This article was produced in partnership with FM Global
The post-pandemic period is shaping up to be a time when the narrow role of insurance to cover an unexpected loss shifts to a broader role where insurers actively try to reduce and prevent risks from arising in the first place.
It might seem like a subtle change to the value proposition – but it actually flips the traditional idea of insurance on its head.
FM Global is one company that naturally embraces putting risk management front-and-centre, because a core fundamental of its approach is that property risk can be solved through engineering. This compares with traditional approaches that normally write the loss into the bottom line.
“We don't think that a loss needs to happen,” Tan Hian Hong, FM Global’s operations senior vice president and operations manager for Asia, recently told Insurance Business.
“If you protect yourself against these foreseeable perils, that loss to your business does not need to happen. There is no need to think about a cost based on losses that have happened before,” he said.
Tan calls the traditional approach to insurance – putting an ambulance at the bottom of the cliff instead of a fence at the top – the actuarial approach.
“It assumes the loss will occur and will happen again – this is the cost of that risk transfer.”
As risks become more real in a more complex post-pandemic world, businesses everywhere are reassessing what can realistically be insured and how mitigation can help bring some of the risks that have been pushed outside of what is insurable back into the fold.
The key to FM Global’s way of thinking is taking a scientific and data-based approach to the insurance problems that businesses face, and working to prevent those problems before they arise. Improvements in data quality mean many risks that were perhaps unknowable in the past can now be assessed and countered to varying degrees.
In a fragile world where disaster strikes more frequently and with more impact, compensating for property loss after the fact has essentially become a poor business position.
“The world is changing right now. Geopolitically, the world is changing, the climate, obviously, is changing, and so it's no longer a choice.”
“It is absolutely correct that insurance has traditionally been the first solution. We are here to say that it doesn't necessarily need to be the first solution – it is part of the solution, but I think rather than suffer the loss, there are things that will help to mitigate the loss,” said Tan.
Taken to its extreme, the policy itself becomes a backstop to the far more important preventative measures put in place – an additional security rather than the primary tool.
“The basics are important, such as understanding your exposure. We collect a lot of engineering information to provide an engineered solution. And in that process, we have enough information to pair it up with scientific projections of what sea levels are going to be and what rainfall is going to be,” Tan explained.
With the right data, FM Global can help identify and quantify a risk to a property and put it on a sliding scale of how it will impact the client.
“Businesses can actually use that quantification to make an analysis as to what risk they're willing to accept.”
FM Global is keenly aware of the need for granular analysis of each client’s unique situation and spends an average of one year putting together a risk report for its clients detailing how it can help.
“To deliver such a report, we have to invest a fair amount of energy.”
This might include an engineer visit, cyber risk consultant analyses or business assessments to help clients understand various interdependencies and how the value chain flows from start to finish. Once the risks involved are understood and measured, their impact can then be quantified for the client.
“We provide a comprehensive approach to understanding risk for a business owner. We spend a lot of time to get to know the client’s business. It's an investment on both sides.”
But educating clients about the need to be proactive on risk management has become easier in recent years.
“In today's world more than ever, people can see the consequences of things that go wrong. Business owners recognise the need to do something different.”
He uses the example of how attitudes to cyberattacks have changed. In the past, markets would write off a cyberattack to bad luck rather than bad management.
“Today, it's not bad luck if a cyberattack happens. If you weren’t adequately protected around your cybersecurity, that is probably why you had a cyberattack.
“We need business owners to think about how they invest and allocate some of their resources. And the first thing to start is with a broker or insurer, because those people are the risk management experts. A lot of companies today don't necessarily have the risk management resources in-house,” he said.
Talking about preventing disasters before they happen sounds like science fiction – but it is essentially risk engineering taken to its logical end point. After all, engineering has a history of achievements that sounded a lot like science fiction before they happened.
“Engineers do tremendous things – they put a man on the moon. How did they do that? It’s not chance, they didn’t just fire a rocket and say let’s see what happens.”
The education aspect around changing attitudes to risk and insurance extends wide for FM Global.
To this end, in November 2022 it opened the FM Global Centre in Singapore to help drive home the idea that risk isn’t just something on a spreadsheet.
The centre is an experiential facility designed to make the idea of risk more concrete, with interactive loss prevention education across 10 interactive simulation laboratories and four learning spaces, including those on various types of fires, building resilience or natural hazards such as high-wind events, floods and earthquakes.
“It’s for people to actually have a hands-on experience where you understand what risk is and what tools there are to manage risk, because risk is not some intangible thing that might happen,” said Tan.
The centre attracted over 1,000 visitors in 2023, both from the corporate and educational spheres.
“We’ve hosted people from the manufacturing industry, from insurance markets, from learning institutes like the National University of Singapore, polytechnics, we’ve hosted people from schools of engineering, schools of finance, Masters and bachelor students. We show them what it really means to do risk management.”
Such outreach efforts help change ideas and thinking around risk, much the same way that FM Global’s approach is challenging old paradigms in the insurance world.
“There is a perception that we buy insurance just because we have to, but we want to change the conversation – rather than buy because you have to, buy because you want to, buy because there is additional value,” said Tan.
While putting mitigation at the front of the insurance equation is helping more companies to find their footing in terms of the conceptualising the resilience needed to thrive in a post-pandemic world, Tan sees many of the basics in insurance as being just as important now as they ever were.
“Understanding your exposure, understanding your risk, and making sure that you're prepared – if you don't know what the exposure is to your business, how do you know what the appropriate steps are to mitigate the loss?
“The challenge is understanding the quality of the consultants and having the data that you as a business owner need to feel comfortable.”
Established nearly two centuries ago, and present in the Asia-Pacific region for 50 years, FM Global is a mutual insurance company whose capital, scientific research capability and engineering expertise are solely dedicated to property risk management and the resilience of its client-owners. These owners represent many of the world’s largest organizations, including one of every three Fortune 500 companies. They work with FM Global to better understand the hazards that can impact their business continuity in order to make cost-effective risk management decisions, combining property loss prevention with insurance protection.
