Client Risk Solutions

Technical Hazards Team

Engineering Procedure
Document Title: Risk Improvement Recommendations Date Issued: 4th March, 2013
Index #: COM-PM-03-0200 Date Revised: 23rd July, 2018
Industry Group: ALL Applicability: Combined

Risk Improvement Recommendations

Revision Number Revision Date Revision Number Revision Date

3 18th December, 2014 8 17th April, 2017
4 8th December, 2015 9 28th July, 2017
5 23rd May,2016 10 3rd November, 2017
6 17th August 2016 11 3rd April, 2018
7 4th November, 2016 12 23rd July, 2018

The content and other materials contained in this document is intended for general informational purposes only, and should not be viewed as a
substitute for legal, regulatory, accounting or other advice on any particular issue or for any particular reason. This document is intended solely for use
by employees of AIG, and is not intended for external distribution (i.e., to third-parties). As such, it may not be reproduced, reprinted and/or
disseminated in any manner without the prior written consent of a duly authorized representative of the AIG Law Department.
© 2016 American International Group, Inc. All rights reserved.
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Table of Contents

1. Revision Summary .......................................................................................................................................................... 3

2. Scope and Objective ....................................................................................................................................................... 3
3. Risk Improvement Overview ........................................................................................................................................... 3
3.1 Definitions ................................................................................................................................................................ 3
3.1.1 Critical Recommendations .................................................................................................................................................... 3
3.1.2 Examples of Imminent Ignition Sources and Critical Recommendations .............................................................................. 3
3.1.3 Important Recommendations ................................................................................................................................................ 5
3.1.4 Examples Important Recommendation ................................................................................................................................. 5
3.1.5 Advisory Recommendations ................................................................................................................................................. 5
3.1.6 Examples Advisory Recommendation .................................................................................................................................. 5
3.2 Risk Improvement Recommendations – General Guidance ................................................................................... 7
3.3 Physical Risk Improvement Recommendations ...................................................................................................... 8
3.4 Sprinkler Recommendation Content ....................................................................................................................... 9
3.5 Management Programs Risk Improvements ........................................................................................................... 9
3.6 Recommendation Format ...................................................................................................................................... 10
3.7 Risk Improvement Recommendation Library ........................................................................................................ 11
4. Protocol for Handling Previous Insurer or Broker Recommendations .......................................................................... 11
5. References .................................................................................................................................................................... 12
5.1 AIG Resources ...................................................................................................................................................... 12

Table of Figures

Figure 1 CP Non-Imminent Risk Improvement Category Help Guide .................................................................................... 7

Figure 2 CP Imminent Risk Improvement Category Help Guide ............................................................................................ 7

Table of Tables

Table 1 Risk Improvement Categories .................................................................................................................................. 6

Table 2 Example Loss Expectancy Reporting .................................................................................................................... 10

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1. Revision Summary

The following summary of change/update has been made to this guideline in the most recent revision. The links below will take
the reader to the changes made in the document which are also highlighted for visibility:

• 23rd July Update: Clarified section to address when recommendations for the addition of automatic fire sprinkler
protection is required. See Section 3.3

2. Scope and Objective

This guideline provides a framework for developing risk improvement recommendations for AIG clients based upon field
engineering surveys. This document covers definition and rationale for when to develop a risk improvement recommendation.

Risk Improvement recommendations are critical to understanding the exposures at each location. It is important that a
consistent approach is taken in determining when a risk improvement should be developed.

3. Risk Improvement Overview

3.1 Definitions

Risk improvement recommendations should be divided into three categories (Critical, Important and Advisory). The categories
are assigned to both Physical Protection and Management Program risk improvements.

Recommendations within each category should be prioritized in order of importance. During re-surveys recommendations
should also be listed in order of importance within each category.

Physical recommendations are to be made when the benefit to cost ratio is 10 to 1 or better. This means for every dollar spent
on risk improvement, the loss expectancy can be reduced by at least by at least ten dollars.

The Global Property & Special Risk Engineering Services and Performance Office is responsible for distributing a global list of
all Critical Risk Improvements and SLE to our Chief Underwriting Officer, Global Head of Property Underwriting, Global Head
of Large Limits, Global Head of Middle Markets, Property & Special Risk Zonal Leaders, Chief Engineering Officer and
Regional Engineering Leaders by the end of the month following the end of each calendar quarter.

