by Bill Zachry

Highly Protected Risk: A Strategic Approach to Property and Asset Protection

October 2023

"The Comp Compass" is Voxel's monthly whitepaper where Bill Zachry, former VP of Risk at Albertsons & Safeway, shares his expertise on workers compensation insurance, and his vision for the future of risk management.

In this paper, we will explore in depth the concept of Highly Protected Risk (HPR) as a crucial component of modern risk management strategies and this strategic approach to property and asset protection. In a cost-conscious environment, there are substantial potential advantages to implementing HPR and AI technology can be used to gather data to enhance predictive risk management.

HPR is a standard in the realm of property insurance and important for those in charge of maintenance and property loss control to understand its impact on insurance costs. The prevention of property losses stands as a crucial responsibility that, when properly executed, leads to lower insurance premiums, ultimately benefiting the organization as a whole.

Defining Highly Protected Risk 

HPR is an underwriting term that refers to properties that have implemented extensive loss-prevention measures, and thus categorized as lower likelihood of loss for insurance companies. This is typically achieved through robust fire-resistive construction, limited exposure to onsite and offsite hazards, specialized fire protection equipment, access to ample water sources for firefighting, prompt support from emergency responders, and, crucially, a management committed to fire prevention and loss control.

A property achieves HPR status only after rigorous inspections, evaluations, and affirmations of the implemented safety standards. This status, though demanding to attain and maintain, offers significant benefits such as a higher quality insurance contract, favorable premium pricing, and certainty of liability limits. It fosters a proactive partnership between the insurer and the insured, with both parties sharing a commitment to loss prevention.

Tracing the Historical Roots of HPR

In the late 19th century, recurring fire losses at New England textile mills spurred owners to establish mutual insurance companies—marking the inception of the Factory Mutual (FM) System.1 The notion that automatic protection would reduce fire losses caused the invention of the first automatic fire sprinkler, and having automatic protection that required design, installation, testing and maintenance were the beginnings of the philosophy that automatic protection along with good safety practices would benefit all the mutual company members. 

The ruins of Pemberton Mill in Lawrence, Massachusetts (January 10, 1860).(2)

The invention of the automatic fire sprinkler, alongside an increased focus on safety practices, furthered the philosophy of loss prevention. The HPR concept evolved throughout the 20th century, spreading from its textile origins to other manufacturing classes, as well as to retail, office, and institutional entities all with a business focus on reducing losses with the associated reduced premiums.

HPR carriers continued to innovate within the industry. For example, HPR insurers developed a fire and wind-resistant membrane and roof deck after a fire in a sprinklered automobile plant caused by a specific roof membrane.

These innovations birthed the National Fire Protection Association (NFPA) codes/standards and FM data sheets—guidelines for protection systems and building design, reinforcing the HPR ethos in the insurance industry.3

The Role of Property Conservation Programs and Management Attitude in HPR

In the HPR landscape, Property Conservation Programs play a vital role. Businesses aiming for an HPR designation implement these detailed loss control programs, which are vetted by insurers during inspections. These programs apply equally to third-party operators and vendors interacting with the facilities, reflecting a comprehensive approach to loss minimization from various perils.

However, superior protection systems and construction mean little without a management ethos focused on loss prevention. HPR designation maintenance necessitates management’s proactive engagement in the maintenance and testing of fire protection systems and human element programs such as permit systems for cutting and welding, and regular self-inspections.

Investment in achieving optimal levels of protection and superior construction and systems is crucial. A solid commitment to the HPR philosophy is fundamental, and this commitment shapes a strong partnership with the insurance carrier, where the focus is proactive loss mitigation rather than reactive measures. This relationship enables insurers to have a clear understanding of the risks involved, leading to a better-quality insurance contract with more favorable premiums.

Faulty cast-iron pillars contributed to the collapse of the mill.(2)

Characteristics of an HPR Facility

An HPR facility reflects a combination of crucial aspects—construction, management commitment, protection systems, special hazard management, and exposure control.

