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Probable maximum loss studies

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A probable maximum loss (PML) study provides a financial estimate of the largest physical loss that can reasonably be expected from a single event. These events may include natural disasters such as fires, floods, earthquakes, sediment movement, or structural failures like building collapses. 

What does a PML study include?

Most PML estimates consider not only the property value but also unique risk factors such as:

  • Geographic location and environmental hazards.
  • Building materials and construction type.
  • Soil and foundation conditions.
  • Existing loss control measures.

Beyond the costs of repairing direct physical damage, PML studies typically incorporate time-related elements and indirect costs, including:  

  • Expediting expenses to accelerate repairs.
  • Continuing operational costs during downtime.
  • Project management and recovery oversight expenses.
  • Delay in start-up (DSU) and business interruption (BI) costs.

These elements help insurers and project stakeholders understand more fully the financial exposure and can influence insurance purchasing decisions.

The PML study process

A thorough PML study generally involves three key phases:

1. Data gathering

Collecting and validating all relevant information through document reviews, stakeholder interviews, and data verification to establish a solid foundation for analysis.

2. Loss scenario development

Creating realistic and plausible loss scenarios, quantifying their potential impacts, and producing preliminary estimates of the PML value.

3. Reporting

Compiling findings into a detailed report, followed by review and validation with the project team to achieve consensus.

Why Marsh? 

Marsh combines the strengths of our strategic risk consulting and property risk consulting teams to deliver a rigorous, systematic, and detailed approach to PML studies. Our specialists bring deep experience in fire protection, global complex projects, construction management, and project delivery.

With decades of experience managing risk on mega projects worldwide, Marsh is uniquely equipped to help clients navigate complex risk landscapes, look to protect their investments, and secure their desired insurance coverage. By providing project owners, developers, and contractors with detailed, timely financial loss estimates, we help tailor risk presentations to insurers so your project’s risk profile is more clearly understood and effectively managed.

FAQs

A PML is a financial estimate of the highest physical loss reasonably expected from a single event during construction or property operation, such as fire, floods, sediment movement, or structural collapse.

PML estimates go beyond assessing the costs of repairing direct physical damage to include:

  • Expediting costs to speed up repairs.
  • Ongoing operational expenses during downtime.
  • Project management costs for recovery.
  • Delay in start-up (DSU) and business interruption (BI) losses.

PML values are usually expressed as a dollar amount or a percentage of total property value. They factor in property value, location, construction materials, soil conditions, and existing loss control measures.

Marsh delivers detailed PML assessments that reflect realistic financial exposure. This helps you better prepare for risk mitigation, design insurance placement, and communicate your project’s risk profile clearly to insurers.

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