3.1.1 Critical Recommendations

Critical recommendations represent conditions or work practices that create an “imminent or severe” loss-producing
situation. This means that there must be a readily available ignition source or a severe loss event with a Risk Improvement
Loss Estimate (LE) meeting one of the following criteria:

3.1.2 Examples of Imminent Ignition Sources and Critical Recommendations

Deficiencies of this nature require immediate attention by the insured, with either full compliance or reasonable mitigation of
exposure prior to the engineer leaving the premises, or within a few days thereafter, depending on the circumstances.

Examples of imminent ignitions sources include but are not limited to the following:
• Uncontrolled hot work with the presence of combustibles (occupancy or construction)
• Use of ordinary electrics in an occupancy requiring Class 1-3, Division 1 or Division 2 areas as required by NFPA 70
(ATEX/IEC)
• Lack of bonding and grounding for dispensing of combustible and flammable liquids

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• Evidence of uncontrolled smoking

• Lack of an effective Safe Work Permitting System
The thresholds in determining a critical recommendation are provided in Table 1 below.

These recommendations are typical of those that have high level of combustible or flammable material with ignition source
readily available. The following examples are intended to provide the engineer with some perspective on the type of
conditions that would appropriately fall into this category, but is not meant to be an exhaustive list. Engineers are instructed to
apply engineering judgement to determine if a particular risk improvement meets the intent of the definition for what is a
Critical Recommendation:

• Excess quantities of flammable liquids (as defined by NFPA 30) in non-approved containers used at the production
line. This will result in a lack of adequate vapor control, potential spillage and potential ignition from ordinary
electrical equipment or hot surfaces associated with the production line.
• Dispensing from drums of flammable liquids stored in the open process area or general warehousing and not within
an approved flammable liquids room, which increases the overall fuel loading and are subject to surrounding
exposures/conditions. Readily available ignition sources can be provided from ordinary electrical devices or process
equipment.
• Hot work operations actually occurring without proper safeguards with any of the following conditions present:
1. No sprinklers present or inadequate sprinkler protection with combustible loading.
2. Extra hazard occupancy defined by NFPA 13.
3. Combustible storage in excess of 12 ft high (not a miscellaneous storage per NFPA 13).
4. The presence of EPS Panels
• Improperly Impaired Systems (IIS) - any impaired fire protection systems in any occupancy discovered during a
survey and not restored by the end of the survey as defined per Engineer Procedure COM-PM-02-0028 Fire
Protection Equipment Impairment Procedures, Engineering Guideline COM-EG-11-0012 Fire Protection Equipment
Impairment Guideline. This would be a critical human element deficiency.
a) Lack of acceptable automatic or manual interlock on hydraulic equipment with ignition sources available such as hot
surfaces as required Engineering Guideline COM-EG-04-0054 Hydraulic Fluid Power Systems
b) Lack of automatic fixed fire suppression or inadequate automatic fixed fire suppression for Class A Ovens, such as
lack of protection in a direct fuel-fired oven that drives of flammable vapors and the minimum airflows are not
provided.
c) Lack of adequate sprinkler protection (or obstructed ESFR protection) in a warehouse that results in an LE ≥ 20% of
the site/location TIV (gross TIV not AIG layer or share) subject to a $25M minimum threshold or LE of ≥ $50M
d) Lack of automatic sprinkler protection in a manufacturing facility that results in an LE ≥ 20% of the site/location TIV
(gross TIV not AIG layer or share) subject to a $25M minimum threshold or LE ≥ $50M
e) All fire water pumps out of service with no remediation plan being executed
f) Excessive corrosion on piping or vessel or piping with Fitness for Service not being addressed effectively.
g) Improper blinding or no positive isolation on piping before line-breaking for liquid and gas hydrocarbon lines
h) PSV’s being removed without proper line-up to safe location and mediation planning
i) High pressure – high temperature Exothermic Reactor that has potential to rupture the reactor with inadequate or
missing temperature probes and automatic shut-down systems
j) Lack of FCCU Low Riser Temperature Interlock. – NOTE: In refinery FCCU Units, there should be an interlock to
automatically divert oil feed from the riser any time the riser or reactor temperature becomes too low to properly
vaporize the oil feed.

