Reason magazine
62
Click here to load reader
-
Upload
nathan-skinner -
Category
Documents
-
view
282 -
download
5
description
Includes special features on flood mapping and emerging markets.
Transcript of Reason magazine
28.6529.35
45.65
ww
w.fm
global.comw
ww
.fmglobal.com
p ro p e r t y ri s k a n d i n s u r a n c e s o l u t i o n s f o r a c o m p l e x w o rl d
ISSUE 2 : 2011
The
Rising Tide
Open fOr Business? Patience, Pragmatism and Visionary LeadershiP in deVeLoPing markets
Climate COntrOl has there been a
change in the Weather?
HOw enHanCed flOOd mapping
will revOlutiOnize lOss preventiOn
ISSUE 2 : 2011
Reason
ww
w.fm
global.com
Be in the Know Loss prevention management on the go!
Introducing Know More Risk, an educationalseries of knowledge-on-demand videos that focuses on common workplace hazards. Three minutes is all it takes to better protect your facility. See page 15 for more information.
contents : ISSUE 2 2011
FEaturE40 Open for Businessdeveloping markets lie at the core of today’s new corporate order. equal doses of patience, pragmatism and visionary leadership take the guesswork out of entering, and succeeding in, those markets.
CovEr Story
46 The Rising Tide as rivers overrun their banks, levees strain against the rush of highwater, and businesses brace for the deluge, a team of flood specialiststakes on the challenge of mitigating loss in the face of looming peril.
54 Flood Mapping, Australia style Why local insurers think it’s the government’s role to map down under.
56 Rain Mena newly assembled and highly accomplished flood team focuses its effortson the large-scale mapping of critical flood zones. it may be the biggest flood-mapping project ever tackled.
28.6529.35
45.65
41.58
[ 46 ]
EXECUTIVE EDITOR Johanna Hetherton
MANAGING EDITOR Bob Gulla
ART DIRECTOR Jennifer Cournoyer
EDITORIAl
deputy editor Christian Campbell
senior editors Andrew Erskine, Patricia Iannotti
Charity Latham, Jamie Pachomski, John Rufo
contributing writers Hank Giles
Randall Schreitmueller, Stephanie Van Ness, Ted Weber
technical editor John C. Harrington
web editor Kristen Chudy
ART
creative director Rebecca Marino
associate art director Nicole Caddell
PRODUCTION
production manager Angela Conway
production associates Elizabeth Kenty, Stephen Pine
VIDEO PRODUCTION
producer John Rufo
video editor David Hayes
visual coordinator Stephen Pine
CUsTOMER sERVICE AND sUbsCRIPTIONs
270 Central Ave., P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 477 7010, phone: +1 (1)401 477 7744
(1)877 364 6726 (toll-free in Canada and United States)
e-mail: [email protected]
REPRINTs
Address inquiries to:
Adam Houser
manager, intellectual property
phone: +1 (1)401 275 3000, ext. 1826
e-mail: [email protected]
CORREsPONDENCE
Send to Reason, FM Global Communications
270 Central Avenue, P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 464 9031, phone: +1 (1)401 275 3000, ext. 2185
ADVIsORy bOARD
Nick Batten (Marketing), Jeffrey Beauman (Underwriting)
Karen Freedman (Enterprise Learning), James Galloway (Operations)
Louis Gritzo (Research), Mark Gryc (Engineering), John C. Harrington (Engineering)
Jamie Pachomski (Public Relations), Stefano Tranquillo (Northern Europe Operations)
Burton Wright (Claims), Martha Young (Marketing)
FM GlObAl AROUND THE WORlD
FM Global products and services are available around the world.
The countries listed below represent those where we regularly serve our clients.
asia pacific
Australia Bangladesh Brunei Cambodia China Hong Kong
India Indonesia Japan Laos Macau Malaysia
New Zealand Pakistan Philippines Singapore South Korea
Sri Lanka Taiwan Thailand Vietnam
europe, middle east and africa
Armenia Austria Azerbaijan Bahrain Belgium Bosnia Botswana
Bulgaria Burkina Faso Cameroon Croatia Czech Republic Denmark
Egypt Estonia Finland France Germany Ghana Greece Hungary
Iceland Israel Italy Jordan Kazakhstan Kenya Kuwait Kyrgyzstan
Latvia Lebanon Liechtenstein Lithuania Luxembourg Macedonia
Madagascar Morocco Mozambique Netherlands Norway Oman
Poland Portugal Qatar Republic of Ireland Romania Russia Saudi Arabia
Serbia Slovakia Slovenia South Africa Spain Sweden Switzerland
Tunisia Turkey Ukraine United Arab Emirates United Kingdom
north america
Bahamas Canada Costa Rica Dominican Republic El Salvador
Guatemala Honduras Jamaica Mexico Nicaragua Panama
Trinidad and Tobago United States
south america
Argentina Bolivia Brazil Chile Colombia Ecuador
Paraguay Peru Uruguay Venezuela
TO REACH THE FM GLOBAL OFFICE NEAREST YOU,
VISIT WWW.FMGLOBAL.COM/CONTACT.
This publication is made available for informational purposes only in support of the insurance relationship between FM Global and its clients. This information does not change or supplement policy terms or conditions. The liability of FM Global is limited to that contained in its insurance policies.
P07001 © 2011 FM Global. All rights reserved. In the United Kingdom: FM Insurance Company Limited, 1 Windsor Dials, Windsor, Berkshire, SL4 1RS. Regulated by the Financial Services Authority.
Have a question or want to subscribe?
E-MAIl [email protected] PHONE (1)877 364 6726 (toll free in Canada and United States) MAIl FM Global, 270 Central Avenue, Johnston, RI 02919 USA
PLEASE RECYCLE
Reason
contents : ISSUE 2 2011
thE latESt
10 Updates
14 Talking PointsKaren golden, risk manager at r.r. donnelly, talks about her role, her association with Fm global, and the things that keep her awake at night.
16 The Triangle Shirtwaist Factory Fireone hundred years later, the incidents of the triangle shirtwaist Factory fire of march 1911 are still shocking.
18 Book Reviewin made to stick, authors chip and dan Heath explain howto make your ideas do just that.
thE idEa
20 Capitalizationvice president and treasurer Bill mekrut presents his thoughts on cash management.
22 Legalitiesomar Hameed, legal director, Fm insurance company Ltd., looks at emerging trends.
24 Turning Knowledge into ValueHow our client service process turns knowledge into value.
26 A Big AdjustmentHigh grades for claims performance mean promises well kept.
28 First PersonHosam ali is Fm global’s research area director and an authority on natural hazards.
thE SCiEnCE
33 Understanding the LossFlooding interrupts production at manufacturing facility and damages equipment.
34 Understanding the HazardWith approximately one in 10 industrial facilities located within a flood zone, the need to understand the flood hazard and take action now is critical.
36 Climate Control?What do we know right now about shifts in climate, and what can we glean from the current increase in the intensity of storms?
38 A New Sprinkler System EmergesFm global helps develop a fire protection sprinkler system for extremely corrosive industrial duct environments.
