‘Low-cost improvements in the region can make a real difference’

“And as we grow we’ll certainly be looking at countries like Korea and Japan,” FM Global’s Asia-Pacific division manager Stefano Tranquillo (pictured) says.

“China’s another interesting one; we are in China in quite a big way from an engineering perspective, but I see this as more of a longer term project for us.

“India is the same, we’re trying to keep track of all the regulatory changes happening there and watching that space in terms of, at least from an insurance perspective, whether the market opens up a little bit.”

Since joining FM Global in 1984 as a loss-prevention engineer, Tranquillo has worked in numerous roles, including engineering, underwriting and management. He has been posted in Brazil, Italy and the UK, and in his most recent role was responsible for the company’s operations in Northern Europe, the Middle East and the English-speaking parts of Africa.

Now based in Singapore after moving to the region earlier this year, the qualified mechanical engineer is keeping busy.

“I’m quite enjoying it, actually,” he says. “Talking to our clients and prospective clients in the region, they are focussed on the same sort of concerns [as elsewhere]. They worry about supply chains, they worry about natural catastrophes, they worry about fires; it’s all the usual issues that are top of mind.

Tranquillo explains that he sees the differences in the “human element side”.

“I think the execution isn’t always at the same level that we see certainly in the US and Western Europe,” he explains.

”But for us that’s quite exciting because that’s an opportunity to help companies improve in those area.”

The extent of natural catastrophe exposures is another point of difference, Tranquillo notes.

“When we think about typhoons, flood and earthquakes, one feels almost helpless against them, but actually there’s a lot of relatively low-cost improvements that can be made in the region that make a real difference,” he says.

“We are doing quite a lot in terms of flood mapping for the region and there’s some exciting stuff coming out of that, and we’re also looking specifically at the higher challenge end of the spectrum in terms of companies – power generation, mining and similarly challenging occupancies.”

Engineering success

What makes FM Global interesting from an operational point of view is its engineering-based approach to underwriting, loss prevention and risk management. The company’s policy is to hire engineers straight out of college or mature engineers who have worked in other companies, and to train them all in loss-prevention engineering.

“A lot of people at FM Global come through the engineering ranks and I was no different to that,” Tranquillo says.

“I started off as a field engineer 30 years ago in Italy and spent time working with clients in Europe and then South America for five years, and then went into the underwriting side; that’s not an unusual career path for our staff.

While most insurance companies would employ “actuaries that would look at losses and price capacity as a function of loss histories and actuarial information”, FM Global turns to engineers.

“We also look at loss history, of course, but our capacity and pricing are driven by the actual risk quality that our risk engineers find on site,” he says.

“The idea is as you improve that risk quality, we can provide more capacity – and we can do it at a more competitive rate.”

Credit where it’s due

Another notable aspect of FM Global’s operations is its status as a mutual insurer.

“As a result of the efforts of our clients to reduce their losses we’re able to contain our loss cost and, as a result of that, when we’re in a situation where our losses are lower than we had planned for then we’re able to share in that result through membership credits,” Tranquillo explains.

“Typically the way that works is that when a membership credit is declared, our policy holders who renew the policy with us for the following year will receive a share in the membership credit, which is a function of their tenure with us and the premium that they pay us.”

Indeed, FM Global’s clients will collectively receive an estimated $465 million in premium reductions when they renew their policies between the end of this month and 29 June, 2015. Almost 2000 clients qualify for the credit.

As Tranquillo explains, following this move, FM Global clients will have benefited from about $2.5 billion in membership credit since the programme was introduced in 2001.

“This is actually our seventh membership credit since 2001, and this is the largest that we’ve done,” he says.

Tranquillo puts this success down to the work of his company’s engineers identifying and quantifying their clients’ exposures, and then, together with their clients, coming up with solutions to help mitigate or eliminate these exposures, all of which results in fewer losses.

“And even the losses that they do have tend to be less severe because they tend to be controlled, and that’s reflected in our combined ratio,” he says.

“In 2013, for instance, our combined ratio was just under 78% and that obviously puts us in a good position to be able to share in that success with our clients.”