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3.1.3 Important Recommendations

Important recommendations represent conditions or work practices that could result in a loss-producing situation, but for
which immediate action is not necessary. These are recommendations to correct uncontrolled exposures or to achieve and
maintain a reasonable level of property protection. These recommendations require commitment on the part of the insured to
change or modify conditions or work practices in order to reduce the potential for serious loss, resulting from either frequency
or severity events.

3.1.4 Examples Important Recommendation

Important recommendations are those that are not critical by definition and generally require capital expenditure for
improvement, however capital expenditure is not required. The following examples are intended to provide the engineer with
some perspective on the type of conditions that would appropriately fall into this category, but is not meant to be an exhaustive
list. Engineers are instructed to apply engineering judgement to determine if a particular risk improvement meets the intent of
the definition for what is an Important Recommendation:

• Automatic sprinklers needed over production or storage (see below for light hazard).
• Excessive idle pallet storage inside a sprinkler protected building.
• Inadequate water supply requiring a fire pump.
• Inspection, testing or maintenance of fire suppression equipment and other equipment (cooking equipment,
ventilation systems, etc.).
• Hot Work permit and Impairment procedure recommendations for moderate/high hazard occupancies (see above if
hot work is occurring while you are at the site).
• Infrared recommendations for occupancies using power for production.
• Lack of Remote Operated Isolation Valves for liquid hydrocarbon hold-ups that could produce a VCE or jet fire
scenario
• Lack of fixed fire protection on critical equipment with long lead times
• Missing or poor condition of fire proofing on structure membranes in primary process unit with fire exposures
• Lack of fire water in tank farm
• Missing or inadequate gas and fire detection in hydrocarbon process or pressure storage areas
• Lack of proper management of ESD by-passes with numerous by-pass activities
• Lack of double mechanical seals on LPG / Light-end HC pumps and other pumps which expose major equipment to
fire
• Add tank storage over-fill protection for flammable and combustible liquids
• Inadequate or lack of a detailed Mechanical Integrity Inspection and Testing Program

3.1.5 Advisory Recommendations

Advisory recommendations represent conditions or work practices that do not directly pose a risk for severe loss or injury, but
could contribute to a loss situation. These are recommendations that are considered best practices to enhance the level of
property protection. Compliance with these recommendations improves the risk and reduces the likelihood of a loss occurring
from the recognized hazard or situation.

3.1.6 Examples Advisory Recommendation

These recommendations are considered to be best practices within the industry but do not present significant or frequent loss
exposures. The following examples are intended to provide the engineer with some perspective on the type of conditions that
would appropriately fall into this category, but is not meant to be an exhaustive list. Engineers are instructed to apply

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engineering judgement to determine if a particular risk improvement meets the intent of the definition for what is an Advisory
Recommendation:

• Provide sprinkler protection in small area (10 feet x 10 feet shipping office).
• Provide additional or complete sprinkler protection in light hazard occupancies with noncombustible construction
based on engineering judgment and a 1:10 cost benefit ratio.
• Sprinkler recommendations with an LE that is below the thresholds of Critical or Importation as shown above.
• Minor maintenance and housekeeping type recommendations.
• Infrared recommendations for light hazard occupancies and warehouses.
• Development of Process Safety Management leading and lagging KPI’s
• Enhancements to the SOP and Safe Work procedures
• Lack of effective Action Tracking for HAZOP and MOC program

Table 1 Risk Improvement Categories

Recommendation Risk Improvement Criteria

Category CP Thresholds EER Thresholds

Imminent situation and any size LE

Imminent situation and any size LE
or
or
Critical Non-imminent situation with LE ≥ 20% of the
Any assessed point with an individual rating in
site/location TIV (gross TIV not AIG layer or
the EER RAM of (4) and where the LE could
share) subject to a $25M minimum threshold or
exceed $100M
LE ≥ $50M

Any assessed point with an individual rating in

Loss Estimate (LE) ≥10% of the site TIV subject
Important the EER RAM of (3) and where the LE could
to a $10M minimum threshold or LE ≥ $20M.
exceed $50M.

