This piece is by Bill Bradshaw, Operations Senior Vice President, Operations Manager, London Operations at FM Global, and it takes a look at supply chain issues.
The insurance industry has always been confronted with challenges that clients need help navigating – and 2024 will be no different.
The intricate global risk environment is, and will continue to be, a cause for concern among businesses, with extreme weather events, cyber risks, and geopolitical tensions all front of mind. In such a dynamic landscape, effective risk management is paramount, aiming to mitigate any potential challenges to ensure business continuity and pave the way for sustained profitability in the future.
Over the course of 2024, businesses and their insurance partners will need to grapple with the multifaceted impacts of inflation and continued supply chain disruptions. In the current perma-crisis environment, adeptly managing these risks is imperative, requiring the use of accurate data to maintain stability and foster resilience.
Risks to supply chains
As COVID-19 and the 2021 Ever Given blockage of the Suez Canal show, major disruption can come with little warning before operations are potentially forced to grind to a halt and further repercussions are felt regarding reputation and market share. Proactive resilience measures, location-specific exposure assessments, and exploration of alternative strategies are therefore essential for businesses to effectively mitigate the challenges expected in 2024.
It’s also important to have visibility of the whole supply chain – end to end –. Rather than focusing on just one facility, even if it houses or transports the most valuable part of the final product, businesses can more confidently and accurately quantify risks when the whole supply chain is clear. This is an important step for risk mitigation, especially in the face of climate-related issues that can impact various parts of a supply chain in different ways.
The effects of climate risk loom large, with widely anticipated increases in natural hazards for businesses around the world. From severe flooding seen across Europe to widespread forest fires experienced in Australia at the end of 2023, it has become clear how urgently businesses need to comprehend and prepare for climate-related risks, in addition to addressing geopolitical or inflationary issues.
Therefore, coupling insurance with proactive prevention and risk minimisation measures becomes critical. Businesses can benefit by aligning themselves with insurers offering climate resilience products and leveraging data-driven tools, such as FM Global’s Climate Change Impact Report, to assess the added potential of long-term impacts from climate change on their operations.
Inflation’s influence on claims costs
While inflation may not pose a direct risk to those operating in the insurance industry, its effects are anticipated to reverberate significantly across the sector. Due to rising material and labour costs, a meticulous re-evaluation of exposure becomes necessary and can lead to adjustments in insurance premiums. To accurately calculate these premiums and ensure adequate coverage, insurers must continue to rely on up-to-date and precise insured values.
Collaborating with insurers’ loss assessment experts becomes essential for businesses to verify and optimise information, bridging any gaps that may exist between nominal values and actual losses. This collaborative effort streamlines the process, minimises the potential for unexpected costs, and enhances the overall efficiency of risk management strategies.
The value of data for enhancing risk management
The partnership between businesses and insurers extends beyond traditional risk transfer mechanisms. Insurers, equipped with their expertise and access to a wealth of data, can be invaluable partners in enhancing risk management strategies. The sharing of information between businesses and insurers fosters a more comprehensive understanding of emerging risks, leading to tailored solutions that address specific challenges.
For businesses, this way of working provides access to specialised knowledge and insights that may not be readily available within the organisation. Insurers, in turn, benefit from a deeper understanding of their clients’ operations, enabling them to refine risk assessment models and offer more accurate coverage. This mutually beneficial relationship goes beyond the transactional aspects of insurance, evolving into a strategic partnership that focuses on long-term risk mitigation and resilience for 2024 and beyond.
The importance of a data-driven approach cannot be overstated. Companies should actively seek to develop and maintain a comprehensive database that encompasses various facets of their operations, potential risks, and historical data. This data serves as a powerful tool for anticipating and mitigating risks, allowing for proactive decision-making in the face of an evolving risk landscape.
Leveraging predictive tools and partnering with insurers for climate reporting also help businesses disclose acute and chronic climate-related financial risks to investors and the public, aligning with widely accepted frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).
As businesses brace for the challenges of 2024, a proactive and data-driven approach to risk management emerges as a key driver of resilience. This forms the foundation for effective risk mitigation and business continuity. Companies need to actively invest in building a robust data infrastructure, continuously updating it to reflect the evolving risk landscape.
The intricate interplay of inflation, climate-related challenges, and supply chain issues underscores the need for a comprehensive strategy that goes beyond traditional risk transfer mechanisms. By embracing accurate exposure assessments, leveraging predictive tools, and collaborating with insurers, companies can navigate the evolving landscape with confidence.
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