Information gaps expose businesses to loss and business interruption
By Gavin Lewis
Global portfolios of sites and properties have the potential to create unexpected losses and business interruption for international businesses if there are gaps and errors in the data they hold. This means they will not have a complete picture of how they, their key suppliers and the transport networks they depend upon could be affected by a major event.
Especially where properties have come through acquisitions of other companies or rapid expansion into new territories, the information held by the company may be missing very significant risk factors. These include precise site location, building type and use, and construction type and rebuilding value. In emerging markets hazard maps may not be sufficiently detailed for careful risk analysis before or after natural catastrophe events.
The effect is to compromise risk management. It can mean the company is carrying more risk on its balance sheet or in its captive than it realises and its insurance premiums are likely to include an adjustment for uncertainty. Insurers have their own issues with data quality. Their catastrophe models give a wider range of possible outcomes when the location and building information is not precise, which in turns means they should to charge higher premiums based on the uncertainty.
Corporate risk managers do often seek better information that helps to understand the risks associated with potentially catastrophic hazards. In many cases, however, this information is not simple to access in a form that is easily useable, and some of the avenues that are available can be very expensive. The sophisticated catastrophe models used by re/insurers are not designed or marketed for corporate use.
New tools for risk managers
Risk managers should be able to analyse their company’s portfolios and quickly identify and isolate properties in natural hazard areas which have a high value to the business, but where information is incomplete or doubtful.
New tools are developing which give risk managers the opportunity to take advantage of catastrophe modelling techniques in a way that has not been practical with the large models built for the insurance industry.
For example, platforms like enhance™ allow risk managers to gain greater insight into the levels of exposure across their portfolios by incorporating extensive global hazard layers on which to display their sites and properties. Previously unidentified risks can then be investigated. This function is not only valuable for buildings, but also other location-based risks, such as critical infrastructure or heavy plant.
Another facility from these new platforms is the ability for risk managers to see post-catastrophe event data so they can rapidly determine the impact of a specific event on their facilities or those of their suppliers and put their crisis management plans into effect.
With the growth of global businesses, companies need effective tools to understand the catastrophe exposures to their global property-based risks and as, we have seen from the Thai floods and Japanese earthquake and tsunami in 2011, their key suppliers’ locations.
Initiatives like inhance will give corporate risk managers more control over the management of their own catastrophe exposures and make them less dependent on their brokers and insurers. They will also help them to prepare more detailed submissions to their global property programme insurers that reduce uncertainty loading in the pricing.
Gavin Lewis is commercial director for inhance.
Gavin Lewis - inhance