Advisory All Other Risk Improvements All Other Risk Improvements

Figure 1 and Figure 2 below can be used as a visual guide to determine the risk improvement category and if there is a
potential SLE for CP accounts. Refer to COM-PM-03-0048 Serious Loss Exposure Reporting for details to determine if an
SLE exists.

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Figure 1 CP Non-Imminent Risk Improvement Category Help Guide

Figure 2 CP Imminent Risk Improvement Category Help Guide

3.2 Risk Improvement Recommendations – General Guidance

The body of risk improvement recommendation should include a clear description of how to mitigate the deficiency. Provide
alternatives whenever possible or available. The body of the recommendation should provide supporting details describing the
hazard. The details should include the following:
• Description of the deficiency
• Description of the size (area) or quantity (volume) of the deficiency
• Location of where the deficiency is (building name, floor)
• Description of how the deficiency negatively impacts protection and the location
• Reference appropriate Technical Code or Standard – see Note below

A client response and commitment to completing the recommendation should be obtained during the visit and summarized in
the risk improvement recommendations. Do not push for completion but determine realistic expectations. Provide responses
for both prospect and existing insured.

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With the exception of tailored agreements documented in the Client Service Plan, the Field Engineer must put forward and
document all appropriate risk improvement recommendations to ensure a true representation of the risk deficiencies and
potential improvement is captured.

When Tailored Agreements documented in the Client Service Plan exist, that are less than our standards, the Field Engineer
should approach this as follows:
• Tailored Management Programs: should be fully evaluated. If the program meets the intent of what was agreed, any
differences between that program and AIG standards should be commented on in the appropriate narrative section of
the report.
• Tailored Physical recommendations: the physical condition should be analyzed and any increased loss expectancy
should be noted and fully explained in the appropriate comment section of the report. If the condition represents a
significant increase in loss expectancy (100% increase or more), the Field Engineer should agree to a strategy with
the Account Engineer.
• If the management program or physical condition is deemed a critical recommendation that will result in a Serious
Loss Exposure (SLE) as defined in Engineering Procedure COM-PM-03-0048 Serious Loss Exposure Reporting, this
finding should be discussed with the Account Engineer prior to completion of the report.
NOTE – NFPA Codes are the recognized AIG technical benchmark unless otherwise stated within our Engineering Guidelines
and should be referenced within the Risk Improvement Recommendation where appropriate. Where the local codes or
standards are proven to be equal or more stringent, they can be utilized in full or part and should be supported with technical
justification in the body of the report. Sound engineering judgment must be utilized at all times.

3.3 Physical Risk Improvement Recommendations

Physical risk improvements such as automatic fire sprinklers should be recommended for all buildings when combustibles are
present in the construction, and/or occupancy and/or process. The only exception is:

• The LE is less than (<) US$5 million and where the benefit/cost ratio is less than 10:1

This continues to be a change from our former engineering practice; so, to clarify, going forward, engineers will no longer
apply the 10:1 ration if the LE is over US$5M.

For multiple building sites, the benefit to cost ratio should be based on the NLE/LE areas. For example, a nonsprinklered
university campus may have multiple NLE/LE areas due to practical exterior fire separation. There may be a blanket
recommendation to install sprinklers throughout the campus on the RI report. If the cost of protection were based on the cost
to install sprinklers across the entire campus, the benefit to cost ratio would be artificially skewed and most likely well below to
10:1 threshold. In these cases the benefit to cost ratio should be based on the cost to install protection in the building(s)
included in the NLE/LE scenario and the corresponding reduction in LE.

Recommendations for the installation of automatic fire sprinkler protection should not be removed from reports at subsequent
visits, even if the insured client indicates that they want these recommendations removed or deferred. Within current CSP
(client service plans), it is required that the engineer attempt to remove the deferral requirement at the next renewal. If the
Account Engineer or Underwriter are not successful in removing the required for existing sprinkler recommendation deferrals,
this should be escalated to Zonal Engineering and Underwriting Management for exception approval.

When physical protection is not recommended for buildings with combustible construction and/or occupancy (ie LE before is
less than $5M) document the benefit to cost rational in the Protection Section of the report. In cases where the LE Before is
greater than US $5M and a protection recommendation is not made, it requires Regional Engineering Manager approval.