  1. Construction: An HPR facility’s construction must resist various perils such as fire, wind, or earthquakes, making maintenance and use of non-combustible or fire-resistant materials essential.
  2. Concerned Management: Management must be actively involved in property loss control programs. Without management commitment, no facility can qualify as HPR. These programs encompass hot work programs, impairment handling, fire detection, and equipment testing, among others.
  3. Protection: While automatic sprinkler systems are commonly associated with HPR facilities, HPR classification requires much more, including reliable water supply and proper supervision through occupancy, alarm systems, or watchman service.
  4. Special Hazards: Special hazards such as dust exposures and hazardous materials handling must be adequately managed in accordance with nationally recognized standards. Failing to provide protection against these hazards may disqualify a facility from HPR rating.
  5. Exposures: An HPR facility must not have severe exposures that are difficult to engineer out. These include risks from nearby petroleum tanks or multi-tenant warehouses where control over adjacent storage is limited.

An engineer’s comfort level with the risk, called engineering judgment, affects the overall rating of the risk. It takes into account factors such as loss history, preventative maintenance programs, test frequencies, multi-tenant exposures, and the corporate culture's stance on loss control.

Advantages of Embracing the HPR Concept

Adopting the HPR approach offers a wealth of benefits, impacting not only the company's bottom line but also contributing to the safety of its people and continuity of its operations.

  1. Workplace Safety: HPR’s focus on loss prevention enhances workplace safety for both employees and customers. Lower incidents of property loss invariably translate into a safer environment.
  2. Business Continuity: By actively adopting the HPR concept, businesses effectively shield themselves from interruptions. High-quality construction and stringent safety practices minimize the risk of incidents that could halt operations.
  3. Financial Efficiency: The Total Cost of Risk (TCOR) encapsulates insurance premium expenses and the funding of retained risk. By consistently applying the HPR approach to property construction, facility use, and administrative programs, businesses can reduce the frequency and severity of loss, impacting TCOR directly and favorably. 

These advantages make embracing the HPR concept a strategic decision that extends beyond risk management, touching all facets of a business from its financial health to its reputation and resilience.

Assessment Summary  

When the property insurance company completes a survey of the facilities, a report is generated for use by the underwriters as well as for the insured to use to reduce their risk. Part of that report includes the "Assessment Summary."

The following is an example of the Assessment Summary found in each report.

The various categories are given a rating from 1 – 10. The best rating is 10 (with the exception of Manual Fire Control), which relates to the adequacy of the local fire department. CAT (Catastrophe) Exposures relate to the site's exposure to flood, wind or earthquakes. The final score for a facility is given to the underwriter, which is then used among other criteria to ascertain the rate and dollar capacity for a site. The higher the score, the safer the risk, the lower the rate, and more capacity (or resources) can be allocated to the location.

The Future of HPR and the Role of AI and Computer Vision

The horizon of Highly Protected Risk (HPR) management is rapidly expanding with advancements in technology, particularly in the domains of artificial intelligence (AI) and computer vision. As the HPR philosophy continues to mature, technology is poised to augment and reinforce traditional methods of risk prevention and management.

  1. AI-Driven Risk Assessment: Artificial intelligence allows for deeper and broader risk analysis by assimilating and interpreting vast amounts of data more quickly and accurately than human capabilities allow. AI can identify patterns and trends, predicting possible loss scenarios and suggesting effective preemptive measures.
  2. Computer Vision for Hazard Detection: Through real-time surveillance and analysis of visual data, computer vision can detect potential hazards and breaches in safety protocols that might otherwise go unnoticed. By instantly recognizing and alerting about such threats, it provides an opportunity for prompt intervention, reducing the likelihood of loss incidents.
  3. Intelligent Monitoring and Management: AI and computer vision technologies offer the potential for 'smart' facilities that are continuously monitored and managed. These technologies could adapt protection measures based on changing conditions, constantly optimizing for safety and efficiency. For example, surveillance systems could identify and track the location and movement of hazardous materials, ensuring they are handled and stored correctly.
  4. Predictive Maintenance: By analyzing data over time, AI can predict when systems or equipment are likely to fail and schedule maintenance to prevent such incidents. This not only reduces the risk of loss due to equipment failure but also prolongs the lifespan of the equipment.

In conclusion, as the world becomes more interconnected and digital, the integration of AI and computer vision in HPR practices is not just a futuristic concept but a present-day reality. The union of these cutting-edge technologies with traditional HPR practices will usher in a new era of risk management, where loss prevention is not only more efficient but also more proactive and predictive. This technology-led HPR paradigm is poised to redefine risk management, offering unprecedented levels of property conservation and loss prevention.

Sources: 1. FM Global. Our History. 2. Reimann M. This tragic mill collapse killed mostly women, after industrialists put profit before safety. August 2, 2017. 3. FM Global. Property Loss Prevention Data Sheets.