XL GAPS: Local Knowledge is Power - Martin Vinkenflugel

Risk engineering has historically been seen as a pleasant but expensive add-on. However, the service has evolved from offering simple loss prevention advice to providing a comprehensive overview of a company’s risk exposures. Martin Vinkenflügel, European Business Development Leader for XL GAPS, explains how this holistic approach enables better risk management.

The complexity of the modern business environment has resulted in new demands on the traditional risk engineer. As companies expand into new territories such as Asia or South America they are faced with a host of different risks and exposures. Managing these changing risks across the entire operation requires a team of loss prevention specialists around the world that can provide a complete overview.

International companies want to ensure that their global insurance premiums are allocated in the most cost-effective way, without leaving extensive gaps in their coverage, which can turn into expensive surprises. To achieve this holistic approach, the local data needs to be fed into a central reporting tool for analysis.

New exposures

Insurance buying for international multi-site operations is a complex task. Companies could be faced with ‘nat cat’ events which they are unlikely to encounter at their home location. European firms might understand the issues around flooding or drought, but hurricanes and tsunamis are not high on the agenda. In the world of changing and less predictable weather patterns a complete and up-to-date overview of the exposures in all locations is becoming more and more important.

Those paying for insurance in large corporations are frequently looking for the latest available information to make the best possible risk assessment.

Online loss prevention reporting

Companies can’t afford to be ignorant of the risks they face. In response to this growing demand, modern risk engineering services have developed online reporting tools offering a full overview across the entire property portfolio.

The aim of these tools is to get the relevant data to support the finance director and/or risk manager when allocating and prioritising resources. These services will usually not only manage the loss prevention information, but also quantify the property exposure. Each location is assigned a risk quality rating enabling managers to get a complete picture for a more effective allocation of the insurance premiums.

The data usually offers much more than a pure overview of the risk faced by various sites. Analysing the percentage of total account value of each location, the exposure to different events and the values involved will give risk engineers and financial departments a better understanding of the company wide exposure (See Figure 1). In 2005 insurance buyers and companies suffered from severe wind and flood losses in the US and Europe.

In many cases the total exposure and the value accumulation was unknown. Thus, it became more and more important for risk managers, brokers and insurance companies to have real time data to evaluate their exposure.

While many manufacturers will have plenty of engineers in their own production process or quality control departments, few companies have their own loss prevention engineering experts. This task becomes even more complex when faced with exposures in Munich and Morocco or Turin and Taipei, all requiring specialist local knowledge. Risk consultants will work with in-house teams offering an expert strategy aimed at minimising the dangers from fires, floods or earthquakes.

The online service tools are able to identify and monitor risk assessments and any risk improvements made on a strategic and operational level. Reports will give a full overview of the risk quality for each location or total account value on important risk mitigation measures ranging from the quality of the sprinkler protection system and water supply to warehousing protection and even pre-emergency planning. The sprinkler system is vital in preventing the spread of fires, but the question of water supply will be an essential part of the equation in areas likely to face periods of drought. They will also highlight the total values exposed due to deficiency warehouse protection or lack of pre-emergency planning.

Better grasp of risk

With the changing exposures faced by companies around the world, insurance has evolved from a pure risk transfer solution into a partnership aimed at risk prevention. The key to a detailed risk assessment is the quality and transparency of the data. As part of the whole process, insurers will usually look at the risks and take the commitment of companies to loss prevention into account.

But it is not only insurance underwriters that are looking at the risk exposure information. The company’s board and shareholders are also increasingly asking questions regarding the level of risks faced by the operation and what mitigation measures have been taken. This overview will give the finance department more certainty as they can see relevant risk improvement in the pipeline and can budget as well as prioritise resources accordingly. The tools can also simulate the impact a risk prevention investment would have on the overall risk quality rating.

Covering worldwide operations in unfamiliar locations should not automatically mean that risk managers can’t sleep at night. Insurance companies are in the business of managing the risks, but will require detailed information on the processes. It is the role of the modern risk engineering service to work with the insurance company and clients to mitigate the exposures and provide a full overview of the potential risks. They are also there to offer advice on the best risk prevention measures. Today’s global operations need to be confident that they are fully covered.

Martin Vinkenflugel, European business development leader for XL GAPS.
Figure 1. The graphic shows the financial exposure to natural catastrophes. Each section of the pie chart links to detailed data on the exposed locations.
Figure 2. It is critical for risk managers to understand the status of recommendations made by risk engineers. The data will also provide a detailed recommendations report showing the costs of completion and the loss estimate before and after the completi