The 175-year-old commercial property insurer spends about $40 million annually figuring out how to increase safety and minimize losses at factories, warehouses, baseball stadiums, and other business locations
The fire begins as a slow burn. Within minutes, fueled by 216 neatly stacked boxes full of plastic cups, 30-foot flames lick the ceiling, and crackling embers soar up from the melting plastic goo. When automatic sprinklers start dousing the fire, the room fills with thick, black smoke. "Can you imagine that smoke in our warehouse?" whispers one observer standing behind reinforced glass.
The blaze was a test of sprinkler configurations by FM Global, a 175-year-old insurance company that spends about $40 million annually figuring out how to increase safety and minimize losses at factories, warehouses, baseball stadiums, and other business locations. FM Global runs a sprawling 1,600-acre disaster research facility on a winding road in rural Rhode Island, where researchers wreak as much controlled havoc as possible, sparking explosions, simulating earthquakes and hurricanes, pelting glass with ice balls shot from a hail gun, and more.
The insurer was founded in 1835 by New England mill owners who pooled their resources to develop safer factories and create a fund to cover each other against losses from fires and other disasters. Today, it's the biggest U.S. insurer of large commercial properties when measured by premiums paid, with 26.8?percent of that market, according to Advisen, an insurance industry analyst group. Last year, FM Global's operating income quadrupled, to $1.2?billion on revenues of $4.6?billion.
FM Global is still owned by its clients, about 2,000 companies such as General Electric, Boeing, and Caterpillar. While its premiums start out higher than many rivals', clients say it's worth paying extra to get access to the company's scientists, who make factory visits and even inspect construction sites before facilities are built to offer advice on improving safety. "We value their prevention mindset that gives you engineers who are involved almost from Day One," says Gerald Colonna, Global risk director at AveryDennison, a printer and packaging maker that has been a client since 1965.
FM Global employs 125 scientists at its Rhode Island campus and a smaller facility in Massachusetts. Their work consists of "testing things until they break," says Louis Gritzo, the company's research manager. The lab's earthquake simulator moves in six directions to replicate the motion that would be experienced on different floors of buildings when hit by earthquakes of various magnitudes. The burn lab is twice the size of a football field and can accommodate flames that rise 60 feet in the air. When clients "see those scenarios played out, you can be sure that they'll make safety improvements," Gritzo says. Customers that follow FM Global's advice typically see their premiums drop.
A risk management delegation from McKee Foods, the maker of Little Debbie snack cakes, was impressed by a November demonstration of how explosive dust can be. The FM Global team tossed about a quart of resin dust into a concrete bunker with one wall made of a plastic tarp, then ignited it with a tiny spark. With a bang, a 20-foot burst of flames shot through the tarp. "That was the third time I've seen that test, and it still makes me jump," says Micheline Parkey, a risk manager for McKee.
Fire is FM Global's primary focus, and sprinklers are given star status. The research lab features a display case with 1,000 different sprinkler heads, each framed in its own glass enclosure. Fire is the leading cause of property loss at companies, and FM Global's researchers have touched off more than 30,000 blazes over the years to study how various items—stacked rolls of cigarette paper, boxes containing aerosol, electrical equipment, and thousands of other things—burn and respond to different sprinklers under varying humidity and temperature conditions.
The insurer chooses experiments based on the findings of its 1,800 engineers who inspect roughly 100,000 customer facilities worldwide each year to pinpoint new hazards and advise clients on safety improvements. For their experiments, FM Global engineers and technicians make computer simulations and full-scale models of client facilities. They build and abuse at least one physical structure daily, with each test costing from $10,000 to more than $100,000.
When Hurricane Katrina struck, FM Global had insured 400 properties along the Gulf Coast near New Orleans. About half of them had successfully implemented the insurer's safety recommendations, and those facilities suffered 80?percent less damage than the sites that hadn't, FM Global says. At an Ocean Spray grapefruit processing plant in Florida, the insurer's inspectors suggested reinforcing the roof and installing an auxiliary power generator. When the site was hit by two hurricanes that devastated the Florida coastline in 2004, Ocean Spray suffered negligible damage while a nearby competitor's facility had to be shut down. That year, Ocean Spray's sales soared due to reduced competition. "Much of the grapefruit crop that year was destroyed," Rick Lees, Ocean Spray's chief financial officer, said in an e-mail. "It would have been very difficult to replace our concentrate if it had been lost."
The bottom line: Engineers at insurer FM Global's Rhode Island lab burn and shake all manner of goods to find safer ways to build and operate factories.