business interruption resulting from machinery breakdown

Technical Loss Adjusters

Business InterruptionResulting fromMachinery Breakdown

Dipl.-Ing. (Univ) Jürgen KolbeManaging [email protected]

Presentation IMIA 2017


Description:

The plant is coal fired with fluidized bed combustion. There were certain outfalls, which resulted in trip of the turbine unit (capacity 125 Mw)Those were caused by clumping of the grinded coal then used in the fluidized bed combustion process. This basically occurred due to the high humidity of the air at the spot being high temperature and coastal climate. Note: The situation was amended afterwards and the coal, after grinding, passed a drying procedure. Nevertheless, the event occurred during the first production years following an irregularity of the lubrication system of the turbine.

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In our present case we are concentrating on the Business Interruption followingLoss of Availability. However, just to complete on the material damage section:

• Insured´s claim:Material Damage: 2,276,007Loss of Availability: 2,484,568Total Claim: 4,760,575

• Adjustment (taking into considerationcost not claims related like overhaul, betterment, maintenance...)

Material Damage: 1,790,099Loss of Availability: 1,760,548Total Adjustment: 3,550,647

• Deductible : 250,000

Following damage was caused – See photos


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TURBINE SHAFT IN THE SUPPORTING AREA OF THE BEARING A = AFFECTED AREA

DAMAGE TO BEARINGS AND TURBINE BLADE

A

DAMAGES FROM THE LOSS


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DAMAGES TO THE GENERATOR SHAFT

DAMAGE TO BEARINGS AND TURBINE BLADE



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DAMAGE TO THE FAN BLADES FRICTION WITH HOUSING



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LUBE FAILURE AXIAL THRUST BEARING REPAIRED BY TURBOCARE (USA)



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Displacement of Turbine ShaftRepair of the shroudband of Wheel 8, bywelding points“Tenons”.

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During the trip resulting in the damages, the plant lost its in and outside supply of energy, and therefore the Main and Auxillary Lubricating systems did not work, which operatewith alternate electricity (AC).

The Lubricating system has an emergency system, which works with continuouselectricity (DC) but did not opérate since the automated control was in the “OFF” position.

CAUSE OF LOSS


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SUMMARY ON CAUSATION

• Human Error: Procedures for re-start of the plant were not correctly carriedout.

• The plant was not sufficiently protected against human errors.

COVERAGE

Failure of the emergency system was due to human error by the Insuredoperators (being in the “OFF” position), which is covered under the Policy.


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SUMMARY ON CAUSATION

The incident resulted in:• Loss of generation, which should have taken place during production of energy. This

calculation is straight forward relating the shortfall of production to the agreed energy prices by the energy board and is not the subject of this conference.

• It also results in a shortfall of availability of the generating unit. As in many countries and also in energy generating systems in Europe, like the “Green Energy”, shortfalls cannot always be avoided. The Energy Boards reaches an agreement to pay for Availability of the Generating Units. Thus they are obtaining stand by capacities. The exact conditions of penalizing for non availability are laid down in the contract conditions between Energy Board and the individual supplier.

• Normally, these penalizations do not end with regaining availability after repair again. • In may cases, they go month´s further after availability is given (up to 12 months later). • These facts should be considered in the Premium calculation, as they influence the BI

loss scenario. The conditions are defined by the Energy authority and can differ from country to country.

In the following, some general principles of BI Insurance and Loss Mitigation.


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CONTENTS

Concepts and Definitions

Loss Investigated

Adjustment ProcedureENERGY

LABOUR

InsuredCompany

MATERIALS

RAW MATERIALS

PRODUCTS FOR SALE

EQUIPMENT AND INSTALLATIONS

OTHERS


Sum Insured= Gross ProfitGross Profit = Sale figures– Variable ExpensesVariable Expenses = Electricity used for machinery, raw material, etc.Rate of Gross Profit = Gross Profit/ Sale figuresStandard Turnover Indemnity PeriodFrom a cost viewpoint:Interruption Period

FC+ VC+ P= SALESFC = Fixed Costs, VC= Variable Costs, P = Profit, S = Sales

Gross Profit = Fixed Costs+ Profit = Sales– Variable Costs

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Definitions…


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Period in reference: Standard turnover same as the period of loss,12months prior

Period of business interruption: Sales Figures Method: the end of the interruption is determined when the

previous sales figures are reached (loss of market has no coverage.). In this regard, evaluation and consideration is given to the material in

stock. Production Method: the end of interruption is determined when

production figures reach the previous levels. Limit of Indemnity: this period is established in the Policy and represents

the maximum indemnity for this policy.