[ 28 ]
[ 36 ]
[ 20 ]
[ 16 ]
bRET AHNEll Senior vice president, division manager, Western division, Plano, Texas, USABret oversees activities in the western third of the United States, all of Latin America, and is responsible for oversight of the Forest Products line of business globally, excluding Canada.
Recent reads: GE Work-out: How to Implement GE’s Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems Fast by Dave Ulrich, Steve Kerr and Ron Ashkenas Islands of the Damned: A Marine at War in the Pacific by R.V. Burgin and Bill Marvel The River of Doubt: Theodore Roosevelt’s Darkest Journey by Candice Millard
CHRIs bOsTON Assistant vice president, manager, sales and client service support, marketing and enterprise learning, Johnston, R.I., USAChris is responsible for ensuring the effectiveness of FM Global’s sales and client service processes and for managing the sales and client service support team.
Recent Reads: Right Ho, Jeeves by P.G. Wodehouse Mystic River by Denis Lehane Life by Keith Richards and James Fox
ClIVE GOODWIN Assistant vice president, manager, natural hazard peril underwriting, underwriting and reinsurance, Johnston, R.I., USAClive is the underwriting manager for wind and flood. His role involves developing and maintaining strategies to capitalize on FM Global’s engineering knowledge of these hazards to benefit terms and conditions available to FM Global clients.
Recent Reads: A Dirty Job: A Novel by Christopher Moore Predictable Surprises: The Disasters You Should Have Seen Coming, and How to Prevent Them by Max H. Bazerman and Michael D. Watkins
sHANGyAO NONG Senior research specialist, engineering and research, Norwood, Mass., USAShangyao is tasked with understanding, evaluating and quantifying the property risks associated with global extreme weather and climate events, such as tropical cyclones, flood and storm surge.
Recent Reads: Predictability of Weather and Climate edited by Tim Palmer and Renate Hagedorn Intraseasonal Variability in the Atmosphere-Ocean Climate System by William Lau and Duane Waliser Field Notes from a Catastrophe: Man, Nature and Climate Change by Elizabeth Kolbert
MARC RAGAzzI Vice president, operations manager, Dallas operations – Latin America operations, Sao Paulo, BrazilMarc oversees Latin America operations, including engineering, global services and client servicing.
Recent Reads: 1808 by Laurentino Gomes The Steve Jobs Way: iLeadership for a New Generation by Jay Elliot and William Simon Winston Churchill: A Life by Rupert Matthews
We wantyourfeedback!If you have something to say, why not say it?
We’d enjoy hearing your feedback on what you’ve read in the pages of Reason.
In fact, if it’s OK with you,we’ll even share it with readers on our new “Feedback” page.
email: [email protected]
mail: 270 Central Ave. Johnston, RI USA 02919
[ contributors ]
When Nature Calls
nice day, isn’t it? Yep, looks like rain. sure is a hot one. not long ago, we used to talk with innocence about the weather, in place of a more meaningful exchange. Weather platitudes have always served as conver-sation starters, ploys to get past an awkward moment. Weather today is far from the quaint icebreaker it used to be. in fact, what used to be so innocent, now feels more like a lurking presence, an adversary, something that keeps us awake at night and worried during the day. in reality, it pounds our shores. it rips homes and businesses from their foundations, and lifts them into whirling winds of destruction. Weather feels more uncontrollable, vengeful, as if it has a score of some kind to settle. more worrisome, it feels like these extreme events are happening with ever more alarming frequency. For scores and scores of years now (176 years to be exact), Fm global has shouldered the responsibility of helping its clients prepare for these unpredict-able events. and our dedicated scientists and researchers have made it their life’s work to tackle hazards and mitigate damage caused by natural disasters. name that property hazard and we have a hazard team dedicated to it. our newest team, featured on page 56, focuses on flood mapping and flood modeling, which just happens to be this issue’s cover story. our clients will certainly appreciate the landmark work these accomplished scientists are embarking on as we speak. on a related note, we also thought it was the right time to ponder the con-cept of climate change, and whether the idea of extreme weather might have something to do with changing weather patterns. no one knows for sure, at this point, whether it’s due to real earth warming or natural variability, but it never hurts to lend a little intelligent analysis to what has become a divisive topic. Finally, Fm global is also doing extensive work in the area of developing markets, which makes sense, seeing that our clients are expanding further and further into the global marketplace. this issue features the final installment of our three-part series on globalization issues. as always, let us know your thoughts, and thanks for reading reason.
Bob Gulla, managing [email protected]
ISSUE 2 : 2011 [ Reason ] 7
[ editor’s note ]
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
FM global’s WorldReach® the comprehensive approach to global risk Management
in morE than 110 CountriES, on 5 ContinEntS, Spanning 24 timE zonES
It ’s not the right question to askif this storm or that storm is due to global warming
or is it natural variability.
of both.Nowadays, there’s always an element
– Kevin trenberthTHE NATIONAL CENTER FOR ATMOSPHERIC RESEARCH
[ thelatest ]
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
|
| | | |
| | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | |
| | |
| |
| |
| |
| |
| |
| |
| | |
| | |
| | |
| | |
| | | |
| | | | | | |
on the aGeNDa
aRIa 2011 annual MeetingAmerican Risk and Insurance AssociationSan Diego, Calif., USAaug. 7-10, 2011
Founded in 1932, the American Risk and Insurance Association is the premier academic organization devoted to the study and promotion of knowl-edge about risk management and insurance. A professional association of insurance scholars and other thoughtful risk management and insurance professionals, it comprises academics, individual insurance industry representatives, students and retirees. The association emphasizes research relevant to the operational concerns and func-tions of insurance professionals, and provides resources, information and support on important insurance issues.
Fire Rescue International trade show Atlanta, Ga., USAaug. 26-27, 2011
Fire Rescue International provides leading manufacturers and suppliers of fire and rescue products and services the opportunity to meet and conduct business with a diverse audience of fire/rescue professionals, such as company officers, training officers, firefighters, wild-land firefighters, fire and EMS chiefs, and federal disaster responders.
aFsa 2011 Convention and expositionAmerican Fire Sprinkler AssociationSan Antonio, Texas, USASept. 14-18, 2011
Organized in 1981, AFSA is a non-profit, international association representing openshop
fire sprinkler contractors dedicated to the educational advancement of its members and promotion of the use of automatic fire sprinkler systems.
RIMs Canada ConferenceOttawa, Ontario, CanadaSept. 18-21, 2011
The RIMS Canada Council (RCC) is a standing committee of the Risk and Insurance Management Society, Inc. (RIMS). The RCC addresses the strategic initiatives of RIMS and risk management issues in Canada.
FeRMaFederation of European Risk Management AssociationsStockholm, Swedenoct. 2-5, 2011
Established in 1974, FERMA brings together the national risk management associations of 17 countries, and represents more than 4,800 individual members and a wide range of business sectors from manufacturing to financial services, charities, health organizations and local government organizations.
sWe11Society of Women EngineersChicago, Ill., USAoct. 13-15, 2011
The Society of Women Engineers (SWE) is a not-for-profit educational and service organization that empowers women to succeed and advance in the field of engineering, and to be recognized for their life-changing contributions as engineers and leaders. Founded in 1950, SWE is the driving force that establishes engineering as a highly desirable career for women through an exciting
array of training and development programs, networking opportunities, scholarships, outreach and advocacy activities.
