What makes a firm climate-risk resilient? In this interview with Insurance Business, FM Global operations chief engineer Michael Stuckings (pictured) shines a spotlight on climate change and talks about why there’s no better time than now to focus on risk mitigation.
In Australia, where a series of devastating disasters have hit in quick succession in recent years, Stuckings said they are seeing a growing conversation on how the country can better prepare for and adapt to a changing climate.
He noted: “As recently as this month, through the 2021–22 Federal Budget, we saw over $600 million in grants dedicated to funding activities that support public and private disaster risk reduction and resilience.
“There is momentum now to take stock of our current state of climate resilience and work together [to] help reduce these risks moving forward. There is a part for governments to play in supporting risk reduction through public works, but also for business in ensuring their operations are primed to weather future natural disasters.”
According to Stuckings, from the 2019/20 Black Summer bushfires, to this year’s floods in New South Wales, natural catastrophes are increasingly testing the resilience of companies nationally.
“While no one natural disaster can be ascribed to climate change, certain natural hazards are expected to increase in both frequency and severity,” stated the FM Global executive. “However, the more insidious impacts are those related to our supply chains.
“As a net importer, we are often at the end of long supply chains stretching through Asia. As the climate changes, every region and country may experience different impacts, so it is important for businesses in Australia to consider the global picture and their supply partners when assessing their own resilience.”
For major commercial property insurer FM Global, a recommended practice within firms is approaching risk management through what Stuckings called a “truly global lens,” to understand how to engineer out risks regardless of their origin.
“A flood event in another part of the globe could potentially stop supply of replacement parts needed at a mine site,” he illustrated, “which could grind operations of that site to a halt.” With Australia a lot of times finding itself at the tail of extended supply chains, Stuckings pointed to the importance of knowing where inventory is at any given moment.
“Digital supply chains are helping to solve this problem,” he said, “with digital inventory tools helping businesses to calculate stock levels from anywhere around the world, allowing them to better pivot in times of crisis.”
Meanwhile, still using flood as an example, Stuckings highlighted: “There are a lot of steps a company can take in building resilience against flood – from how they select new sites for their operations and in evaluating the resilience of their current setups.
“Selecting the right site is paramount to building resilience from the outset. While it may be tempting to set up shop on cheaper land, often in flood plains, this can quickly become quite expensive should a company experience a flood event.”
To inform site selection, Stuckings recommends the use of flood maps. FM Global has one on its website, as part of a broader natural hazards map.
“It’s important to say from the outset that [climate] risks are generally different from company to company and also complex and ever-changing,” he stressed. “For companies to be truly resilient, they must be constantly reviewing risks and their mitigation strategies.”
Additionally, as Australia works to recover from the economic impacts of COVID-19 – and the nation has made strides, recovery-wise – Stuckings said “we cannot afford a setback” due to the effects of natural disasters; thus the crucial need for organisations to be ready to face the storm, quite literally.
He went on to note: “There are also actionable steps businesses can take to minimise flood damage at already existing sites, such as using FM Approved opening barriers, water-resistant walls, and sealed doors and openings.”
“Even just ensuring that critical equipment and electrical systems are raised above expected flood levels can make a significant difference in recovering after a flood event,” said Stuckings. “For companies that get it right, the benefits are not just tangible – but significant.
“Through our research with Pentland Analytics, we know that shareholder value of flood-damaged firms drops by an average of 5% for businesses in the 12 months following a flood event. This doesn’t even relate to the cost of the flood damage itself, rather it reflects a lowered expectation among investors of future cash flow.”
Moving forward, the FM Global leader believes “the conversations are getting louder and more frequent” when it comes to mitigating climate risks.
“There is also growing recognition by governments of the importance of investing in public works to help improve resilience across the board,” Stuckings told Insurance Business.
“However, resilience is a choice. The businesses that will remain resilient and competitive in the face of a changing climate will be those that seek to improve their risk quality in order to minimise the risk of any business interruption.”