in place. The surveys revealed that this is not always the case and
some yards were found to have no system for proper hot work handling. The
permit to work system often seemed to be less strict on sub-contractors, which
reflects the observations made above.
Fire extinguishers should always be in close proximity to works. This seems to
be a simple and straightforward safety measure, but is not always observed.
During and after finishing the work it is important to perform necessary controls
within the workplace and later control/patrol the finished work to make sure that
no fires can occur. Hot work areas should be marked in order to give special
attention to the risks involved.
Insufficient gas freeing is an issue which has tragic side-effects. Over the past
few years there have been accidents in which yard workers have suffocated in
enclosed spaces. It is not only the enhanced danger of flash fires but also the
fatal outcome for workers operating in such areas that makes this such a
critical issue.
Surveys also showed that, in order to facilitate their own work, workers
tampered with their gear/equipment, such as electrical cables, welding and gas
hoses. This had the effect that the safety of the equipment was jeopardised,
making the equipment hazardous to operate. In many instances, it was found
that welding equipment was in poor condition and technical gas hoses were old
and/or did not have flashback arrestors.
5. Fire prevention and fighting

As can be seen from Table 1, most major claims are due to fires. This has been

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a major concern to the underwriting community and one of the main reasons for
introducing the JH 143 form to the shipbuilding market. The measures taken by
most shipyards to minimise fire risks did not seem to work properly and often
looked better on paper than in reality.
The surveys revealed that in a booming market there has been less time for the
yards to keep up to date with safety training and fire drills. Yards should not
only perform internal fire drills, but also fire drills in conjunction with local fire
departments. It is vital that the local fire department is well accustomed to yard
facilities and their fire-fighting organisation.
At some yards, it was found that fire hydrants on board the new-building were
not pressurised or the water pressure was not sufficient to cover the entire
new-building. Another safety inconsistency found was the lack of sufficient fire-
fighting equipment on board and a system to find them. Hot work should always
be accompanied with a portable fire extinguisher.
A good practice is to include the new-buildings sprinkler system as and when it
becomes operational in the various sections. The same is applicable to fire
doors in order to restrict the spread of a fire during the outfitting phase.
The surveys also revealed that often resources set aside for fire safety were
minimal, with equipment found to be insufficient and not properly maintained,
water pressure too low and insufficient back-up of supplies, such as portable
fire extinguishers and detectors.
6. Top management involvement

Most of the reports point to the role of the shipyard management in the safety
organisation and the level of their involvement. In many instances their
involvement was absent or peripheral. There was no direct involvement in yard
safety and such matters were not high on their list of priorities. The Emergency
Response Plan (ERP) was often made to the minimum legal requirements, not
reflecting the yards actual requirements in order to safeguard personnel and
production.
It is a top management responsibility to make sure that all safety procedures in
place are enforced. It was often found that the paperwork had been done, rules
and regulations put into force, but when surveying the actual workplace or new-
building these rules and regulations were not known or were not put in practice.
Top management should get involved in yard safety and discourage poor safety
and working practices. It is their job to create a good environment at the yard
and implement a mentality within the workforce which promotes safety and
pride in the work being done this must be applicable to sub-contractors as
well.

Safety and work culture start at the top, but if top management does not have
the willingness or interest to create such an environment, that will be reflected
in the general attitude towards safety and good working practices.
Conclusions

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 Builders' risks - Shipyard risk assessment

Statistics show that as the number of sub-contractors increase, so does the

number of accidents.
The poor practices regarding housekeeping, cleanliness, smoking and
technical gas habits are prevalent mainly among sub-contractors. However, this
is primarily due to lack of regulation and good working practices by yard
management.
Experience shows that major casualties are the result of a combination of bad
housekeeping, poor implementation of existing safety procedures, improper
handling of sub-contractors and accumulation of risk during the outfitting phase.
Top management has a responsibility to ensure that the yard has done the
utmost to protect their interest. Even though insurance has been purchased,
there are other losses which might not be recoverable and which will be at the
yards own expense in addition to the cost of a late delivery and loss of
reputation. In that respect, money spent on safety is money well spent.

Gard News 191, August/October 2008