2011 sFPe annual Meeting Society of Fire Protection EngineersPortland, Ore., USAoct. 23-28, 2011
This conference highlights presentations on advanced and cutting-edge practices in fire protection engineering that are used to protect people, property and the environment from fire. The Society of Fire Protection Engineers was established in 1950 and incorporated as an independent organization in 1971. It is the professional society representing those practic-ing the field of fire protection engineering, with more than 4,000 members in the United States and abroad, and over 60 regional chapters.
DKM International Trade Fair for the Finance and Insurance IndustryDortmund, Germanyoct. 25-27, 2011
This is the leading international trade fair for the German finance and insurance industry, focusing on product presentations and introductions; forums, lectures and workshops; and B2B discus-sions. 2011 marks the 15th anniversary of this trade fair organized by bbg Betriebsberatungs GmbH, an independent supplier of communica-tion and information services for the finance and insurance industry.
10 [ Reason ] ISSUE 2 : 2011
[ thelatest ]
Free and EasyWebsite for FM global engineering guidelines surpasses one million downloads
Downloads from FM Global’s web-based Property Loss Prevention Data Sheets application, available from FM Global’s public website, recently hit the one-million mark and now totals nearly 1,020,000. FM Global Property Loss Prevention Data Sheets are engineering guidelines written to help reduce the chance of property loss due to fire, weather conditions and failure of electrical or mechanical equipment. In April 2008, in the interest of furthering risk improvement efforts, FM Global launched the data sheet download application to provide clients—and the general public alike—unrestricted access to our engineering guidelines, free of charge. While registered FM Global clients also can access the data sheets at no cost through their client portal, MyRisk®, the self-service feature allows anyone with Internet access to register on the site and download the data sheets on demand, from any location worldwide. As such, the application ensures only current information is made available and provides an easy/affordable way for architects, consultants and contractors to meet FM Global’s clients’ requests to build to FM Global standards. For more information, visit www.fmglobaldatasheets.com.
Fm global awarded us$400,000 in fire prevention grants during 2010 to fire depart-ments, brigades and other related agencies in the united states, canada, india and the united Kingdom to help them more effec-tively prevent fire in their communities. on average, each grant recipient received us$2,400 to bolster loss preven-tion initiatives, like community education, prefire planning and arson prevention. during the past 35 years Fm global has contributed millions of dollars in fire prevention grants to fire service organiza-tions around the globe. through its Fire prevention grant program, Fm global awards grants that can have the most demonstrable impact on preventing fire, or mitigating the damage it can cause. “Far too often, inadequate budgets prevent these organizations working to prevent fire from being as proactive as
they would like to be. With additional financial support, grant recipients are actively helping to improve property risk in the communities they serve,” said michael spaziani, manager of the fire prevention grant program.
to learn more about Fm global’s Fire prevention grant program, or to apply for a grant, visit www.fmglobal.com/grants.
Data SheetsFM Global Property Loss Prevention
BIG PRoPsnew Flaspöhler study bestows high praise
When america’s corporate insurance buyers look to purchase commercial property insurance, business interruption or terrorism coverage, a new survey by the Flaspöhler research group finds the “business favorite” is Fm global. this is the second year in a row that Flaspöhler’s annual survey ranked Fm global tops for commercial property and business interruption insurance. the 2011 “risk manager choice” survey of 364 u.s. corporate insurance buyers, conducted in partnership with national underwriter magazine, also finds Fm global is the top-rated insurer for underwriting capabilities, financial value, financial security, client orientation, expertise and market knowledge, timely service and claims handling.
“ At FM Global, we’re passion-ate about the notion that the majority of property damage is preventable, not inevitable.”
michael Spaziani MANAGER OF THE FIRE PREVENTION GRANT PROGRAM
in 2010, Fire Prevention grants totaling us$400,000 aid close to 200 organizations Worldwide
grant appliCationS arE now bEing
aCCEptEd For 2011!
ISSUE 2 : 2011 [ Reason ] 11
[ thelatest ]
open for Business: FM Global now writing locally in Spain
After providing loss prevention engineering services to clients in Spain for nearly 30 years, FM Global has established an insurance branch in that country and is now able to write local business through its Madrid office. The establishment of an insurance branch office in Spain enhances FM Global’s responsiveness to local clients’ needs. The office is located at: C/serrano Galvache,
56 Edificio Encina, 2a Planta 28033 Madrid spain Tel.: +34 91 766 44 33
tRAnSLAtED coURSES DEBUt
“ Managing your Fire Risk with sprinklers” and “safe boiler Operation”
two translated courses are now available through the Fm global online client training center. “managing Your Fire risk with sprinklers,” which addresses the myths asso-ciated with fire protection sprinkler systems, is now available in French and spanish. “safe Boiler operation,” which details the four most com-mon boiler hazards, is now available in portuguese (Brazil) and spanish. Both courses take less than an hour to complete and can be accessed at http://training.fmglobal.com.
Hall oF FaMeRsRisk and Insurance Management Society, Inc. (RIMS) announced the inaugural class of its Risk Management Hall of Fame. Here are the inductees:
Douglas Barlow is a risk management pioneer whose career spanned decades. He is credited with creating the first global insurance and risk management program at massey-Ferguson, a toronto-based farm equip-ment manufacturer, where he spent much of his career. Barlow was also the first risk professional to hold the title of risk manager and is credited with coining the now-pervasive phrase, “cost of risk.”
Donald Barrett, a risk management professional for more than 30 years, spent much of his career with the Hydro group, the fourth largest generator of electricity in canada. He served as a member of the risk management committee of the canadian electricity association, including a two-year term as chairman. Barrett was a founding member and former president of the newfoundland and Labrador rims chapter. Eldrich Carr spent more than 25 years in risk and insurance man-agement positions, much of that time with the goodyear tire & rubber company. carr was one of the first to use the internet for underwriting submissions and as a replacement for the insurance certificate process, and is a frequent speaker at various national and international risk man-agement forums. Cheri Hawkins, retired assistant treasurer and director of insurance for Weyerhaeuser company, became the first female president of rims in 1990, and in 1992, she was given the Weyerhaeuser president’s award for her efforts on environmental settlement. in 2000, Hawkins was selected by Business insurance as one of its first ever “100 Leading Women.” John Pinner spent 42 years with mattel, inc., creating and defining the risk management function for the world’s largest toy company. He served several terms as president of the Los angeles chapter of rims and, throughout his career, traveled extensively for mattel in europe and the Far east. “this year’s inductees have touched the risk management commu-nity in profound ways throughout their careers and are inspiring figures in the history of this profession,” says mary roth, arm, executive director of rims. “the selection committee’s decision to recognize them with this honor underscores the tremendous impact they have had on our community.”
