Regulation, liability and insurance as risk treatment mechanisms - PowerPoint PPT Presentation

Regulation, liability and insurance as risk treatment mechanisms Eric Marsden <eric.marsden@risk-engineering.org>

How to Ensure against Railway Accidents John Tenniel, Punch , July 1857 Attaching the director to the front of the train to promote safety (Punch was a satirical British weekly magazine established in 1841, which closed in 2002) 2 / 52 Context: historical risk treatment mechanisms

activities: • regulation : technological or organizational prescriptions • liability regimes such as tort law: obligation to compensate victims • sofu law and self-regulation: voluntary standards of behaviour associated with social sanctions for fjrms that do not engage in the process • insurance to ensure that victims are compensated for (the monetary component of) losses ▷ Questions: • what are the advantages and disadvantages of each mechanism? • to what extent are they complementary? 3 / 52 Context ▷ Society uses multiple mechanisms to control the risk of hazardous

▷ Regulation: • obligations imposed by public law designed to induce individuals and fjrms to outcomes which they would not voluntarily reach, but are in the public interest • is enforced by public offjcials • compliance is aided by the threat or imposition of some sanction (fjnes, closure of activity…) • another defjnition: safety controls used by the regulator ▷ Risk regulation: public management of hazards which could afgect public health, safety and the environment • is roughly half of eu legislation… 4 / 52 Regulation: defjnitions

▷ Goal-based or performance-based ▷ Activity-based : require fjrms to implement processes such as an sms ▷ Information-based : labelling standards and obligation to disclose information on hazards 5 / 52 Categories of safety regulation ▷ Prescriptive or “command and control” In practice, a mix of these approaches is often used

▷ Terminology: prescriptive or “command and control” or compliance-based regulation ▷ Regulator sets specifjc requirements for regulated fjrms • technological measures, design features for equipment ▷ “One size fjts all” approach (same requirements for all fjrms) benefjts of safety investments 6 / 52 Prescriptive safety regulation � Allows clarity in requirements and fairness � Technological innovation leads to outdated regulations � Prevents innovation in safety mechanisms � Fairly high cost of verifjcation � Regulators do not always have good information on risks or on costs and

▷ All oil tankers entering us ports must have a double hull design (since 2006) ▷ EU Machinery Directive (2006/42/ ec ) states that “machinery must be fjtted with one or more emergency stop devices to enable actual or impending danger to be averted” ▷ Pressure Equipment Regulations state that a pressure vessel must have a written scheme of examination (inspections and their frequency) which is checked by a Competent Person (certifjed knowledge) 7 / 52 Prescriptive safety regulation: examples ▷ Passenger cars sold in eu must be equipped with abs since 2007

concerning safety mechanisms ▷ Safety regulations tend to become outdated due to technological change ▷ Example: decades-old regulations managed by us Department of Transport • usa : cars must have a high and a low beam, and nothing else • prevents manufacturers from introducing innovative new headlight designs which detect the presence of incoming traffjc and adapt beam shape to avoid dazzling incoming drivers 8 / 52 Prescriptive regulation and technological change ▷ Prescribing specifjc technological solutions hinders innovation

▷ Terminology: goal-based or “performance-based” regulation ▷ Regulator establishes specifjc desired, measurable outcomes for regulated activities, without requiring specifjc ways of achieving them ownership than if measures required by regulator 9 / 52 Goal-based safety regulation � Allows fjrms to select most efgective measures to reach objective � Since local managers make decisions on risk treatment measures, better � Can be diffjcult to identify relevant observable outcomes � Can encourage a “checklist approach” to safety management

‘‘ Each employer shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees. hour 10 / 52 Goal-based safety regulation: examples ▷ US osha ’s “general duty standard”: ▷ Civil aviation: probability of catastrophic failure must be < 10 −9 per fmight

▷ Stakeholders and ngos may perceive goal-based safety regulations as being “sofu on industry” ▷ Stakeholder concerns may arise from: • the possibility of using a variety of means of compliance • difgerent “standards” being applied for accepting alternative means of compliance • difgerent approach & methods to defjne and measure safety performance • more discretion provided to authorities for applying enforcement actions 11 / 52 Goal-based safety regulation: problems

▷ Terminology: activity-based or “management-based” ▷ Regulator identifjes key processes that are expected to lead to safety performance and requires regulator to implement them efgectively regulated fjrms 12 / 52 Activity-based safety regulation � Allows regulator to observe and discuss management-level activities in � Not necessarily efgective in ensuring good safety performance

▷ Seveso II directive ( eu ): operators of top tier sites must implement a safety management system ( sms ) ▷ Hazards Analysis and Critical Control Points ( haacp ) standards in food safety • organizations must undertake hazard analysis, identify critical control points, establish monitoring requirements, establish corrective actions, audit correctness and keep records ▷ us epa ’s “risk management planning” ( rmp ) regulations • regulations that concern facilities holding more than a threshold quantity of a regulated substance in a process ▷ us osha ’s “process safety management” ( psm ) regulations 13 / 52 Activity-based safety regulation: examples

14 / 52 • “The employer shall document that equipment complies with recognized and or near a covered process” • “The employer shall issue a hot work permit for hot work operations conducted on in the process safety information” modifjed facilities when the modifjcation is signifjcant enough to require a change • “The employer shall perform a pre-startup safety review for new facilities and for generally accepted good engineering practices” ▷ Example requirements: ▷ US federal regulation concerning the management of hazards associated technologies, procedures, and management practices ▷ Establishes a comprehensive management program that integrates • concerning toxic, fjre or explosion hazards reactive, fmammable, or explosive chemicals • preventing or minimizing the consequences of catastrophic releases of toxic, with highly hazardous chemicals Process Safety Management (USA/OSHA)

15 / 52 audits implemented each element is to be psm does not prescribe how Program started in 1992 composed of 14 elements osha ’s psm program is response planning and Emergency safety review Pre-startup participation Employee Trade secrets Compliance Process safety Training information Process Hazard Analysis Operating procedures Contractors investigation Mechanical integrity Hot work Management of change Incident Process Safety Management (USA/OSHA)

16 / 52 Process Safety Management An alternative graphical representation of the PSM components

▷ A facility’s program should address three areas: • Hazard assessment that details the potential efgects of an accidental release, an accident history of the last fjve years, and an evaluation of worst-case and alternative accidental releases • Prevention program that includes safety precautions and maintenance, monitoring, and employee training measures • Emergency response program that spells out emergency health care, employee training measures and procedures for informing the public and response agencies ( e.g. the fjre department) should an accident occur 17 / 52 Risk Management Plan (USA/EPA) ▷ US Environmental Protection Agency ( epa )

18 / 52 Source: Management-Based Regulation: Prescribing Private Management to Achieve Public Goals , Coglianese & Lazer, 2003 Choosing the regulation mechanism high performance-based regulation Capacity to assess output activity- prescriptive based regulation regulation low high low Homogeneity of regulated entities

▷ Also known as mandatory disclosure regimes ▷ Require fjrms to disclose information on the risks of their products or environmental impact of their activities ▷ Example: warnings of side-efgects of medicines ▷ Example: the Toxics Release Inventory program of us epa requires fjrms to provide data on release of toxic substances and waste management activities • has been shown to have some impact on stock market value of polluting fjrms 19 / 52 Information regulation