What is FMEA and How to Use it

Failure Modes and Effects Analysis is the subject of an international standard, IEC 60812-Analysis techniques for system reliability-Procedure for failure mode and effects analysis (FMEA)

The only international standard that applies for FMEA is IEC 60812, which shows general application, but does not show the use of the tool in risk management.An extension to the FMEA allows analysis of the criticality of a failure, such an analysis is called FMECA or Failure Mode and Effects Criticality Analysis

Most medical device companies use FMECA, although they incorrectly label it as “FMEA”

Failure Modes and Effects Analysis was developed as a tool to explore the effects of failure of components on the reliability of various products.The tool was developed as a tool for use in the field of reliability engineering to explore where more rugged components would be required to obtain desired product life

The title of the standard, Analysis techniques for system reliability-Procedure for failure modes and effects analysis (FMEA), reflects its correct use

Use of FMEA
As an input to the Risk Management process FMEA should be used to:

Solvency II

Solvency II is a new, stronger EU-wide requirement on capital adequacy and risk management for insurers with the aim of increasing protection for policyholders. The strengthened regime should reduce the possibility of consumer loss or market disruption in insurance.

Solvency I was a minimum harmonization directive introduced in the early 1970s. It allowed for differences to emerge in the way that insurance regulation was applied across Europe leading to different regimes. It was also primarily focused on the prudential standards for insurers and did not include requirements for risk management and governance within firms.

Solvency II aims to achieve consistency across Europe on the key ideas of:

• Market consistent balance sheets;
• Risk-based capital;
• Own risk and solvency assessment (ORSA);
• Senior management accountability; and
• Supervisory assessment.

The Solvency II Directive states that the new regime will go live on 1 November 2012 when it will replace the Solvency I requirements and the current regulatory regime for insurance supervision for firms in the UK. The European Commission’s (EC) proposals for the Omnibus II Directive include an amendment to the implementation date by two months to 1 January 2013.

The new regime will apply to all insurance firms with gross premium income exceeding €5m or gross technical provisions in excess of €25m. Some insurance firms will be out of scope depending on the amount of premiums they write, the value of technical provision or the type of business written.

Solvency II principles and rules apply to Lloyd’s of London syndicates in full. Due to its specific nature, some of the Solvency II requirements are being considered for their application to Lloyd’s.

European process

Solvency II is being created with a four-level process or the ‘Lamfalussy processes