“ This year’s inductees have touched the risk management community in profound ways throughout their careers and are inspiring figures in the history of this profession.”
mary roth, ARM, ExECUTIVE DIRECTOR OF RIMS
12 [ Reason ] ISSUE 2 : 2011
[ thelatest ]
lIve, leaRNTRUE-LIFE LOSSES THAT COME WITH LESSONS
A new series of publications is now available through the Resource Catalog. This product line demonstrates the implications of having a loss by using a real life scenario. Factors contributing to the loss, as well as “lessons learned,” are noted to provide a better under-standing of not only the physical impact of a loss, but also its overall business impact. Understanding the Loss (UTL) is a series of true-life loss lessons provided by FM Global clients. They are available to FM Global clients to mitigate the possibility of a loss. Find this new series at www.fmglobalcatalog.com.
Nouveau NicheAn updated look at why “selling less of more” is where it’s at
thE long tail: why thE FuturE oF buSinESS iS SElling lESS oF morE by Chris AndersonHyperion
For a very long time, in a mass production world, one of the keys to success has been selling as much as possible of a relatively small number of “hit” products (think Ford Mustangs, VW Beetles, iPods or Pet Rocks). Several years ago, Chris Anderson, a former
Economist editor and now editor of Wired magazine, began to notice something counterintuitive. Particularly in fields affected by the arrival of the Internet, the importance and potential of the hit “product” was being eroded by the growing importance of larger numbers of products that sold only in relatively small numbers. In the media, the most obvious example, which he cites, is the relative decline of television networks, which now compete for audience share with scores of cable channels as well as with online content. There is still an audience for the Super Bowl and many network television shows remain very popular—but a substantial audience has been quietly bleed-ing away, enticed to other options that often appeal to only small and nar-row audiences. Just as important, audience loyalty is no longer something to take for granted. Although the media may be the most obvious place to start, it isn’t the only realm undergoing substantial change. What is really happening, Anderson argues, is a growth in the ability of marketers to identify and tar-get very specific customer niches. From the customer vantage point, there are new opportunities to find entertainment, products and even friends (Facebook) that simply didn’t exist less than a generation ago. In fact, perversely, unique and unusual things are easier to find among the clutter on the web than common things. (Try to Google an obscure car brand, out of the way place, unusual surname, etc., and see what happens.) Just as important, revolutions in business management and con-trol—and even in how things are manufactured—are allowing for the profitable sale of smaller numbers of any given product. Originally published in 2006, the new edition of Anderson’s book has expanded slightly, with a chapter on marketing. However, the thesis and message remain the same—and are just as compelling. Everyone who sells and everyone who buys needs to understand Anderson’s view of how the new rules are rapidly reshaping business and culture.
U.S. Risk Managers Give FM Global Highest marks in three categories
a new study of u.s. corporate risk managers shows Fm global is the best among insurers at claims processing, customer service and underwriting expertise, according to the latest independent research by greenwich associ-ates, a leading financial services research firm. nearly 700 risk managers representing companies with annual revenue greater than us$500 million were surveyed. Fm global also was the only insurance carrier to rank in the top tier for all three areas, something few companies achieve, says greenwich associates consultant david Fox. such firms “stand out from competitors with particularly high levels of client satisfaction and loyalty.”
“carriers that receive the strongest client ratings for customer service generally share one trait: senior leader-ship that is committed to customer service and puts that commitment into practice every day by monitoring actual delivery and enforcing high standards,” says Fox.
“ FM Global also was the only insurance carrier to rank in the top tier for all three areas, something few companies achieve.”
david Fox, GREENWICH ASSOCIATES
ISSUE 2 : 2011 [ Reason ] 13
[ thelatest ]
Karen GoldenSenior Vice President, Risk Management and Real Estate, RR Donnelley & Sons Company
Can you provide some details on your corporate background?after practicing specialized insurance coverage law for six years, i moved to risk management where i have held positions in the retail, bever-age manufacturing, educational services and now integrated communications industries.
in terms of insurance risk, what worries you most? what keeps you awake at night?at rr donnelley, we believe that safety is the first and most important measure of operational excellence, so safety is foremost in my mind. as would any risk manager, i worry about the possibility that an incident of some kind would occur and affect our reputation. as a large company, we have the ability to move and work seamlessly from facility to facility to maintain service continu-ity. We’ve done that, for example, in the face of hurricanes, so a property loss is not my greatest worry.
you have so many facilities all over the world. what are some other problems that you are concerned about?We continue to focus on the consistent adher-ence of our risk management policies in foreign locations. We review the age of our equipment and maintain capital spending on new equipment to avoid technological obsoles-cence. We monitor the availability of a talented workforce in all locations where we have cur-rent facilities or plan expansion facilities. We remain conscious of escalating business costs and work to hold costs to an acceptable level.
is supply chain interruption something you think about? if so, why?We do ongoing business continuity planning and work closely with the suppliers of raw materials. We manage that risk through diversifying our supply base and seeking providers that offer multiple manu-
facturing locations.
has the difficult economy affected donnelly’s business?Yes, on two fronts. First, it has encour-aged customers to be very careful about the amounts of products and services that they purchase. second, and this actually creates an opportunity for us, custom-ers have become much more interested in hearing about, and acting on, the
integrated solutions that we offer. Because we’re end-to-end providers, we can help cus-tomers reduce the total cost of ownership when they engage with us to provide a broader set of supply chain solutions.
how do you feel your industry is coping with the changing, digital landscape?We believe we are already the best at physical content distribution, and our goal is to be the best at digital logistics, or the management and distribution of information into a variety of media. For example, if you look at our annual report you’ll see that it includes Qr codes. scan those with a Qr enabled smart phone
and you’ll see videos that expand on the written content. We printed the report and created the videos. in fact, the narrator is an rr donnelley employee!
what recent regulatory changes have had an impact on your business?there are many. do not mail, white pages elimination, postal reform, u.s. consumer product safety improve-ment act, notice and access, card check, tax laws,
14 [ Reason ] ISSUE 2 : 2011
[ thelatest ]
health care reform, pension reform and state mandates for electronic textbooks—these are just some of the legislative initiatives that we are actively monitoring.
how often do you interact with Fm global, and in what capacity do you function in that relationship?Fm global is a true consultative resource; our relationship is collaborative. We seek their counsel regularly and Fm global seeks advice from its policyholders through its executive councils. We don’t always agree, but collectively we are willing to work together to find mutually acceptable resolutions.
rr donnelly and Fm global have a long-standing business relationship. why are the two companies aligned so well, in your opinion?Both share core values: commitment to clients, commitment to protecting people and assets, and being fair and ethical. We share a mutual respect. We believe in the expertise that Fm global brings from an engineering perspective. Fm global has demonstrated stability over its 175 years; rr donnelly has been a continuous cus-tomer of Fm global since 1889.
what are your current risk improve-ment projects? are you tackling anything now?We are always working to reduce fire frequency. at rr donnelley, fire is defined
as any time a fire extinguisher is discharged, regardless of the dollar amount of the dam-age. From the ceo on down, our mantra is “the only acceptable number of fires is zero.” We will always work to improve fire safety. Beyond fire reduction, we constantly reexamine our standards, whether it be dust accumulation or snow-load limits for roofs to ensure that we are employing the latest engineering knowledge to keep our facilities, and most important, our employees, safe.
