Despite the decent head start provided by a stable Jan. 1 renewal period, the world at large is still wary of risks and how the need for resilience has evolved greatly to keep up with modern challenges. While risk management has always been integral in maintaining business continuity, its role has somewhat stepped up in an age where complex and simultaneous threats are always at hand.
Across the region’s diverse landscape, FM Global vice president and client service management for Asia operations Hamish Ravindran noted that resilience is no longer a choice – a stark contrast from the views of another notable name in the firm made last year – and has announced it as an essential contributor to success.
“Whether it’s the lingering impact of inflation, damaging supply chain interruptions, or cyberattacks, business leaders are encouraged to prepare for a year ahead that promises to be no less unpredictable and disruptive as the last,” Ravindran said.
Ravindran said that post-pandemic has shown how severe transportation and logistics issues can be for firms across Asia, where exposures can vary greatly in both range and complexity.
“The fallout from these experiences and the continued uncertainty generated by ongoing global conflicts will continue to preoccupy industries in Asia, ranging from semiconductor and technology manufacturing to fashion and textiles. In response, companies will look to diversify supply chains to alleviate single-market risk and build greater supply chain resilience,” he said.
The growing frequency and severity of extreme weather events as well as geopolitical risks becoming more prevalent, managing risks of the supply chain has become a question of how well businesses can understand their exposures.
“When it comes to supply chain risk in Asia, many companies often overlook the need to have an up-to-date and robust business continuity plan that clearly outlines options if supply of materials is disrupted. This may include having alternative suppliers or supply routes or adjusting stockpiles or inventory levels during a period of increased risk,” Ravindran said.
“Insurance coverage alone is not always enough – companies need to seek to build resilience into their operation,” he said.
As businesses continue to embrace digitalisation, further accelerated by the widespread implementation of AI-driven technology applications, the prevalence of ransomware attacks and data breaches is expected to persist into 2024. Consequently, Ravindran said that managing cybersecurity risks remains a top priority for boards and leadership teams.
“Typically, discussions on cybersecurity have centred on protecting information technology (IT) networks, such as avoiding data breaches and customer data leaks,” he said. “These are important, but as the cyber-risk landscape evolves, urgent attention is also needed to protect operational technology (OT) networks.”
Ravindran said that the hardware and software of operational technology (OT) networks, essential for monitoring and controlling devices, processes, and infrastructure in manufacturing and heavy industries, were traditionally isolated systems. However, the drive towards greater connectivity and digitalisation for enhanced performance data collection has simultaneously rendered business networks more susceptible to cyberattacks.
“We know that OT attacks aren’t just about financial gain or data theft, they can also result in significant physical damage or disruption to critical services due to the increased connectivity,” he said. “As cyber threats continue to evolve, companies need to allocate resources and implement proactive measures to stay ahead and mitigate the costly impact of an OT network attack.”
Across the industry, everyone has observed the increase in exposure to climate, whether for businesses or communities. Ravindran said that this risk is unlikely to recede in the coming year, and that climate change is giving rise to the increased frequency of flooding in the region.
“To minimise the potential impact of climate change, organisations need to understand how these climate-related risks can affect their operations and then invest in appropriate mitigation of those exposures,” he said. “This can include actions such as installing mesh on building openings to prevent bushfire embers from getting into buildings, installing physical barriers to prevent flow of floodwater or better securing a roof that is exposed to wind.”
“The identification and management of such exposures can also assist companies with any climate risk-related reporting obligations that they may have. For example, reporting on acute and chronic physical risk within the Task Force on Climate-related Financial Disclosures (TCFD) reporting framework,” Ravindran said.
The transition towards a net-zero future is not without its risks. However, growing pressure from stakeholders and governments to embrace cleaner alternatives has made it a key point for consideration for businesses across the globe.
“The benefits of reduced carbon emissions, improved energy security and reduced energy costs are well known, but these advancements in technologies can create new exposures that can threaten business operations. Well-intentioned transition efforts can be undone by the unmitigated introduction of new fire, cyber or extreme weather risks. Insurers have a role to play to help build resilience into their clients’ transition strategies,” Ravindran said.
“As industries embrace renewable energy sources and electrification, working with your insurance company to better understand and mitigate these risks is critical,” he said. “Companies that plan carefully to understand and implement appropriate strategies to protect their assets, minimise their exposures to avoid potential downtime will be at a significant competitive advantage.”
While inflation has somewhat dimmed as 2024 rolled around, Ravindran said that the costs of claims have risen due to factors like increased costs for building materials and labour, equating to higher premiums.
“Property owners can expect continued fluctuations of the reinsurance market in the short term before stabilising,” he said. “To minimise the impact of rising costs, companies can invest in better risk management to improve the risk quality of their business. This can include constructing or leasing locations with better risk quality building materials or installing correct fire protection at existing locations.
“To ensure optimal insurance coverage, companies should also submit up-to-date, accurate values at the time of their insurance renewal. If the declared values are correct, the insurer will be more confident that there won’t be a discrepancy between expected and actual loss amounts if there is a claim,” Ravindran said.
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