Hands-on risk management: Replacing actuaries with engineers

Science meets insurance at this research campus, where engineers literally blow stuff up to take the guesswork out of risk management

Hands-on risk management: Replacing actuaries with engineers

Risk Management News


Ever wonder what it feels like to be stuck in the middle of a category five hurricane? How about at the epicentre of a 7.9 magnitude earthquake?

At FM Global’s research campus, facing the elements is all in a day’s work. Each day, scientists come to work in a 648-hectare research centre in rural Rhode Island, USA. The daily tasks? Blowing things up, breaking things, creating warehouse-size fires, shooting windblown debris and gaping at the cataclysmic explosion of dust.

It’s not exactly the picture you have in mind when you imagine a day in the life of an insurance professional. Rather, you probably visualise an actuary crunching numbers at a desk from nine to five.

But FM Global doesn’t have any actuaries in their organisation. “We replace the actuaries with engineers,” says Brion Callori, senior vice president and manager, engineering and research at FM Global. “Half of the employees in our company are engineers.”

The science-based concept hinges on a key principle: instead of assuming that past losses show what future losses will be, the engineers learn from past losses and engineer them to prevent or mitigate future losses.

The research garnered from the campus goes into producing property loss prevention data sheets or product testing and certification standards. “Generally, building codes and standards tend to be consensus-based,” says Callori. “FM Global’s perspective is research-based. That’s where the campus comes in. Based on what we learn there, we release data sheets (globally, free of charge on our website) to guide you on how to design your facilities. For example, if you’re in a wind zone and you want to know how to protect it against a hurricane, you can go to the relevant data sheet.”

Protecting against hurricanes have been a major focus for the company in wake of last year’s devastating season, where total economic losses from natural disasters topped US$175bn, according to Swiss Re.

The campus has an entire building dedicated to finding protections against Mother Nature. “The natural hazards building is a centrepiece,” says Callori. “Coming off last year’s hurricane season, we proved that with our model for both flood and wind – even with climate change, rising sea levels, extreme precipitation events, and hotter weather – you can assess the risk, understand the business impact, and you can mitigate against it. And that’s where a lot of our testing for the products that go into buildings takes place.”

The engineers work to figure out what causes building material to fail and how best to design buildings that can resist the effects of hurricanes, floods, and earthquakes. To do that, they designed the Natural Hazards Laboratory to simulate even the most severe events.

Some of the highlights include a ‘debris cannon’ that shoots materials at hurricane-force speeds tests the resiliency of doors, windows, and wall panels, and a ‘shake table’ that replicates the trembling from earthquakes.

What’s more, the in-house engineers collect 700 data points from over 100,000 locations, adding a plethora of information into the company’s predictive analytics. “We’ve been able to combine that into benchmarking systems and black box algorithms, so we can actually share with clients what location is most likely to have a loss,” says Callori. “For example, we have one tool called ‘Locations predisposed’ that identifies the thousand locations most likely to have a fire or equipment loss, which make up less than 2% of the total locations measured, but last year they accounted for over 44% of the losses over US$10m.”

That quantifiable, science-based data helps risks managers make their case to the C-suite. “If you talk to a risk manager, one of the biggest challenges they deal with is how to get capital in their organisation for risk improvement,” Callori says. “These tools start talking more in the language of the CFOs.”




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