RR Donnelley is a global provider of integrated communications. Founded more than 146 years ago, the company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance.
Watch…and learnThe “Know More Risk” video series is the next generation of risk improvement
to help clients better understand the need for recommended property loss prevention solutions, Fm global has produced a series of short videos (vodcasts), titled Know more risk™. geared toward facility-level personnel, these new “knowledge on demand” resources complement Fm global’s existing suite of loss prevention education material currently available to aid with risk improvement knowledge.
each video is approximately three minutes long and focuses on a specific aspect of protecting against common property hazards related to fire, explosion, wind, flood, earthquake and equipment breakdown. content is presented in a conversational, easy-to-follow, non-technical format. clients can access the videos via Myrisk® or the Fm global online client training center at http://training.fmglobal.com.
ISSUE 2 : 2011 [ Reason ] 15
[ thelatest ]
Even after the innumerable tragedies that a century has brought this world, the inci-dents of the triangle shirtwaist Factory fire of march 1911 still have the ability to shock us. certainly, aspects of the tragedy were spectacular. Located on the eighth, ninth and tenth floors of a building in busy manhattan, all of the events unfolded,
as it were, on a public stage: the flames, the cries for help, the firefighting apparatus that was powerless to suppress the blaze, and, of course, the scores of victims, leaping to their deaths to avoid the worse fate of being burned alive.
the triangle shirtwaist Factory Fire The event that changed safety and insurance practices across the United States
the event itself occurred on late satur-day afternoon, march 25, 1911, in the green-wich village area of new York city. the company manufactured women’s blouses and employed a workforce that was pre-dominantly recent female immigrants to the united states. investigators later surmised the fire probably started in a bin containing sewing scraps. However, what might have been a minor incident soon turned into a disaster. the building, like many of that era, was not sprinklered, although that technology had been available for many years. Worse still, many of the exit doors had been deliberately locked by the owners to prevent employee thefts. even the fire escape turned out to be poorly constructed, and promptly collapsed when employees tried to use it, dumping several workers to their deaths. most of the victims were simply trapped with the choice of being incinerated or of leaping to their deaths. almost half made that grim choice, leaving streets and sidewalks littered with broken bodies. the partners who owned the company managed to escape by going to the roof where a handful of workers also found ref-uge. although put on trial for manslaughter, the two men, max Blanck and isaac Harris, were eventually acquitted. From the ashes, however, arose posi-tive change. robert solomon, department manager for building and life safety at the national Fire protection association (nFpa), based in Quincy, mass., usa, says the triangle fire was the event that finally prompted nFpa to look beyond the hori-zons of just protecting buildings and their contents—its original purview—to looking at the “people” issues. “i think people had originally been low on the list of priorities
16 [ Reason ] ISSUE 2 : 2011
[ thelatest ]
or not on the list at all,” he says. even before triangle, a horrific school fire in 1908 had gotten some in the organization thinking more about safety issues. But it was triangle that decisively changed the debate. “after that, the members agreed that nFpa had to focus on both people and property,” he says. today, nFpa maintains and continu-ally refines its Life safety code (known as nFpa 101), a document that represents accumulated best practices, widely refer-enced in state and municipal regulations and by safety professionals globally. “We chart the origins of the Life safety code directly to the changes in the organization after the triangle fire,” says solomon. similarly, david snyder, vice presi-dent and associate general counsel of the american insurance association, in Wash-ington, d.c., usa, says although insurers had often served as a progressive influence in the united states from the colonial period and the earliest days of the republic, taking a lead in fire prevention, establishing early fire departments, and encouraging the cre-ation of safety laws, the triangle fire brought renewed focus to those efforts. “throughout history, the industry has learned from tragedies and worked to pre-vent them both in terms of how we under-write risk, how we advise our customers, and how we interact with the political world in terms of adopting better building codes and safety regulations,” says snyder. Furthermore, according to michael Barry, vice president for media relations at the insurance information institute, in new York, n.Y., usa, triangle also changed some of the less positive practices within the insurance industry. “at the time of the fire, the industry was driven more by broker commissions rather than by a concern about what kind of risk the insurance company was absorbing,” says Barry. For their part, insured organizations just saw insurance as a cost of doing business, he says. Because of the epic loss of life in the triangle fire, insurers took a look at revising those prac-tices and changing those attitudes, he says.
For Fm global at that time, the fire con-firmed practices already in place that limited insurance coverage only to those organiza-tions with a commitment to safety and loss prevention. Brendan macgrath, manager of the international codes and standards group
at Fm global, says, first and foremost the company has always placed an emphasis on research and finding proven, effective fire solutions—and its work has always tended to have a positive impact on workplace safety. “While the technologies existed [in 1911] to prevent tragedies like the triangle fire, they were neither required by codes nor incentivized by insurers,” he says. in the wake of the triangle fire, regulators and insurers both saw the need to change and the value of the proven solutions, such as sprin-klers, that were available, he explains. according to macgrath, at Fm global, the organization and its clients were already convinced by the statistics they had accumu-lated from a 10-year evaluation period (dated 1877 to 1887), a quarter of a century before the triangle factory fire, demonstrating the efficacy of sprinklers and their ability to stop fire in its tracks. macgrath cites a contem-porary report from the period that stated: “a loss of seven times as much where there were not sprinklers as where there were, gave good ground for urging their general extension.” today, Fm global still works to meet and anticipate new threats while continuing to support the best approaches for mitigating tra-ditional fire and safety threats. according to macgrath, this is accomplished through two channels. one is the loss prevention advice the company provides its clients. the second
is Fm global’s participation in and contribu-tion to the myriad building codes and stan-dards creating bodies—the people who ulti-mately decree the best ways to protect people and property against calamities such as fire. Looking toward the future, macgrath
says Fm global is constantly working in partnership with industry and its clients to find solutions that enable commercial and industrial interests to embrace new technolo-gies (including energy-efficient designs) in a way that is safe. those are the long-term lessons that Fm global took from the triangle tragedy. But challenges continue, and fire in the workplace, in particular, continues to be a threat. Just this year, in an incident eerily reminiscent of the triangle fire, 17 workers died in a garment shop fire in china. in this case, the building was only four stories tall, but barred windows and inadequate exits forced many survivors to jump for their lives. “incidents like this are all too common in developing economies and still happen, but fortunately less so, where there is good regulation and a culture of compliance is well established,” says macgrath. “it is a reminder that we must continue to be vigi-lant and innovative in our efforts to promote safety and reduce losses,” he adds.
Alan R. Earls writes about technology and history from his home near Boston, Mass., USA. He wrote about the Great Molasses Flood of 1919 in Issue 1:2011 Reason.
