Companies are ignoring coating risk

Risk managers and insurers are failing to appreciate the economic impact when industrial painting or coating goes wrong, according to an industry expert.

A lack of knowledge around the role of coating is leading to an increase in claims while a dysfunctional insurance system is increasing the cost of those losses, said Raouf Kattan, principal consultant at Safinah Group who addressed the International Association of Engineering Insurers (IMIA) conference.

Earlier this year, Kattan published a whitepaper, 50 Years of Watching Paint Dry, which chronicled how the coating industry has changed in the last half-century and what lessons can be learned, many of which centred on insurance.

But at the heart of the problem is a fundamental lack of appreciation of the risk, said Kattan. “Coating is not just painting. It is specifically designed to protect the assets you’re insuring. This applies to a wide range of assets and the impact of failure is significant,” he explained.

The process may only account for 1% or less of the total value of a construction project but accounts for as much as 15% of labour costs because it is such a heavily manual process. Furthermore, the majority of this labour is correcting mistakes made in the original painting.

There is a similar disconnect in terms of insurance. “Paint is way down the list of insurance priorities and is only a fraction of the insurance budget. But when it fails, it has a significant impact,” said Kattan.

In his role as a consultant, Kattan has regularly acted as an expert witness in coating-related insurance cases, which have progressed from a swimming pool in Barnstaple at the beginning of his career to large-scale marine projects.

Since then, claims have continually gone up in what Kattan described as a “crazy system” made worse by the fact that a lot of claims are settled in the commercial market and out of court.

Coating failures have also been made more likely by the rise of modular construction, whereby components are constructed in different environments.

“The issue is how you ensure the same standards for all the separate components,” said Kattan. “There are different climates, the quality of surface preparation will vary and there is the transportation phase where you may be subjecting the coating to conditions it was not designed for. To re-establish standards involves compromises and time.”

He said establishing standards can be an inexact science and a frustrating experience for the coating experts. “There is a long list of ISO standards but they are written by committee and tend to be very general in terms of things like surface preparation,” said Kattan. “So you need to sit down and decide how those standards are going to be applied.”

There is also complications over what constitutes a failure. For example, some contracts may mandate no defects. This is difficult to apply to any structure or asset bigger than a rail carriage. “It is not humanly possible and creates huge claims because you are failing things that don’t need to be failed,” said Kattan.

The perception is that coating is a low-severity, low-frequency risk but the reality is it is moving towards high frequency and high severity, said Kattan. Consequently, he believes that painting has to be moved to a more technical and engineering-led space so that consultants such as him are not dealing with the painting manager when a claim is made. And insurers should be involved much earlier in the process, he added.

“The earlier the specialist is involved the better, but the reality is that insurance is considered too late in the project,” said Kattan.