POLLUTION PREVENTION: The Best-Kept Secret in Loss Control
Bagneschi, Linda, Risk Management
Risk control consists of techniques to either prevent or reduce the extent of any loss, as any risk manager knows, and pollution prevention is an important component of a company's risk control efforts. According to a report prepared for the U.S. Environmental Protection Agency by Tetra Tech EM Inc., pollution prevention serves a three-fold function in exposure avoidance, loss prevention and loss control.
For instance, as an exposure avoidance tool, pollution prevention may include replacing certain hazardous chemicals with nonhazardous substitutes, thereby eliminating that particular risk. As a loss prevention technique, a company may reduce the types of substances used in a process, lowering the probability of a hazardous release or spill. And as a loss control technique, pollution prevention may lower the toxicity of a mix of chemicals used in a process, mitigating the extent of any contamination that occurs.
Pollution prevention activities may also provide indirect benefits to an organization's risk financing program. For example, as the frequency and severity of losses are lowered, insurance premiums may also be lowered (because of the diminished risk) and the need for coverage may be reduced.
An example of how pollution prevention reduces risks and insurance premiums can be seen at a medium-sized wood products manufacturer in the Pacific Northwest that saved $34,000 a year in insurance costs by implementing a number of effective pollution prevention and risk management practices. The company's workers' compensation rates were reduced by up to 10 cents per hour, saving $10,000 annually for its 50employee work force. An additional $10,000 was saved through reductions in health insurance premiums by comparing past records with 18 months of data after changes were implemented and the company's casualty premiums were reduced by $14,000.
During this review, an industrial hygienist affiliated with the company's insurance carrier found that the building was getting an air exchange rate of 12 times per hour, three times greater than the insurer required. Further, the company had embarked upon a number of initiatives to reduce the risks involved with hazardous materials, such as employee training, improved transfer efficiency and chemical substitution. The insurer's review of the company's accident and health claims rate revealed that painters were ill for a shorter time, paint masks lasted longer and claims were reduced significantly.
Another example is an aluminum can manufacturer that was using a flammable solvent called MEK. According to the company's consultant, the firm had been storing MEK inside a warehouse, which increased its property insurance premiums due to the high fire risk. The company's management decided to eliminate the use or storage of flammable materials at the plant, and when the comp a n y informed its insurer of this change, the carrier reinspected the property and reduced the company's premiums by several thousand dollars a year. With a capital cost of less than $5,000, the project resulted in reductions to the company's fire hazard insurance and operating costs while also boosting productivity.
In fact, there are a number of similar instances in which pollution prevention activities contributed handsomely to a company's bottom line. A Massachusetts-based paper manufacturer lowered its fire insurance premiums by reducing the use of volatile organic compounds. It also reduced the potential for liability under Superfund, air quality regulations, OSHA and other laws by decreasing chemical use. And Monsanto implemented waste minimization efforts at a plant that decreased worker exposure to catalyst dust from 160 percent of the company's recommended exposure to 10 percent. Besides eliminating the need to use respirators and improving worker morale, the plant reduced its hazardous waste by 89 percent over four years. …