All physical recommendations should be accompanied with a Loss Expectancy (LE) for the existing situation or deficiency and
a LE once the risk improvement is completed. The LE should be rounded to the nearest $100,000. The LE after completion
for any risk improvement recommendation is independent and assumes no other deficiencies.

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When a physical recommendation is made regarding fire protection equipment reliability (i.e. non-approved fire pump
controller or pump, sprinkler heads greater than 50 years old, recalled or non-approved sprinkler heads, elastomeric coupling
on fire pump, etc.), the LE associated with this recommendation is $0. While these situations may create a potential for
inadequate supply or protection, the issues is really reliability of the protection and not adequacy.

3.4 Sprinkler Recommendation Content

When recommendations are made for sprinkler system installation or hydraulic reinforcement, the following must be included
in the recommendation body:
• System Type: Wet, Dry, Pre-action, Deluge, etc.
• Sprinkler Technology: Standard Response, Quick Response, Special Application, Large Drop, ESFR etc.
• Design Criteria:
a. Density and Area of Application (noting that we should normally recommend a minimum remote area design
of 2000 ft² for ordinary hazard occupancies), or
b. Number of heads flowing and minimum pressure (Large Drop, ESFR, and In-rack)
• Sprinkler K-factor (see NFPA 13 for standard response sprinklers)
• This statement should be included in all sprinkler recommendations: “All sprinkler piping should have a UL Corrosion
Resistance Rating (CRR) of at least 1.0”.
• Sprinkler piping earthquake bracings (required for Munich RE zones 2,3,4)
• Recommended Hose Stream Allowance

Plan Review Recommendation - A separate recommendation for plan review should be made when new building, sprinkler
installation or special hazard projects have been identified. The recommendation should be worded as follows:

Plan Review: Plans for new sprinkler protection, construction or hazardous processes should be forwarded to your Account
Engineer for review. The review process will focus on those aspects important to the preservation of your property and
operations. Please contact your Account Engineer prior to or during the design phase of the project.

3.5 Management Programs Risk Improvements

Human Element risk improvement can vary in type and scope. When developing Management Program risk improvements
consider the following:
• Separate recommendations should be submitted for different Management Programs (Hot Work, Impairment, Testing
and Maintenance, etc.).
• When a specific Management Program or other Deficiency has multiple parts (sprinkler maintenance with valve
inspections, alarm testing, etc.), provide just one recommendation with multiple parts as needed.
• When several maintenance type recommendations exist (i.e. housekeeping, 18 inch clearance to sprinklers, etc.) and
the LE < $500,000 the field engineer has the option to provide one recommendations titled “Miscellaneous Risk
Mitigation Measures” with multiple parts to address the exposures.
• If there are enough deficiencies across several Management Program areas or there exists physical
recommendations that have been outstanding over the course of multiple surveys, consideration should be given to
developing an additional risk improvement that specifically addresses the lack of management interest. This type of
risk improvement should be categorized as a critical recommendation and considered an SLE.

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3.6 Recommendation Format

Recommendations should be written with the following convention:

• Numbering - the numbering system denotes the year and month of the AIG visit followed by the recommendation
number. The number shall be bolded. (NOTE: Maintain previous recommendation numbering for EER reports).
 Initial inspections – number recommendation (rec) to current year.
 Re-surveys - use initial survey rec number
 Re-surveys with major changes to recs - include word “Revised” in parenthesis after the title of the rec.
Example: 03-06-02 Water Supplies (Revised). Delete “Revised” during subsequent visits.
 Re-surveys with minor rec changes should not be considered “Revised”.

• Title - Provide a brief title for the Risk Improvement. The title should include a verb and convey in brief what the
recommendation and follow the naming convention of “Topic; Subtopic- Action <affected area/location>”. Keep to 100
characters or less if possible.

Example:
• Sprinklers - Install Sprinklers in Flammable Liquids Mixing Room 1A
• Flood Emergency Response Plan - Create a site specific plan for the site.
• Infrared (IR) Inspections - Implement an IR Inspection Program
• Sprinklers; Ceiling Only- Provide sprinklers in the finished products storage area

• Recommendation Body – refer to section 2.2 Risk Improvement Recommendations – General Guidance and in
particular the NOTE regarding NFPA
• Loss Expectancy (LE) - Provide the LE before and the LE after the recommendation is complete. Round the LE to
the nearest $100,000
• When there is a multi-part recommendation, addressing more than one deficiency provide separate Loss
Expectancies for each below the Client Response section.

