Airport risk management can boost investment

Private investment is needed to fund Asia’s airport boom, and risk managers can help make infrastructure projects more attractive, Willis Towers Watson believes.

A strong risk management approach across Asia-Pacific airports can help spur investment into the sector, according to Willis Towers Watson.

The risk and insurance firm believes a greater focus on data analytics, future geopolitical risk, cyber threats, and climate change can provide a stronger platform for investors to fund key airport infrastructure projects across the region.

Airports in developed markets have enjoyed significant private investment over the past few decades, as state owners privatised or partnered with investors. Yet private investment in Asian airports is less common, with the region’s airports perceived to be higher risk.

The Asian Development Bank estimates $26 trillion is needed to fund new infrastructure developments by 2030, and Willis Towers Watson believes risk managers can make the sector a more attractive investment proposition.

Kevin Snowdon, head of risk and analytics, Asia-Pacific, at Willis Towers Watson, believes a forward-looking risk management approach can help the region’s economies develop airport infrastructure. He said Singapore’s adoption of risk management and new technology could be a blueprint for risk managers across the region.

Snowdon said: “We see a wide range of risk management maturity across Asia. Singapore, for example, is at the cutting edge. We have drivers here which may not be seen in some countries for 30 years, and you see what could happen in the rest of Asia.

“Singapore is on the frontier. As Asia further develops, there will be enhanced infrastructure, which will create its own economic activity. It’s a case of learning from places like Singapore, which are pushing the envelope, and sharing that across the region,” he added.

According to CAPA Centre for Aviation, governments across the Asia-Pacific region are building 228 airports, representing more than 50% of the global total under construction. Yet the recent Willis Towers Watson Construction Risk index shows geopolitical instability, and changes to government financing and policy, are key concerns for the infrastructure sector. There is expected to be a funding gap for the region’s airports.

Snowdon said private investors want predictability and an understanding of potential risks before they commit capital. He added risk management is “part of the drive to capture that opportunity”: “Managing the downside, and managing risk is fundamental to giving investors confidence to invest in massive infrastructure projects,” he added.

Snowdon said effective airport risk-management should look “30-50 years ahead”. “It is not about looking at risks faced today. It is looking to 30-50 years. Whether it is geopolitical risks such as climate change, sea-level rises, even how climate change impacts the migration of birds, and bird strikes.”

Willis Towers Watson believes a sophisticated approach can help airports prepare for and mitigate climate-related risk.

Jago Harvard-Walls, client relationship director at the company, believes airport risk managers have begun to adopt a more “sophisticated approach”, using data and analytics, helping them to both assess operational risk and procure insurance.

Harvard-Walls added: “Typically, airports have used benchmarking as guidance for their insurance. But now, airports are using analytical tools to have a deeper understanding of risk and exposure at individual airports.”

New insurance products will help airport risk managers, according to the firm. Snowdon believes parametric insurance — a product which does not indemnify loss but instead pays out on fixed events, such as total rainfall or a certain amount of reduced footfall — can help to manage unforeseen risks.

“Parametrics could allow airports to effectively recompense. Those products mark a new era and a move from traditional policies into something that gives much more confidence to investors. It is a key area, and analytics will support that,” Snowdon added.

Most new airports to be built across the Asia-Pacific region in the next decade are likely to rely on some form of ‘smart’ technology, using automation for maximum efficiency. Harvard-Walls believe risk managers will face challenges managing and assessing cyber risk, and proving their resilience.

“It presents opportunities and challenges,” Harvard-Walls said. “A lot of airports are pushing towards using artificial intelligence to improve the passenger experience, such as self-check in or immigration. It allows for extra efficiency, but airports will need to adapt their risk and insurance programmes, to reflect the greater reliance on IT systems.”