Application of the FMEA in insurance of high-risk industries: a case study of Iran's gas refineries

The purpose of this paper is to categorize and analyze various risk factors in Irans gas refineries for insurance purposes. Using the failure modes and effects analysis method as a subset of probability risk assessment technique and gas refineries data for the period March 2011 till March 2012, risk priorities numbers are calculated from the perspectives of both the insured party (gas industries) and the insurer (insurance companies). Our empirical results indicate that various property damage risk factors embodied in gas refineries including fire, explosion, error and omission, and machinery breakdown are insurable risks. Risks of pressurized vessels defects are in safe category and can be tolerated by the industry owner. The policy implication of this paper for Iranian policy makers in the energy sector is that, gas refineries are insurable in the market with reasonable risk premium. Insuring gas refineries will definitely reduce capital losses which can otherwise be enormous for the economy in general and for oil and gas industries in particular.