| ERM Risk Tools: SMARTfraTM | Liabilities arising from hazardous material incidents can significantly deteriorate corporate financial health.
SMARTfraTM helps companies understand and control their total liability picture by reducing risks to a common financial basis.
SMARTfraTM utilizes the principles of Financial Risk Assessment (FRA) to measure impacts of hazardous material incidents on a uniform financial basis. This basis facilitates the comparison of consequences, and incorporates the total costs of an incident to obtain a true financial liability of the undesired event. This process naturally lends itself to cost-benefit analysis of alternative approaches and/or potential mitigation options.
Why is SMARTfraTM needed?
The toxic release in Bhopal, the Valdez oil spill, the Pasadena and Channelview explosions, and the Sacramento River pesticide spill make it apparent that liabilities arising from hazardous material incidents can significantly deteriorate corporate financial health.
In addition, with the increasing trend towards "right sizing" organizations, many companies do not have the management resources to carefully monitor and control their total liability or financial exposure. Decentralization of responsibilities for environment, risk management, insurance, and legal counsel often precludes corporations from getting a composite view of their "company busters"--those accidents which could severely cripple their business.
Utilizing the SMARTfraTM approach, companies can determine their risks without significantly impacting their resources.
Questions often asked by clients include:
- What is our maximum loss potential?
- Are the potential risks from a proposed activity prohibitive?
- Are we adequately insured? Can we reduce coverage?
- How can we reduce liabilities and increase assets?
- What are the costs and benefits of alternative
- technologies?
How SMARTfraTM provides the answers
1 Addressing the key issues
- Acute health hazards (fatalities & injuries)
- Chronic health hazards (carcinogens, etc.)
- Environmental hazards (oil spills, clean up, incineration, etc.)
- Property damage (explosions, fires, loss of cargo, etc.)
- Business interruption and loss of market share
2 Taking a building block approach
ERM Risk’s SMARTfraTM uses a building block approach that develops loss profiles for each process unit, operation, facility, and business. Using component reliability data, state-of-the-art consequence modeling, and recent accident and settlement history, SMARTfraTM generates:
- Average annual expected losses
- Frequency-cost curves
- Strategic business priorities
3 Generating the answers
- Identification of potential liabilities
- Assessment of insurance requirements
- Prioritization of EHS investments
- Assessment of hidden liabilities for mergers and acquisitions
- Evaluation of alternative technologies
- Assessment of business options and opportunities
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