Example:

Table 2 Example Loss Expectancy Reporting

Loss Expectancy Completed Loss Expectancy

Loss Expectancy (Part A): $15.5 M Completed Loss Expectancy: $0.5 M

Loss Expectancy (Part B): <$5 M Completed Loss Expectancy: $1.5 M

An example of this convention follows:

08-01-01 Flammable Liquids Storage in Building No 1: Remove the thirty 55 gal drums of flammable liquids from the
parking garage of Building No.1 and relocate to off-site storage or an appropriately designed and protected cut-off room.

Details: There are thirty 55 gal drums of flammable liquids (FP=55F) located in the parking garage of Bldg. No. 1. The
flammable liquids are used for the construction project adjacent to the building. Storage covers 1000 sq. ft. of the parking
garage ground level. The material is dispensed near non-rated electrical equipment. This material is not adequately protected
by overhead sprinklers and exposes the surrounding occupancy to a significant fire loss.

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Client Response: Jim Smith, Supervisor, indicated the material would be relocated to an offsite low value building within 24
hours.
Loss Expectancy Completed Loss Expectancy

Loss Expectancy: $15.5 M Completed Loss Expectancy: $0.5 M

3.7 Risk Improvement Recommendation Library

A central database of standard risk improvement wordings has been collated for common issues encountered in order to
provide a globally consistent base for CP related recommendations. There is no standard wording database for EER
recommendations. These wordings should be used where appropriate and edited by the visiting engineer to be suitable for the
specific application. The database is not exhaustive but contains common examples and these have been extracted into both
word and excel documents for use depending on the preference of the engineer. The document references together with
commentary on limitations of use are as follows:

• Engineering Procedure CP-PM-03-0201 Recommendation Library Extract – Excel

This document can be filtered using the standard excel buttons but the paragraph formatting of the risk improvement
wording is lost when copying and pasting into the report.

• Engineering Procedure CP-PM-03-0202 Recommendation Library Extract – Word

This document uses the word search function and the paragraph formatting for the risk improvement wording is
retained when copying and pasting into the report.

4. Protocol for Handling Previous Insurer or Broker Recommendations

When other carrier, broker or engineering service provider reports are available and previous recommendations are
referenced or carried forward, the following should be strictly followed:

• Do not use the other report numbering – see section 2.6 for AIG numbering protocol. The other report
recommendation number should be placed in Parentheses prior to the Recommendation Title in the bullet point
above. For example 13-04-01 (09-03-003) Finished Goods Warehouse Sprinkler System Reinforcement. This
example references the prior recommendation in the recommendation title to permit the insured risk management
team to track open recommendations from prior engineering service providers. This is only done when an open
recommendation from a prior engineering service provider report is carried over as an open AIG recommendation.

• If previous recommendations are carried over to our reports make a “simple” comment in the Details section of the
rec (i.e. This recommendation has a history dating back to 20XX.)

• If other Insurance Co. recommendations are completed acknowledge this in the Rec Completion section without
reference of the other Insurance Co. (i.e. The flammable liquid storage deficiency in Building 5, dating back to 20XX
has been adequately addressed.)

Recommendation wording should never be copied from other carrier reports. The recommendation wording should
be reflective of AIG findings and standards – don’t just cut and paste and pay particular attention to ensure only
appropriate codes and standards are referenced in accordance with the note in Section 3.2.

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5. References

5.1 AIG Resources

1. COM-EG-11-0012 Fire Protection Equipment Impairment Guideline

2. COM-PM-02-0028 Fire Protection Equipment Impairment Procedures
3. COM-PM-03-0048 Serious Loss Exposure Reporting
4. COM-PM-03-0048F Serious Loss Exposure Notification Form
5. COM-EG-04-0054 Hydraulic Fluid Power Systems
6. CP-PM-02-0006 The Facility Tour
7. CP-PM-04-0001 Loss Estimates – General Guidelines and Definitions
8. CP-PM-04-0002 Loss Estimate Development (MAS, MFL, PML and NLE)
9. CP-PM-03-0201 Recommendation Library Extract – Excel
10. CP-PM-03-0202 Recommendation Library Extract – Word

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