Measuring in the age of risk: FM Global expands its Resilience Index

Measuring in the age of risk: FM Global expands its Resilience Index | Insurance Business America

Measuring in the age of risk: FM Global expands its Resilience Index

Juggling the hazards associated with a pandemic, war, inflation, and a global supply chain crisis can make long-term business planning a herculean task. In the age of risk, data-driven tools can help navigate an uncertain future.

One of the world’s largest commercial property insurers, FM Global has released its annual Resilience Index, ranking nearly 130 countries on how well they can cope with strain and disruption.

European countries topped the list this year, with Denmark defending its spot at number one, and Switzerland, Luxembourg, Singapore and Germany rounding out the top five. Haiti, Venezuela and a number of African countries sat at the bottom.

There are 15 measures of resilience in the 2022 edition, which is now available to the public. The interactive web tool also allows users to search and compare countries’ relative resilience levels.

The data aims to inform strategic corporate decisions such as siting new plants, evaluating supply chains, and triggering mergers and acquisitions. However, there are an ever-growing web of factors complicating the decision-making process in boardrooms.

Pentti Tofte, staff senior vice president for data analytics at FM Global, spoke to Insurance Business about how it has expanded the Resilience Index to better support business leaders, and capture a more nuanced image of each country’s inherent exposures to businesses and stakeholders.

“The real value of the Resilience Index is as a long-range executive planning tool,” Tofte said. “When you’re looking out [to] where your organization might need to go five to 10 years from now, you think, how do you expand your supply chain into areas that are more resilient than others?”

Spotlighting climate risk

Two new index measures this year focus on the increasing perils brought by climate change. The first, climate risk exposure, reflects how much of a country’s economic activity is susceptible to severe floods and wind. The second, climate risk quality, looks at a country’s ability to withstand such events by considering building codes and code enforcement.

The change accounts for the disparity between a country’s exposure to its ability to bounce back. For instance, the index divides the US into three distinct regions due to differences in environmental risks to coastal areas. Region One, made up of the eastern and southern parts of the country, ranks low (103 out of 130) because of its constant exposure to hurricanes and storms. But it ranks higher (24) under climate risk quality for its relative ability to bolster its infrastructure.

A country’s score can also increase as it takes action to address climate risks. An example is South Korea, which jumped 36 places to 53 in the climate risk quality ranking, after demonstrating a commitment to releasing national flood maps last year.

“The message is that you can operate in a country that has a high level of climate risk exposure, as long as you go in eyes wide open and understand that you need to do something to harden your facilities in those in those areas,” Tofte explained.

Fine-tuning the climate-related drivers in the index was no accident. Tofte anticipates the focus on climate change will intensify, becoming the dominant topic in global conversation.

“I’m sure that [climate change] will dominate the headlines for years to come. It’s something that every organization, in one way or another, must adjust to,” he said.

Companies must also come to grips with the permanent and inevitable impact of the changing climate. “In some cases, people may have to re-site their facilities, or they may be in an area that is, over the long term, just not expected to be sustainable because of climate risk,” he explained.

ESG-related enhancements

These grim realities mean organizations must be several steps ahead in their environmental, social and governance (ESG) strategy. Amid mounting pressure from stakeholders, senior executives must balance climate and other risks while being transparent and upholding their companies’ values. To support this, the Global Resilience Index has added filters to complement ESG frameworks.

“For people that must spend time establishing an ESG framework or augment an existing one, the additional feature makes it easier to filter out those factors that have to do with ESG,” Tofte said.

Whether companies are establishing one for the first time, or enhancing their current framework, the online tool can serve as a data-driven component, or as an additional data set that can be imported into their existing evaluation process, he added.

Read more: More than 90% of insurers implement ESG considerations – report

The pandemic also inspired two new measures in the 2022 edition: health expenditure and supply chain timeliness. The former is an economic driver that reflects how much a country spends on healthcare per capita, while the latter considers factors that affect how often a shipment arrives on time at its intended destination.

‘Resilience is a choice’

While resilience isn’t a new concept in the business world, it’s more in the spotlight these days, Tofte told Insurance Business.

“We’ve been talking about resilience for a couple of decades, with organizations that we work with, with our clients,” he noted. “We firmly believe, as an organization, that resilience is a choice, which is part of the reason we put the index out there so that people have an opportunity to look at options. You don’t have to be beholden to whatever Mother Nature throws at you.”

Tofte emphasized that data can also empower business leaders to plan for contingencies. The index provides only a relative measure of countries’ resilience, he said, but it can capture local and regional contexts effectively to anticipate geopolitical events, such as the war in Ukraine.

With many organizations under pressure to cease operations in, or re-route supply networks from, conflict areas, Tofte said leaders would naturally be looking at exit routes.

“If you had three countries in mind to expand your supply chain, instead of the conflict area, then you can use [the index] to evaluate those countries and see what makes most sense for you,” he said.

Staying relevant

The eruption of full-scale war in Ukraine did factor into the 2022 edition of the index. In terms of political risk, for instance, Russia dropped 11 places since last year, ranking 106 out of 130 countries and territories. Ukraine, at 119, remains in the bottom 10%. Both countries are also dismal performers in the energy intensity driver, as they are heavily dependent on energy consumption to generate their economic wealth.

FM Global is mindful about keeping its index relevant every year, which means constantly adding measures to account for disruptive events. “I think we’re always looking at how to improve the index. A lot of the feedback that has resulted in the changes this year comes from organizations we work with, or our clients,” Tofte explained.

Read more: FM Global veteran steps into new role

“When something happens, whether it’s a geopolitical type of thing in the world, or something like the pandemic, there is an increasing demand to account for those types of events within the index.”

Though data enables some foresight, it’s not an absolute predictor. Still, Tofte is certain the index will keep pace with the headlines: “What’s going to happen a few years from now will be difficult to say, but rest assured, whatever it may be that’s happening in the world, we’re going to try to do our best to adjust the index accordingly,” he said.