Engineering a new risk environment | Insurance Business Australia
Today’s risk environment has been massively reshaped by many factors, including climate change and the COVID-19 pandemic, which are on top of many business leaders’ minds. The presence of micro risks, which are small, site-specific risks that can have large-scale effects, further compounds the amount of risk businesses face, especially in an interconnected global supply chain.
Tze Way Yeong (pictured above), head of risk engineering services, Asia-Pacific at Swiss Re Corporate Solutions, previously spoke to Corporate Risk and Insurance about the importance of managing micro risks and he briefly touched on risk engineering. But what exactly is risk engineering and how can businesses use it to protect their operations and facilities, especially as industries continue to grapple with the pandemic?
According to Yeong, risk engineering applies internationally recognized engineering standards and best practices to address how specific micro risks in a supply chain or industry can impact the viability of businesses.
This is especially important in addressing supply chain disruptions in many parts of the world, most notably in the US, amid limited mobility.
“The use of remote surveys, for example, has been instrumental during the COVID-19 pandemic, making continued risk mitigation possible despite restricted access to physical sites,” Yeong said.
“Risk engineers can also use new techniques such as drones and 3D modelling to generate more accurate data and provide businesses with a better understanding of their flood risk exposures. By taking a longer-term view and extending risk engineering across supply chains, risks on several frontiers can be monitored, analyzed and acted upon with the help of emerging technologies and richer data sources.”
While the pandemic has caused staggering losses for almost all global industries, Yeong said it has also caused a number of positive paradigm shifts for insurance. In many markets, he observed a significant increase in risk awareness, which strongly drives demand for insurance and services such as risk engineering.
“One such result is that there is a greater demand and awareness of the role of risk engineering in, for example, the restructuring of GSCs to de-risk the supply of intermediate goods and services,” Yeong said. “This speaks to the role of risk engineering in identifying and mitigating key risks within complex supply chains. Furthermore, where companies previously viewed risk engineering as just a part of the insurance renewal process or as an afterthought, they are now seeing its importance as a critical part of risk mitigation, especially as activity in factories, passenger travel and other industries is being slowly ramped up after many months of shutdown or reduced activity.”
Yeong enumerated five areas where risk engineering can greatly contribute to identifying and mitigating risks.
- Knowledge transfer – risk engineers provide recommendations and transfer their knowledge of how to mitigate risk before it turns into a loss event when they conduct site surveys.
- Risk/claims analysis – following a loss event, risk engineers conduct a risk dialogue with the client to discuss and recommend corrective actions that help mitigate risk and avoid the recurrence of an event.
- Benchmarking – companies can effectively benchmark their risk mitigation measures and minimize potential exposure by leveraging the vast experience of risk engineers in working with different companies and industries.
- Training and resources – risk engineers create loss prevention advisories and other relevant and timely resources, alongside conducting training, to help with raising awareness of and mitigating new as well as existing risks. These include loss prevention measures for reopening of public spaces during the pandemic, advisories on cleaning and disinfection during COVID-19 and recommendations for the inspection, testing and maintenance of fire protection equipment and systems.
- Tools – risk engineers possess tools that help businesses assess various risks such as floods and ice plugs in piping. For example, Swiss Re Corporate Solutions uses FLOAT, which profiles site elevation to determine parts of a plant that are vulnerable to floods.
Sharpening the focus on risk engineering
The vastly interconnected nature of today’s global economy and the complexity of trade networks, coupled with numerous micro risks means that a breakdown or stoppage affecting a single segment of the supply chain can cripple global production output for extended periods.
According to Yeong, for businesses to improve focus on risk engineering, they should look at mitigation measures at their facilities as well as monitor the entire supply chain ecosystem, from procurement to distribution, for assorted micro factors across various categories.
“Additionally, in supply chains, one of the key issues is that many organizations do not have adequate transparency of the risks embedded in the structure of their supply chains,” he said. “This lack of transparency can be attributed to a lack of real-time supply chain data, which allows for immediate alerts of supply chain disruption and for more accurate and timely identification and mitigation of risks. A greater number of data points will facilitate a more accurate calculation of the costs of risk. They will also prevent unforeseen risks and potentially bad surprises by determining the most critical or vulnerable points within the supply chain.”