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The Pareto Principle: how it applies in the realm of Marine Claims

Updated: May 10

Conceived in 1941 by Vilfredo Pareto, its' application in the Maritime Claims industry is staggering

The Pareto Principle
The Pareto Principle applies to the Marine Industry as well.

This might be a controversial thing to post. One that can tremendously help reduce Ship Owners’ Claims. But could mean less business for us. It’s called the Pareto Principle: in other words, 80% of Claims costs could be eliminated by focusing on just 20% of the Causes.

Sounds too simplistic. But this is where its' inherent wisdom lies.

The Pareto Principle (a concept coined after the Italian mathematician Vilfredo Pareto), also known as the 80/20 rule, suggests that roughly 80% of the consequences come from 20% of the causes.

Example 1:

Vilfredo Pareto noticed that 80% of Italy’s land was owned by just 20% of the population.

Example 2:

Businesses often find that 80% of their revenue come from just 20% of their Clients.

The 80/20 concept holds true in various aspects of our daily lives, as well as within the realm of professional settings. It’s application spans across a wide range of scenarios, one of which is the following:

According to a report by The Swedish Club, in the ‘Personal Injury' Claims grouping, there are 3 sub-categories out of 19 total (= 16%) which account for 79% of Claims Costs (!!). Quite interesting, isn’t it?

(source: 'Claims at a Glance - 2016 Edition', pg 29 - by the Swedish Club -
(source: 'Claims at a Glance - 2016 Edition', pg 29 - by the Swedish Club -

The top 3 codes of Personal Injury Claims costs, are:

- Slips & Falls (43.18 %)

- Burns & Explosions (24.06 %)

- Struck by Falling Object (12.52 %)

Did you notice the pattern? A small set (16%) of causes account for the majority (79%) of Claims costs. This is too much of a coincidence to be ignored. It looks like there exist two common denominators: PPE use & hazard awareness!

It looks like there exists two common denominators: PPE use & hazard awareness!

This is too much of a coincidence to be ignored.

Based on the above, it appears that by prioritizing their efforts on these 2 key specific issues, Ship Owners have the chance to significantly decrease the number of accidents (& thus Claims). But, how?

- "Not safe? No job" culture

There should be no compromises to that. If a task cannot be executed safely, it shouldn’t proceed. There should exist procedures by which crew are comfortable to report safety concerns.

- Clear ISM policies & procedures

Ensure that these are communicated effectively to all crew members & that there is a process for regular reviews & updates.

- ISM Training & Education

Provide regular safety training for all crew members, covering the topics of the significance of proper PPE use & hazard awareness. Make sure that refresher courses are conducted periodically.

- Promote Open Communication

When there are safety concerns, near misses or potential hazards, crew members should feel able to talk to their supervisor, without fear of reprisal. A reporting system for confidential submission of safety-related concerns could also be in place.

- Regular Safety Audits

We can’t overemphasize the importance of conducting regular safety audits & inspections to assess compliance with Safety Policies & Procedures.

- Mental Health

A happy crew that feels safe, nurtured & listened to can be the most important factor in the context of ensuring their safety. There should exist resources & support systems to address stress & fatigue.

What else would you add to the list? Comment below.

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