Definitions…


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Bottle Neck Situations: should be identified at the begining of thesuscription. For example: one turbine generates 80% and the other 20% ofthe sale. The factor of relative importance is therefore determined withrespect to 100% of production (Factor of Relative Importance - FRI).

Temporary Deductible: applicable at the beginning of the interruptionperiod, taking into consideration the details of the values or productionmethod, that is, the stock may or may not be taken into account todetermine the initiation of the interruption period, in accordance with thePolicy.

Porportional Deductible: the amount of the temporary deductible iscalculated with respect to the total period of interruption.

Loss of Generation: is direct loss of sales Loss from Reduction of Availability: is an indirect loss due to

unavailability of the unit. Trend

Definitions…


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Mitigation of Loss Selection of Products: reference to higher prices Selection of Sales Schedule: satisfy the situations of higher income Spot Marketing: in the case of purchase of raw material or replacement

with lower prices. Purchase of materials from other plants Stock Replacement of Stock Postponement of shutdown or maintenance periods Use of outside energy. Outsourcing Incentives to shorten shutdown periods

According to the Policy, the maximum cost to be acknowledgedwith the application of measures,(“increased cost of working”) isthe cost of the loss that is being avoided.


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2. Adjustment of Loss for Business Interruption

Decrease in Availability (1)• Scheduled and Maintenance shutdowns, is estimated, according to statistics

up to 15% of the maximum monthly period.• The regulating authority imposes a consecutive sanction of 12 months, for

each month with shortfall below 85% (unavailability).• Based on operations records, unavailability of the plant was estimated,

which excludes period for maintenance and force majeure.. Only forcedshutdown was considered.

• The average of the days that the turbine was out of service was registeredmonthly.


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RECORD- Base Availability (Theoretic without Loss)

Year InvoicingHours

Normal Monthly hours

(calendar hours)

MonthlyAvailability

Classification of hours

Force Majeure Maintenance h

ForcedShutdown h

2014

January 228 0,94 2,90 0,00 14,40

February 744 0,85 15,00 0,00 107,30

March 696 0,87 13,90 0,00 90,80

April 744 0,85 6,50 138,00 90,50

May 720 0,85 108,00

June 744 0,85 111,60

July 720 0,63 267,00

August 744 0,69 227,00

September 744 0,85 111,60

October 720 0,85 108,00

November 744 0,85 111,60

December 720 0,85 108,00

Decrease in Availability (2)Time Base Study

No influence onavailability per contract

No influence onavailability per contract

From operation anormalitiesand maintainence


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Decrease in Availability (3)

Normal availability with 85% factor Base Availability (Theoretic without loss)Classification of Hours

Year InvoicingPeriod

Normal Hours/Month

H

Availabilityper month

ForceMajeure

MaintenanceH

MaximumForced

Shutdown h

2015

January 744 0,85 111,60

February 744 0,85 111,60

March 672 0,85 100,80

April 744 0,85 111,60

May 720 0,85 108,00

June 744 0,85 111,60

July 720 0,85 108,00

August 744 0,85 111,60

September 744 0,85 111,60

October 720 0,85 108,00

November 744 0,85 111,60

December 720 0,85 108,00


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Decrease in availability (4)REAL HOURS EXTENDED TO 12 MONTHSCalculation of decrease in availability, not resulting from the loss

Theoretic Loss from Availability without Loss Availability forinvoicingBased on theHistory of 12 Months

