Risk can take many forms
The mantra of international specialist property insurer FM Global is that the majority of loss is preventable. Managing risk is what they do
As important it is for company directors to monitor emerging risks from the COVID-19 crisis, they shouldn’t forget to keep an eye on the more traditional risks, says Greg Duncan, client services manager at property insurer FM Global.
The coronavirus pandemic and the economic devastation it has wrought around the world have created new risks around supply chains, idle locations, lack of access to the right resources and staff working in very different ways, all of which directors need to monitor.
But Duncan cautions: “Our concern is that attention is then being drawn away from the traditional ways of ensuring that you’re understanding property risk and managing it.” These risks include things such as making sure there is adequate fire protection and the business is protected against catastrophe events such as floods and windstorms.
A fresh approach
As an international specialist property insurer, FM Global takes a different approach to assessing and insuring risk. The mutual (the company is owned by policyholders) employs engineers who work to understand clients’ specific risks and then work with them to reduce those risks. Most insurers use an actuarial approach, where exposures and insurance cover is determined based on averages.
“Our mantra is that the majority of loss is preventable,” says Duncan. “It’s not about luck. It’s about getting the right information to make good management and governance decisions, which then flow through to good oversight.”
The company draws on its vast library of data on property exposures gained from the US$3–$5 billion in claims it pays out each year and from its research campus in the US, where it conducts research and testing to better understand and prevent property risk.
For instance, it might look at how roof panels can be better fastened to withstand high winds. These research insights would then be used to help FM Global clients in Australia with property exposed to wind mitigate cyclone risk.
“We like to be seen in the market as a risk partner as opposed to an insurance company,” says Duncan. “It is all about understanding what the risks are that a business faces, so they’re then prepared — and if those risks occur, then it’s not going to impact on the value of their business.”
Mitigating risks is an exercise in protecting the business in the longer term because — as research by FM Global reveals — a property loss can harm business and shareholder values, even if appropriate insurance is in place, due to reputation damage, foregone opportunities and an increased cost of capital.
FM Global’s work advising and insuring gold and iron ore mines is one example of its risk mitigation approach. FM Global covers them for boiler and machinery risk — essentially equipment risk — and its engineers will go into the mine site and look at a range of data points across its equipment including the age of the equipment, the maintenance processes, how it’s operated, and what the operator training is like. They can then identify gaps in the risk profile of that piece of equipment.
“We can then conclude what a loss is going to be based on the gaps that we find,” says Duncan. “We call it predictive analytics — highlighting where a loss is going to occur before it occurs. It gives the client that information and helps them focus on things like their maintenance, loss prevention, capital expenditure or updates on those areas of deficiency to protect them from incurring that loss.”
FM Global also does scenario planning with clients, role playing particular events to see how their insurance policy would respond.
“We sit with our clients and work through whatever scenario they’re concerned about,” says Duncan. “We look for ways of preventing the risk and then overlay our insurance policy just to make sure the insurance coverage they’ve got is going to be adequate.”
This article was first published in Company Director