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By GREGORY DL MORRIS, a New York-based business journalist who has covered the global energy and chemical sector for more than 20 years

The Environmental Protection Agency is leading the charge, saying it has "many efforts under way to better manage chemicals as well as legislative principles to reform the Toxic Substances Control Act (TSCA)." The landmark TSCA of 1976 enabled EPA to require reporting, record-keeping, testing requirements and restrictions relating to chemical substances and mixtures.

After CFATS reauthorization (which may be years in the future), DHS plans to take up Inherently Safer Technology (IST) requirements, which involve the use of less toxic chemicals when applicable in given chemical processes.

All three major trade groups in the sector--the National Petrochemical & Refiners Association, the American Chemistry Council, and Society of Chemical Manufacturers and Affiliates (SOCMA)--have taken the position that existing regulations are generally sufficient, and that their member companies have in place codes of management practice to ensure continuous improvement.

PLANNING AHEAD

Nevertheless, there is broad expectation in the chemical industry that some new requirements will be promulgated, and the associations are adding new risk-assessment and compliance support tools. SOCMA just rolled out an online operator training module in the members-only section of its Web site. Last year, the group acquired the ChemAlliance Web site from EPA and recently added extensive best practices and case studies.

The chemical industry is so closely regulated that every time there is a proposed change to any major rules, there is a great deal of self-assessment in risk management programs, according to Fabrice Lebourgeois, managing director and chemical practice leader for Marsh. That said, he added that there has not yet been any great rush within the chemical industry to quantify how the proposed regulations could affect risk management programs or how the companies transfer their risks.

More broadly, Lebourgeois noted that chemical producers are making greater use of benchmarking and other resources from their brokers and underwriters. That is both for support in risk assessment and mitigation, but also in rethinking such basic assumptions as the retentions, limits and attachment points in their insurance programs.

In 2007 and again in March 2009, Marsh published a chemical sector benchmarking study covering 225 producers, or about half of its client base in the United States. About six months after the 2009 study was released, the brokerage firm brought into service an interactive database assessing the risk management of 40 global chemical producers with revenues of at least $2 billion, clients and non-clients.

According to the Marsh data, chemical companies carry significantly higher limits than other industries and also higher retentions in part due to the unavailability of primary coverage. Also, large loss scenarios are normally higher due to operational risks involving flammable liquids and/or vapor cloud exposures; these exposures can result in higher rates compared to other industry classes and can also result in higher program limits purchased when compared with other classes of insureds.

Lebourgeois noted further that many chemical companies have large facilities in coastal areas, so natural hazards are often serious concerns in addition to the operational hazards inherent to the industry.

"That can contribute to higher overall rates and program limits," he said. "Normally, retentions for the larger programs in this class of business are significantly higher; consequently, loss-control engineering activities are very important."

February 1, 2010

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