Loss from availabilityunder 85%

Year InvoicingPeriod Hours h Force

MajeureMaintenance

hForced

Shutdown h% USD

2.015

January 8268 38,21 138 1.455,80 0,8200893 0,02991075 70.769,00

February 8784 35,31 138 1.553,00 0,8196428 0,03035721 71.820,00

March 8784 20,33 138 1.558,00 0,8193763 0,03062365 72.261,00

April 8760 6,46 138 1.567,30 0,8180845 0,03191547 75.514,00

May 8760 0 0 1.588,40 0,8186758 0,03132420 74.118,00

June 8760 0 0 1.588,40 0,8186758 0,03132420 74.118,00

July 8760 0 0 1.588,40 0,8186758 0,03132420 74.118,00

August 8760 0 0 1.429,40 0,8368265 0,01317352 31.218,00

September 8760 0 0 1.314,00 0,8500000 0,0000 -

October 8760 0 0 1.314,00 0,8500000 0,0000 -

November 8760 0 0 1.314,00 0,8500000 0,0000 -

December 8760 0 0 1.314,00 0,8500000 0,0000 -

Total 543.936,00 Loss of availability (USD) = Loss% * 19,68 USD/Kw * 120.000 w

Actual availability = (h –forced shutdown) / h

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Decrease in Availability (5)Estimate of theoretic loss from the occurrence

Theoretic availability with Loss


Normal Hours

Calendar month

MonthlyAvailability

Classification of Hours

ForceMajeure

MaintenanceH

Max ForcedShutdown H

2014

January 228 0,94 2,90 0,00 14,40

February 744 0,85 15,00 0,00 107,30

March 696 0,87 13,90 0,00 90,80

April 744 0,76 6,50 138,00 143,20

May 720 0,00 720,00

June 744 0,00 744,00

July 720 0,58 300,00

August 744 0,85 111,60

September 744 0,85 111,60

October 720 0,85 108,00

November 744 0,85 111,60

December 720 0,85 108,00


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Decrease in Availability (6)Estimate of theoretic loss, from occurrence

Theoretic Availability with LossClassification of Hours


Normal Hours H

MonthlyAvailability

ForceMajeure

Maintainence h ForcedShutdown h

2015

January 744 0,85 111,60

February 744 0,85 111,60

March 672 0,85 101,00

April 744 0,85 111,60

May 720 0,85 108,00

June 744 0,85 111,60

July 720 0,85 108,00

August 744 0,85 111,60

September 744 0,85 111,60

October 720 0,85 108,00

November 744 0,85 111,60

December 720 0,85 108,00


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Decrease in availability (7)Recalculation of Loss, following the occurrenceREAL HOURS EXTENDED TO 12 MONTHS

Theoretic loss of Availability with Loss

Availability forInvoicing based on 12

month Record

Loss of Availability Lower than 85%

Year

Invoicing Period Hours h Force Majeure Maintenance h Forced Shutdown h % USD

2.015

January 8268 38,21 138 2.671 0,670,1800 425.149,08

February 8784 35,31 138 2.768 0,680,1714 404.839,74

March 8784 20,33 138 2.772 0,680,1714 404.698,75

April 8760 6,46 138 2.782 0,680,1729 408.387,01

May 8760 0 0 2.751 0,690,1640 387.291,62

June 8760 0 0 2.139 0,760,0941 222.303,12

July 8760 0 0 1.506 0,830,0219 51.815,01

August

September

October Total 2.304.484,34

Actual availability = (h –forced shutdown) / h

Loss of Availability (USD) = Loss% * 19,68 USD/Kw * 120.000 w


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2. Loss Adjustment for Business Interruption

Decrease in Availability (8)• Adjustment of the claim for loss resulting in the decrease of availability of

the generation was then accepted by the Insured.

Insured´s Claim USD 2.448.568

Re calculation of the decrease in availability USD 2.304.484

Less: normal unavailability not related to the loss USD 543.936

Decrease of Availability acknowledged and accepted finally by the Insured

USD 1.760.548

business interruption resulting from machinery breakdown

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