PRE-INSURANCE NDT-BASED RISK ANALYSIS

Large industrial facilities (power plants, cement plants, petrochemical complexes) involve high capital intensity, complex processes, and significant loss potential.

Current practices show that pre-insurance risk assessments are often based on visual inspections and limited technical assumptions. This approach is insufficient to reveal internal defects in critical equipment operating under welding stress, high pressure, and elevated temperatures.

Our solution is to clearly define the technical, financial, and strategic value that NDT (Non-Destructive Testing) provides to insurance companies, reinsurers, and facility management prior to coverage.

Current Practice

Pre-insurance surveys typically include:

• Visual inspection

• Documentation review

• General maintenance and operational observations

Structural and Technical Blind Spots

In large welded and pressure-bearing equipment:

• Internal cracks

• Fatigue damage

• Corrosion mechanisms

• Weld defects

• Thermally induced weld discontinuities

These internal risks cannot be detected visually and are often only discovered after a loss event occurs.

Consequences

In the event of a claim:

• Uncontrolled escalation of damage

• Total equipment loss instead of localized repair

• Business interruption

• Exponential increase in insurance compensation

A Technical, Financial, and Reinsurance-Oriented Approach for Large Industrial Facilities

Problem Definition: Limitations of Conventional Pre-Insurance Risk Analysis

Critical Equipment and High-Risk Areas

Typical High-Risk Assets

• Steam boilers

• Pressure vessels

• Rotary kilns in cement plants

• Large-diameter gas and oil storage tanks

• Reactors

• Heat exchangers

• Main process piping systems

Common Characteristics of These Assets

• They contain high levels of stored energy

• Damage can create a domino effect

• A single defect can shut down the entire facility

What is NDT (Non-Destructive Testing) and What Does It Provide?

Definition of NDT

NDT consists of advanced inspection techniques that enable the detection of internal and surface defects in equipment without causing damage to the material, in accordance with international standards.

Commonly Used Methods (Examples)

• Ultrasonic Testing (UT)

• Radiographic Testing (RT)

• Magnetic Particle Testing (MT)

• Penetrant Testing (PT)

• Phased Array Ultrasonic Testing (PAUT)

• Time of Flight Diffraction (TOFD)

Pre-Insurance NDT-Based Preliminary Survey Model

What is the Core Logic of This Model?

While traditional survey methods are generally based on visual inspection, the NDT-based model enables in-depth technological examination without requiring physical intervention (breaking, dismantling, sampling).

• Non-Destructive Examination: Internal defects are detected without damaging the structure or machinery.

• Detection of Hidden Risks: Invisible corrosion, cracks, weld defects, or internal weaknesses in concrete are identified.

• Accurate Premium Calculation: Insurers can price policies more fairly, as the true extent of risk is technically verified.

• Loss Prevention: Potential failure or collapse risks are identified early, allowing corrective action before damage occurs.

Proposed Approach

During the pre-insurance phase:

• Identification of critical equipment

• Development of a risk-based NDT inspection plan

• On-site application by certified personnel using calibrated equipment

• Technical analysis and risk grading

Difference from Conventional Survey

Conventional Survey:

• Visual and documentation-based evaluation

• Qualitative, interpretation-based findings

• Assumption-driven risk acceptance

NDT-Based Preliminary Survey:

• Internal defect detection (cracks, corrosion, fatigue)

• Measurable and reportable technical data

• Evidence-based underwriting and reinsurance decisions

Added Value for Insurance Companies

Making Risk Measurable

• Reduction of uncertainty

• Strengthened underwriting decisions

Reduction in Loss Frequency and Severity

• Prevention of major losses

• Decrease in claim amounts

Reinsurance Perspective

• More transparent risk profile

• Lower reinsurance risk premium

• Increased credibility with international reinsurers

Benefits for Facility Management

Technical Benefits

• Early detection of hidden defects

• Planned maintenance and repair

• Prevention of unexpected shutdowns

Financial and Operational Benefits

• Continuity of production

• Reduced business interruption risk

• Achieving an insurable risk level

The “Invisible Risk” Factor in Industrial Insurance

How Do NDT Reports Reduce Premiums?

In industrial facilities, traditional insurance assessment methods are often insufficient in complex and highly critical environments.
Although energy plants or cement factories may appear structurally sound from the outside, internal corrosion, micro-cracks or fatigue damage hidden within the material may exist without any visible signs.

Is It Optional or a Strategic Check-Up?

There is a long-standing practice in the insurance sector: waiting for damage to occur before evaluating it.
However, this approach is reactive.

A non-destructive testing (NDT) study, on the other hand, is a proactive strategic process — a technical “check-up.”
In critical assets such as pressure vessels, boilers and welded joints, potential defects that could lead to major losses can be identified before failure occurs.

Why Is NDT Becoming Essential for Insurance Companies?

1. Converting Blind Risk into Measurable Data

NDT transforms hidden risks — such as internal corrosion, fatigue or material degradation — into objective, measurable technical data.

2. Scientific Maximum Loss Estimation (PML)

Instead of speculative worst-case assumptions, insurers can rely on actual condition data to assess probable maximum loss.

3. Stronger Position in Reinsurance

Reinsurers value transparent, technically supported risk analysis.
NDT-backed underwriting builds confidence and improves pricing negotiation power.

Benefits for the Insured (Facility Owner)

Lower Premiums, Continuous Production

Facilities that conduct NDT assessments may be classified as “Improved Risk,” leading to stronger underwriting terms.

Premium Reduction

Scientifically measured lower risk directly supports more competitive pricing.

Managing Business Interruption Risk

NDT helps prevent unexpected shutdowns through condition-based maintenance planning.

Conclusion and Strategic Recommendation: The Era of Scientific Risk Management

Today, large industrial risks cannot be accurately assessed solely through visual inspection or documentation review.

NDT reports provide clarity and transparency for both insurers and insured parties.

Insurance-based NDT assessment:

✓ Establishes a new technical standard in industrial insurance
✓ Elevates large risk management to a scientific level
✓ Supports sustainability both technically and financially

Damage investigation is reactive.
NDT is preventive investment.

It is not a replacement for traditional inspection — it is an advanced engineering enhancement.

Content and Strategic Importance of the NDT Report

Report Content

• List of inspected equipment

• NDT methods applied

• Classification of identified defects

• Risk grading and prioritization

• Recommended corrective actions and improvement measures

Use in Insurance and Audit Context

• Technical annex document for the insurance file

• Reference document during renewal periods

• Technical basis and supporting evidence in case of loss

Win–Win Model

Insurance Company: More controlled risk, reduced claim exposure

Facility: Safer, sustainable and insurable operational structure

Reinsurer: More predictable portfolio performance