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FM Global Exec: Cyber, Urbanization, Supply Chain Visibility Test Insurer Resilience

JOHNSTON, R.I., May 19, 2017, (A. M. Best via COMTEX) --

The interrelated nature of commercial lines risks has given rise to the development of risk-tracking tools of increasing sophistication, according to an executive with FM Global, which has broadened its “resilience index” to include cyber, urbanization and supply chain visibility as new risk “drivers.”

The 2017 FM Global Resilience Index has 12 “drivers of resilience,” said Brion Callori, senior vice president and manager, engineering and research. Three of those drivers are new this year – inherent cyberrisk, urbanization rate and supply chain visibility. Callori said FM Global upgraded the index this year to reflect the potential impact of “escalating threats” in those areas.

The other drivers are productivity, political risk, oil intensity, exposure to natural hazard, natural hazard risk quality, fire risk quality, control of corruption, quality of infrastructure and quality of local suppliers.

According to Callori, even with the addition of three drivers to this year’s version of the index, FM Global wanted to keep the inputs at a manageable level, with the 12 drivers divided among three factors – economic, risk quality and supply chain (supply chain visibility being one of the four drivers within the supply chain factor).

The nature and number of drivers will likely change in future years in response to changing risk conditions “as the world changes,” said Callori. The resilience index is an annual ranking ranking of 130 countries and territories according to their “enterprise resilience to disruptive events,” he said.

One of the reasons FM Global developed the resilience index is that about three-quarters of its clients have locations in more than one country, and many have operations in 10 or more countries, Callori said. While FM Global has always been able to collect ground-level data, he said the insurer wants to go to the “c-suite level” with a strategic approach.

Callori said that as FM Global updates and adds to the capabilities of its index, “we’re trying to turn it into a tool that senior management of our clients can use.” He noted that clients may be able to use the index as they decide what countries to invest in, or where to invest capital or build a manufacturing plant.

Among the three new drivers, Callori noted the urbanization rate is an example of the index’s response to changing real-world conditions. Rather than focus on statistics on urbanization, he said the insurer wanted to focus on the rate of urbanization “because the things that bring on volatility include how fast the country urbanizes as population is moving in from the countryside.”

Callori said FM Global sought to capture proprietary data from field work in more than 100,000 locations worldwide, with the addition of data from outside sources such as the International Monetary Fund, World Bank, World Economic Forum and U.S. Energy Information Administration. This year the index also includes data from the United Nations and Freedom House.

On the urbanization driver, he said data from the U.N. was of help as an example of data coming from outside sources.

The urbanization rate can be related to the toll taken by natural hazards on various countries, Callori said. Flood risk in particular can affect developing countries with manufacturing hubs as well as high urbanization rates, such as Bangladesh, Thailand, Vietnam, China and India.

FM Global had also recently rolled out a worldwide flood map that was the culmination of a five-year global flood-mapping initiative (Best’s News Service, Jan. 16, 2017).

Among the new drivers in this year’s index, cyber risk has a big influence on enterprise resilience as it demonstrates a country’s vulnerability to cyber attack with its ability to recover from such an attack, said Callori. He added the ransomware attacks of recent days showed that resilience includes a number of factors that can make a country vulnerable to attack even when it has a high rate of computer usage.

Recent cyber attacks have been devastating in China and Russia for instance, because the widespread use of pirated or unauthorized software left those countries without protection, said Callori.

As a driver within the “supply chain” factor for the index, supply chain visibility is described as the ability to track and trace consignments across a country’s supply chain, or how well a company can track its shipments, said Callori. Supply chain issues can also be related to natural hazard and infrastructure quality as risk issues, he added.

Callori said the resilience index is produced for FM Global by Pentland Analytics, an analytics and advisory firm.

Factory Mutual Insurance Co. has a current Best’s Financial Strength Rating of A+ (Superior).

(By David Pilla, news editor, BestWeek: David.Pilla@ambest.com)

David Pilla

Copyright (C) 2017 by A. M. Best Company, Inc.

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