bc risk and insurance management association, 16 january 2013 michael key, fm global vancouver...
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BC Risk and Insurance Management Association,16 January 2013
Michael Key, FM Global Vancouver Branch Manager
The majority of property loss is preventable…even in supply chains.
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“World’s Best Supply Chain Risk Insurance Provider” Global Finance magazine in its July/August 2012 issue.
“Backed by 177 years of experience and an engineering staff with a deep knowledge of risk, FM Global is an industry winner when it comes to helping multinationals insure their supply chains,” says the magazine in its rankings of the World’s Best Supply Chain Finance Providers 2012. “With nearly US$7 billion in policyholder surplus, FM Global offers its clients extended supply chain risk insurance coverage. This envelops not only an insured's direct suppliers and customers but also suppliers and customers up and down the supply chain.”
The editorial team from Global Finance sought input from industry analysts, corporate executives and technology experts during the selection process and considered factors such as market share and global coverage, product innovation, customer service, technology, execution skills and client-specific implementations.
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assets
$13B
revenue
$5.0B
Fortune 1000
545
employees
5000+
offices
63
assets
$13Brevenue
$5.0BFortune
1000
545
employees
5000+
offices
63
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“Nearly 90 percent of firms do not conduct a risk assessment when outsourcing production.” “Supply Chain Risk: It's Time to Measure It”
Harvard Business Review Blog, Feb 5, 2010
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Instead of trying to anticipate low-probability, high-impact events, we should reduce our vulnerability to them.
Let’s Get Real . . .
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So What’s New?
Over 50% of Fortune 500 profit now comes from overseasSupply chains have become more complex, extending to tertiary levels and beyondDemographic change has placed more business in harm’s wayWe are in a truly intertwined global economyCatastrophe events are having deeper impact
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Natural Catastrophes Worldwide;1980–2010Number
Meteorological events(Storm)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami,
volcanic eruption)
200
400
600
800
1 000
1 200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Geo Risks Research, NatCatSERVICE.
© 2011 Munich Re
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Volcanic eruption Island, March/April
Heat wave/ WildfiresRussia, July-Sept.
EarthquakeHaiti, 12 Jan.
Hurricane Karl, floodsMexico, 15-21 Sept.
Earthquake, tsunamiChile, 27 Feb.
Winter Storm Xynthia, storm surgeWestern Europe, 26-28 Feb.
Flash floodsFrance, 15 June
Earthquake China, 13 April Floods, flash floods,
landslidesChina, 13-29 June
Hailstorms, severe stormsAustralia, 22 March/6-7 March
EarthquakeNew Zealand, 4 Sept.
Severe storms, hailUnited States, 12-16 May
Severe storms, tornadoes, floodsUnited States, 30 April – 3 May
Typhoon MegiChina, Philippines,Taiwan, 18-24 Oct.
FloodsAustralia, Dec.
2010 Natural Catastrophes; 950 loss events
Source: Geo Risks Research, NatCatSERVIC.E
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Root Causes Happening Concurrently
Globalization
UrbanizationInformation Technology
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New emerging market leaders growing in numbers…
North Amer-
ica; 154
Rest of Developed World; 252
Emerg-ing
Mar-kets; 94
2011 Global Fortune 500
1996: 202006: 472016: >150
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Seas/Space Emerging Markets Developed Markets
5%
69%
26%
4%
27%
69%Number of Events
Total Insured Losses
Source: Swiss Re Sigma Report No. 1/2011 Note: Catastrophes included are those with >$17mil insured losses,$85mil in economic losses, or 20+ deaths
Number of Catastrophes By Region, 2010
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Of Particular Concern…
30% of World’s Consumer Electronics
Hong Kong
Shenzhen
Dongguan
Guangzhou
Forshan
Zhongshan
Zhuhai
Macau
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“There is a 26% chance of a major flood or windstorm over the life of a building…in a 1 in 100 year flood zone.”– Lou Gritzo, VP Research FM Global, “Flirting with Disasters”, Reason
Magazine, Issue 1 2011.
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Urbanization: Loss Aggregation
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And Mostly In Nat Cat Areas
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Beginning Phase
Establishing Phase
Mature Phase
Drive Towards Effective Supply Chain Risk
Management
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Identification & Assessment
Avoidance & Reduction
Acceptanc
e &
Transfer RISK
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Avoid or Mitigate the Interruption
Thoroughly understand your supply chain at every tier – loss control and business impact analysisMap the manufacturing processIdentify weaknessesHarden facilities, owned or otherwiseDuplicate if necessaryOverlay with financial mappingDefine acceptable riskCreate contingency and disaster plans
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Avoid or Mitigate the Interruption
GovernanceRisk toleranceFinance and balance sheet considerationsManufacturing
LogisticsSales and MarketingHuman ResourcesRisk ManagementAnd More!
Requires top level commitment Must engage multiple disciplines
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InsuranceCompany
LocalOperations
SuppliersGovernment/Regulators
Broker
StrategicAlliances
SeniorManagement
FinanceLegalInternal
External
IS
Risk Management“The Conductor”
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• Property Damage• Business Interruption• Supply Chain Disruptions
Corporate Reputation Investor Confidence Market Share Self-insured Retentions/Deductibles Life Safety Environment Community and Employee Relations
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What keeps CFO’s awake at night?
Opinion Research Corporation/FM Global Joint Survey of Top Business Risks to Top Revenue Drivers:
Competition is viewed as the biggest risk to revenue, followed by supply chain disruption and property-related risk
Most broadly cited consequence of disrupting a top revenue driver is a loss of competitiveness
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What is the link between financial performance and risk quality?
FM Global commissioned Oxford Metrica to explore the
relationship between risk quality and financial performance.
The independent research establishes a clear connection
between skillful investment in property risk improvement and
sustained financial performance.
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A clear, empirical connection was found between risk quality and shareholder value performance.
High-quality risk engineering was found to be strongly correlated with low cash flow volatility, a core value driver. Stable cash flow is a strong driver of value creation.
Risk quality is a strategic issue and an essential aspect of effective corporate governance procedures.
What is the link between financial performance and risk quality?
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Q1 Q2 Q3 Q4$0
$300
$600
$900
$27 $79
$413
$816
~ 30 X
“Risk” Losses by FM Risk Mark Quartiles
Gross Loss $(Millions)
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US$724,000
FirePhysical Risk Management Practices versus Ave. Loss Severity (2005-08)
US$3,200,000
US$478,000
Natural CatastrophesPhysical Risk Management Practicesversus Average Loss Severity (2005-08)
StrongPractices
US$3,400,000
WeakPractices
The Consequences Can Be Dire
StrongPractices
WeakPractices
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2.34
0.34
0
0.5
1
1.5
2
2.5
UnimprovedLocations
ImprovedLocations
Do
llar
loss
per
$10
0 T
IV
Comparison of “Improved” and “Unimproved” Locations
Katrina Loss Comparison
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The Opportunity….
Own and manage the riskUnderstand the exposuresHarden the supply chain, owned and non-ownedWith knowledge of the exposures, tailored supply chain insurance solutions can be created
Together these steps create: COMPETITIVE ADVANTAGE
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When You’re ResilientYou’re in Business
The majority of property loss is preventable…even in supply chains.