As rising costs fuel higher insured losses, risk managers will get preferential treatment for their organisational resilience

External risks and global trends are altering the costs and impacts of major losses, further accentuating the need for pre-event preparation and mitigation, FM Global said.

Speaking at a media roundtable in Singapore today, executives from the insurer underscored how such aspects are creating a difficult loss landscape.

“Now is not the time for a loss,” said Jim Galloway, executive vice president at FM Global. “With inflation, supply chain pressures and everything the way it is, you may think your business is going to be down for two weeks after an event, but it is sometimes taking six weeks for a contractor to come in. It is a tough time for interruption to business.

“Reinsurers are very concerned because of the frequency of losses, but also the severity of the losses and valuations being affected by inflation. All of a sudden, everything is 10% more expensive,” said Galloway.

James Thompson, senior vice president and division manager for Asia-Pacific at FM Global agreed that for the insurance industry as a whole, there is a greater number of losses, which are often higher in cost.

Higher rebuild costs

“Putting back a factory today is a lot more expensive than it was 12 months ago. Therefore, the financial exposure that insurance companies are carrying are significantly higher. As a result, insurance companies need to be able to cover future losses and prices have to go up – that is just a by-product of inflation and losses getting bigger,” said Thompson.

“Those clients that do put in place mitigation and do smart risk management, they are clearly going to be better risks [for us], and therefore they are going to be priced preferentially.”

Thompson said supply chain exposure dramatically impacts business interruption losses, making it a vast aspect for FM’s client base.

“We have produced a ‘resilience index’, which is available for 180 different countries and looks at a range of different factors that can impact supply chain, some physical, some non-physical, alongside geopolitical, economic, and climate-related aspects. It is being used by risk managers and supply chain managers to build resilience,” added Thompson.

Hian Hong Tan, operations senior vice president and operations manager for Asia, said the key for risk managers is ensuring they have the right partnerships in place.

“Every business is unique. It depends on where you are located and the challenges that country faces. There will be different priorities. You might be more exposed to bushfire or typhoons, so how do you manage those two very different concerns? You need the right partnership with your insurer,” added Hong.

Earlier in the day, FM Global opened its experiential risk management facility for APAC clients featuring interactive simulation labs and an immersive theatre. The SGD$80m (US$57m) 6-storey risk facility provides clients with a visual and hands-on risk resilience demonstration hub.