“ The industry has learned from tragedies and worked to prevent them both in terms of how we underwrite risk, how we advise our customers, and how we interact with the political world in terms of adopting better building codes and safety regulations.”
david Snyder, VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL OF THE AMERICAN INSURANCE ASSOCIATION
ISSUE 2 : 2011 [ Reason ] 17
[ thelatest ]
Why should I Care?Making your ideas matter involves crafting a message that captures the imagination
clarity is the name of the game. it comes by stating the idea through human actions and sen-sory information. mission statements, strategies, visions are often ambiguous to the point of being meaningless. the most effective mission state-ments are those that relate and stick to us person-ally in the form of concrete images. the person delivering the message can also make the message stick; this would be the case if that person were a respected expert. in the absence of a credible person, sticky ideas have to carry their own credentials. people care for ideas that make them feel emotion. the authors contend that the reason for this is because we are wired to feel things for peo-ple, not for abstractions. and, people act on ideas through stories. stories of inspiration are typically effective in getting people to act. How does all this help the risk manager? Fm global research tells us that risk managers have indicated that their most significant chal-lenge is getting their organizations to adopt a consistent risk management philosophy. the key to corporate-wide acceptance is communication. those who “own the risk”—executive manage-ment down to facility management in the opera-tions—are most often concerned about business continuity and growing the business. in made to stick, the authors recommend crafting the mes-sage that connects agendas between those who “manage the risk” and those who “own the risk.” capturing the imagination of those who manage the risk requires a simple, unexpected, concrete, credible and emotional story, such as, “did you know that our revenue exposure is us$500 million if we do not protect the following facilities?”
madE to StiCK Why some ideas survive and others dieBy Chip Heath and Dan Heath (Broadway)
as we enter the information age of exploding media outlets, our ability to understand and adopt new ideas becomes shorter by the day. and
yet despite this shift, urban legends, conspiracy theories and bogus public-health scares circulate effortlessly and captivate us quickly. in contrast, businessmen, educators, politicians, journal-ists, even risk managers, struggle to make their thoughts and ideas “stick.” the answer lies purely in the message. in Made to Stick, authors chip and dan Heath analyze this vexing paradox and explain how to increase the chance of making an idea “stick.” Based on a decade of extensive research of successful and unsuccessful ideas, they con-cluded that there are several traits that “sticky” ideas have. an idea has to be not only simple, but also profound. the authors contend that the key to cap-turing the imagination of the audience in order to gain attention and maintain interest is to “violate people’s expectations,” in essence, to be counter-intuitive. Within this context, startling contrasts or unknown concepts that could generate the audi-ence’s interest and curiosity are suggested. an example in the risk management realm would be disclosing to senior management a recently discovered exposure that could adversely impact the company’s top or bottom line, such as a critical supplier being located in a flood zone in china. natural disasters in the news themselves generate that level of interest and curiosity. the challenge is to be able to capture and sustain the imagination in absence of recent natural disas-ters. to sustain the interest requires systematically opening gaps in the audience’s knowledge and fill-ing those gaps. this requires a great deal of imagi-nation and creativity.
BUSINESSClassIC
18 [ Reason ] ISSUE 2 : 2011
[ thelatest ]
18 [ Reason ] ISSUE 2 : 201
[ theIDea ]
the nature of risk 1. the characteristics and
importance of the hazard2. the magnitude and severity
of the risk3. the urgency of the risk4. is the risk trending up
(rising) or down5. the probability of exposure
to the hazard and the distri-bution of that exposure
6. the nature and size of the population at risk
the uncertainties in assessing risk 1. the methods used to
assess the risk2. the assumptions on
which estimates are based3. the importance of the
uncertainties4. the weaknesses of, or inac-
curacies in, the available data5. the sensitivity of the
estimates to changes in assumptions
6. the effect of changes in the estimates on risk manage-ment decisions
risk management issues1. taking action to control
or manage the risk2. taking action to reduce
personal risk3. Justifying choice of specific
risk management option4. the effectiveness and ben-
efits of each specific option5. the cost of managing the
risk, and who pays6. the risks that remain after
an option is implemented
– luciana SinisiNATIONAL ENVIRONMENTAL PROTECTION AGENCy, ROME, ITALy
A mUsINGSome thoughts about the nature, uncertainty and issues surrounding the management of risk
aug. 30, 2005. Hurricane Katrina hits Louisiana, 50 miles southeast of new orleans. at its peak strength, Katrina achieves wind speeds of 160 mph (257 km/h), and by the time it makes landfall, it packs winds of 120 mph (193 km/h) and a storm surge 20 feet (6 meters) high. Within hours, one of the deadliest hurricanes to strike the gulf coast in 100 years leaves damage estimated at us$100 billion and insured damages of us$50 billion. the loss to Fm global clients approaches us$900 million.
Hundreds of Fm global adjusters reviewed the damage and policy coverage, and adjusted the losses. as Fm global’s claims team gathered in the hurricane area to assess the damage and report the losses, a similar kind of mobilization was taking place in finance and investments to address the cash requirements needed to settle the Katrina claims. the vast majority of all claims were settled within 27 months, although some small losses were settled in 2011. an insurance company’s ability to pay large losses with little interruption to its nor-mal operations is a major factor in determin-ing its financial strength. insurers pay claims from operating cash flow, cash reserves and investments in stocks and bonds, depending on the timing of the claim payment activity. Because of its financial strength, Fm global pays claims from cash flow from operations, from short-term investments (cash equiva-lents), and occasionally will sell investments to meet cash needs.
Cash management an insurance company’s cash management goal is to maximize positive cash flow, thereby increasing its investment portfo-lio and its financial strength. each year, Fm global prepares an operating plan to estimate its earnings from all sources—underwriting, investments and fees for ser-vice income. projected cash flow is devel-oped from that plan. Fm global evaluates the timing of the net cash inflow from opera-tions to provide our investments department with current information on the cash avail-able for investment. all insurance compa-nies want to put cash flow to work as soon as possible. that includes cash collected and invested before claims have been paid. Legendary investor Warren Buffet, Berkshire Hathaway ceo, in his annual stockholder report describes how they man-age large sums of excess cash in their insur-ance operations (premium received and invested before claims are paid), which they call “float.” all insurance companies benefit from the float concept, which places greater
CapitalizationCash flow planning and its impact on conducting business
20 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
emphasis on efficient cash management. global insurance companies also utilize cash forecasting to manage foreign currency exposures. integrated treasury management systems offer companies the opportunity to track funds by currencies as part of overall financial risk management.
Sources of cash inflowall insurance companies have several sources of cash inflow, including premium and investment income. Fm global’s sources of cash flow are premium; invest-ment income, including rental income; and fees for service income. cash is used for reinsurance purchases, claims payments, salaries and benefits, and other operating expenses and capital expenditures. the collectability of Fm global’s income is not a concern; there are many con-tractual provisions that, in effect, make the collection of the income a near certainty. so, the purpose of cash management and cash flow planning is to predict timing of receipt. Without predictability, there is uncer-tainty in how to invest, how capital expen-ditures are made, and how payments are made to vendors. if vendors aren’t paid on time because of irregularities in cash flow, service providers will not extend credit and will request up-front payments, forcing Fm global to use less reliable vendors and impacting its ability to conduct business. cash flow planning for most compa-nies takes on different forms, from detailed analysis of current projections, to actual cash flow data modeled around historical inputs. Because of our business model, we have revenue and expenses that are very pre-dictable and loss activity with a wider range of variability. as a result, Fm global staff members from finance and investments con-duct monthly cash flow meetings to gather information from its finance centers in the united states, canada, mexico, the u.K. and australia, which is supported by infor-mation from the claims department. cash flow planning for each major category of cash flow is projected from
premium, investment income and fees for service income based on the operating plan and historical data; loss payments based on claims department projections; reinsurance recoverable based on claims and billing data; reinsurance premium payments and recover-ies, based on reinsurance processed and loss activities; and other areas, such as income taxes, capital expenditures and pension plan payments based on management inputs.
