This week, the Climate Council, a leading community-funded climate change organisation, warned that one in 25 Australian homes are expected to be uninsurable by 2030. The cause, said the council’s media release, is the increasing threat of extreme weather and climate change.
Risk experts say that companies can mitigate this threat by adopting an engineering approach to risk management. Stuart Selden (pictured above) says that approach starts with knowledge.
“One of the enemies of risk management is a lack of knowledge,” said the Sydney based expert. Selden is manager of Business Risk Consulting Asia-Pacific and chief risk officer in Australia for FM Global, the multinational commercial property insurer.
Business Risk Consulting was established by FM Global two decades ago to help clients better understand the business impacts of property losses resulting from events like flooding and also how to mitigate them.
“One of the things that we will always try and encourage clients do is build knowledge, whether it’s around their own properties, or whether it’s around their suppliers’ properties, or even their clients’ properties,” he said.
Those with a casual interest in world affairs will be interested to know that when Donald Rumsfeld was discussing his “unknown unknowns”, Selden says the former US secretary of defense was actually making sense. The chief risk officer said he often uses Rumsfeld’s infamous remarks as a “framework” for clients.
“He copped a lot of flak for it at the time, but in fact when you boil it down what he said made an awful lot of sense. We have to categorize what we know and what we don’t and deal with them differently,” said Selden.
This logic can be applied to supply chains. Selden said there are the “known knowns”, the companies that are your tier one suppliers that you have a very good understanding of and a strong relationship with. Then there are the “known unknowns”.
“So they’ll be the tier two and tier three suppliers that you know exist but you won’t have the depth of knowledge about them. You might be entirely dependent on your tier one supplier to be telling you about how good their risk management is,” said Selden.
Then come the “unknown unknowns.”
“Obviously there’s a very different story with them,” said Selden.
He said with “known knowns” a company can build a risk management strategy.
“You can choose what to do if you know. You can make that decision depending on your risk appetite,” he said.
With “known unknowns” Selden said that’s where FM Global can really help clients build knowledge and convert those into “known knowns.”
The way FM Global does that, is through risk engineering.
“It really starts with a site visit,” said Mike Hunneyball (pictured below), FM Global Australia’s operations chief engineer, based in Melbourne.
Mike Hunneyball
“That involves having our engineers go to our clients’ facilities and this even extends to clients’ suppliers as well in certain circumstances. They’re there to review and look at the risks,” said Hunneyball, one of about 2,000 FM Global engineers around the world.
Hunneyball said engineers look at the buildings’ construction materials, the types of operations in those buildings and what risks are inherent in that. They also spend time looking at any protection systems in place.
“So we spend a lot of time looking at sprinkler systems and other types of fire protection. Also, the types of exposures outside that property that could impact the site,” he said.
These exposures include natural hazards like floods, earthquakes or cyclones.
“They also look at the hazard management programs. We do a lot of work with clients to help them look at what they’re doing - for example, how can they prevent a fire from starting?” said Hunneyball.
FM Global will look at the hot work permit system in detail to help clients remove any fire risks. Hot works are any process that can be a source of ignition.
“We know that’s one of the top causes of fires in commercial properties,” he said.
A hot work permit process helps minimise these fire risks.
“This guidance and this engineering expertise is underpinned by the research we do and also the loss history,” said Hunneyball.
From its research centre in Rhode Island in the US, FM Global scientifically identifies, quantifies and aims to mitigate risks to business properties - like fire and flooding.
“We are keen to learn about losses. So when clients’ or any industry losses occur we want to learn what happened and how could it be prevented. So that guides a lot of what we do,” he said.
FM Global’s clients cover a range of industries in Australia and globally including education, healthcare, mining and power generation. The firm sees brokers as partners in its client relationships.
“The brokers are there to support that risk engineering guidance. So it’s really good that they understand the risk engineering side of things and the risk management side of things as well,” he said.