the life of cash flow dollarsto put into perspective how we manage our cash we need to look at the inflow and out-flow process. in 2010, Fm global collected us$5 billion in cash from premium and other revenue; and we paid us$1.4 billion in rein-surance, us$1.8 billion in loss claims, us$1 billion in expenses and taxes, thus producing a net cash flow of about us$800 million. the net cash collected funded new investments and certain planned capital expenditure projects. cash activities are conducted in more than 100 currencies and are received, dis-bursed and held by 17 different banks. excess cash used to support operations is invested overnight at prevailing interest rates. more than 65 percent of all cash transactions are “electronic funds transfers (eFt).” europe and asia lead the way in eFt activity. the united states and canada continue to use
checks to transfer funds, although given the global economy, the speed of commerce and the financial risk check payments pose, checks will likely be replaced by the end of this decade for substantially all business transactions.
hurricane KatrinaHere is a year-by-year-look at how we settled the Hurricane Katrina loss. total claims of us$874 million were settled over a five-year period. reinsurance recoveries of us$536 million were also collected, result-ing in a net loss of us$338 million. despite the magnitude of this loss, pay-ments were made as claims were settled. effective cash management has a direct impact on our business model, investment earnings and bottom line. even in the face of unprecedented events such as Hurricane Katrina, a well-developed cash management plan is needed to meet cash flow needs. We have been able to manage our cash based on the effort we expend in developing reli-able sources of expected cash flow and close coordination among our finance and invest-ments departments.
William Mekrut is vice president and treasurer at FM Global.
hurricane Katrina: Our total claims of US$874 million were settled over a five-year period.Reinsurance recoveries of US$536 million were also collected, resulting in a net loss of US$338 million. (Values in US$millions.)
2005 2006 2007 2008 2009-2011 total
Gross Claims Payment 79 327 276 155 37 874
Ceded Reinsurance Recovery 29 127 274 87 19 536
Net Cash Flow 50 200 2 68 18 338
Cumulative Gross Claims Payment 79 406 682 837 874
Cumulative Ceded Reinsurance Recovery 29 156 430 517 536
Cumulative Net Cash Outflow 50 250 252 320 338
ISSUE 2 : 2011 [ Reason ] 21
[ the IDea ]
legalitiesDiscernible trends and subtle similarities are beginning to emerge in regulatory themes
at the start of every year, as part of our planning process, we take some time to identify and assess emerging global regulatory trends. this exercise helps inform the tone and focus of our corporate governance and supports our proactive and positive engagement with our principal reg-ulatory authorities. those authorities include the Financial services authority (Fsa) in the united Kingdom, the australian prudential regulatory authority (apra) in australia, the Hong Kong insurance authority (HKia) in Hong Kong, and the monetary authority of singapore (mas) in singapore.
this exposure to a broad range of dif-ferent regulators allows us to develop a global understanding of developing regu-latory themes and trends and is one of the components of our global capability. While there are significant differences and vary-ing points of emphasis among the various regulators, there are emerging similarities, as well. this year, the picture that emerges shows that the top priority for financial supervisors is financial stability and an appe-tite to more proactively promote that stabil-ity. to that end, for example, it has been stated that “supervisors should have strong and unambiguous mandates, sufficient inde-pendence to act, appropriate resources, and a full suite of tools and powers to proactively identify and address risks, including regular stress testing and early intervention.” indeed these themes—a combination of macro- and micro-prudential supervision, more proactive and intensive supervision, and earlier intervention—are now also form-ing the key components of national regula-tors’ strategies. For example, here is how Hector sants, the current chief executive of the Fsa, recently described the regulatory approach of the Fsa: “the Fsa has radically changed over the past three years and is now operating a more ‘intensive’ approach to supervision, which is designed to deliver proactive, not reactive, ‘outcomes-based’ supervision. the new outcomes-based approach is centered on intervening in a proactive way, and taking for-ward-looking judgments about firms, based on business model and other analysis and com-prehensive and rigorous stress testing.” While national financial services regu-lation in the u.K. will soon begin to transi-tion from the Fsa to three new regulatory
22 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
bodies—the prudential regulation author-ity (pra), the Financial policy committee (Fpc) and the consumer protection and markets authority (cpma)—it is likely that regulation will continue to expand, rather than contract. in fact, while the pra will be the new prudential regulator, the cpma the new conduct of business regula-tor and the Fpc the policy setting body, it is becoming clear that the cpma is likely to be given wider powers of enforcement than the Fsa currently has and that the pra’s mandate is likely to lead it to intervene in the decisions and judgments of regulated firms earlier than the Fsa does and in a more detailed way. the pra’s interventions will be based significantly on its own independent judg-ments—that is to say, judgments that are neither reliant on firms’ own capabilities nor on their auditors. the cpma will be expected to have a clearly articulated strategy for the regulation of business conduct with an emphasis on consumer protection. a similar set of themes emerges when we look at how apra describes the scene for 2011 and beyond. in a recent speech, Wayne Byres, executive general manager, diversi-fied institutions division at apra, made the following observations: “a large amount of work is going on to improve the foresight of supervisors…examining the health and resilience of each individual institution via scenario and stress testing, improved data collection, increased focus on market-based information and a more structured examina-tion of the build-up of vulnerabilities within the financial system as a whole. But while it’s all very well to spot potential problems, we also need to do something about them. Here is where a healthy dose of gumption is
needed. the definition of gumption, to me, sums up what every supervisor needs to pos-sess: shrewd practical common sense, spir-ited initiative, resourcefulness, fortitude and determination.”
in asia, the economic picture is posi-tive and optimistic. the international mone-tary Fund has estimated that gross domestic product (gdp) growth for asia as a region will settle at 7 percent in 2011. nonethe-less, we are seeing the asia regulators state and restate the priority of financial stability. in a speech late last year, mr. Heng swee Keat, managing director at mas, made the following remarks: “Let me now say a few words on achieving regulatory outcomes, beyond good rules. perhaps the most strik-ing area is the critical need for all of us to strengthen supervision. effective supervi-sion is unapologetically firm and intense, grounded on a good understanding of the nature of the institutions and the financial system. supervisors must think indepen-dently, avoid regulatory capture and be willing to enforce out-of-bound markers rigorously.” our assessment is that an outcome-based regulation of insurance will progres-sively become more intensive through this year and beyond. Firms can expect regula-
tors robustly to test all relevant internal and external processes and assumptions and to seek proof (whether from the firm itself or its auditors or elsewhere) that the output of such analyses are effectively connected to
the firm’s strategic and operational deci-sion-making. Fm global is rightly proud of its cor-porate governance and its standing with its principal regulators. However, the modern regulatory environment presents a develop-ing picture and we recognize the importance of adjusting to and embracing those devel-opments. We believe that by enhancing our own understanding of what it takes to remain compliant in a challenging and changing global environment, we can also enhance the value of our global insurance programs. in a real sense, Fm global and its regu-lators have the same goal: optimum service to policyholders delivered in a compliant and financially prudent manner.
Omar Hameed is the legal director, FM Insurance Company Ltd.
this year, the picture that emerges shows that the top priority for financial supervisors is financial stability and an appetite to more proactively promote that stability.
ISSUE 2 : 2011 [ Reason ] 23
[ the IDea ]
Whether we recognize it or not, we all execute process every day. For virtually everything we do, we’ve
developed a process. Whether it is brushing our teeth, washing the car or walking the dog, we have a process. For most of us, once that process is developed—and as long as it gets the job done—we stick with it. if we don’t think it’s broken, we don’t fix it.
some people, the higher achievers, for example, constantly refine their process in the search for continual improvement. most of our sports stars will tell you that effort trumps talent, although they generally have both. tennis provides the perfect example. every element of a player’s serve is scruti-nized and continually modified to produce improved scores. rafael nadal was blessed with enormous talent. But he still works incredibly hard every day to refine and improve his process.
working as a teamit all gets a little more complicated when you introduce a team dynamic. You can’t just assemble a bunch of superstars and expect to win it all. teams need leadership: someone who can focus those individual talents and help them to keep their eye on the prize; someone who is clearly in charge. that leader then needs to bind the team with a single process. otherwise, all of that expensive talent runs around executing their individual processes brilliantly, but it just doesn’t translate into collective suc-cess. process doesn’t replace talent, it just channels it. the nFL playbook is the per-fect example of process. everyone knows the play, and their role in it. an individual’s ability to execute the play is still the fun part, and when the great moments occur.
what’s all this got to do with insurance?Well, the principles are identical. First, you hire and train great sales and client service professionals, underwriters, engineers and claims people, and make sure the staff all shares a passion for what they do. that will go a long way. But then, if you want to bind them together into an efficient and cohesive
turning Knowledge into valueA client service process works best when led by the client
24 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
fell short? What do we need to do next month and next year to improve upon the plan? Last, in addition to confirming pol-icy terms and conditions, we also seek to include at least a draft of the following year’s client service plan as part of our renewal proposal. it’s a tangible commit-ment to the added value we deliver.
So who leads the team?if client focus is really the aim, the process works best when the client leads it. We are a mutual company, owned and directed by our policyholders. We exist purely to service our clients’ needs. We are proud of our products and services, but we know that they only add value when we can mobilize them in support of our clients’
team, you need the commercial equivalent of that nFL playbook.
our playbook We work closely with our clients and their brokers to develop and agree on a client ser-vice plan, which incorporates clearly docu-mented objectives, action items in support of those objectives, and allocated responsi-bility and due dates. next, we execute the plan. We develop our plans in corporate headquarters, but execute them in facilities all over the world. effective communication of the plan on both sides is critical; all of our interactions are in support of it. then we constantly review the plan. We hold at least an annual meeting to review progress against plan. What worked? What
business and risk management objectives. our client service teams will ask for their client’s time in helping them to fully under-stand their business and risk management objectives. our client’s assistance, involve-ment and leadership in the development of their own client service plan are critical fac-tors in this process. the payoff will come with increasingly effective execution of that plan on our clients’ behalf.
Chris Boston is assistant vice president and manager of sales and client service support at FM Global.
steP 1: planIn order to ensure efficient deployment of products and services in support of a client’s goals and objectives, we work with each one annually to jointly develop a client service plan. This includes documented objectives, action items, allocated responsibility and due dates.
steP 2: ExECutEEffective communication is the key to effective execution. We execute the plans on multiple fronts, at multiple locations, and in multiple coun-tries. Therefore, we work together with the client to ensure our joint plan of action is effectively communicated within both organizations, so all interactions are as effective as possible.
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
ESOPO R P
WEIVER
EXECUTE
PLAN
WEIVER
ESOPO R PESOPO R P
ESOPO R PESOPO R P
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
ESOPO R P
WEIVER
EXECUTE
PLAN
WEIVER
ESOPO R PESOPO R P
ESOPO R PESOPO R P
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
ESOPO R P
WEIVEREXECUTE
PLAN
WEIVER
ESOPO R PESOPO R P
ESOPO R PESOPO R P
SErviCE CEntral: FM Global’s simple, four-step process that revolves around the client
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
WEIVER
EXECUTE
PLAN
ESOPO R P
WEIVER
EXECUTE
PLAN
WEIVER
ESOPO R PESOPO R P
ESOPO R PESOPO R P
steP 3: rEviEwWith all of the key players present, we jointly review progress against plan in a formal steward-ship report. We also use this time together to review what worked well, what didn’t, and begin to formulate a plan for the coming year.
steP 4: propoSEWe present a renewal proposal, which includes not only the proposed insurance coverage, terms and conditions, but also a copy of the client service plan for the coming year. This confirms our complete value proposition.
ISSUE 2 : 2011 [ Reason ] 25
[ the IDea ]
a Big adjustmentHigh grades for claims performance mean promises well kept
When a party purchases an insurance policy, they are actually buying a
promise. they are buying a promise made by the carrier to pay certain stated sums of money when certain things happen. unless that promise is fulfilled, the promise, or policy, has no value.
You can bet that at some point, some time, somewhere, the wind will blow, the earth will shake or fire will strike at a client’s facility. to paraphrase a popular sentiment, “things happen.” and when they do, that promise needs to be kept, and fast. the faster that promise is kept, the more respect and appreciation the client will have for its carrier. With that said, greenwich associates recently published a survey of u.s. corporate risk managers from companies with sales greater than us$500 million that detailed the three most important criteria they use when assessing the claims performance of a prop-erty insurance carrier. Fifty-three percent of the respondents rated Fm global as providing excellent claims coordination with their broker. our company possesses solid skills in solving tough issues involving coverage and loss measurement. resolving these issues effectively and to the satisfaction of our mutual clients is critical in retaining their business. the survey also revealed that 68 percent of the respondents rated Fm global’s claims responsiveness as “excellent.” By using
26 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
primarily company adjusters, Fm global claims can control the claims process. the adjusters are trained to conduct their loss adjustments in a proactive manner. inform-ing the client about the process is critical, specifically determining and agreeing on a scope of repairs, separating damaged from undamaged stock, advising the insured as to what will be required of the client to make and support a claim, and com-municating the timing of claim payments. But the primary benefit of using com-pany or staff adjusters is that, unlike an inde-pendent adjuster representing one or several carriers, the Fm global adjuster speaks for the company and has authority to make deci-sions and agreements during the adjustment process. this helps to reduce or eliminate delays during the rebuilding process and provides greater clarity for the client; they know how the policy will respond to deci-sions they make in loss mitigation, restora-tion of operations, and rebuilding their facil-ities after a loss. earlier this year, a survey of 364 insur-ance buyers by the Flaspöhler research group, in partnership with National Under-writers, ranked Fm global as the best prop-erty insurance carrier and best in claims handling. Why such high regard? about 70 per-cent of Fm global’s claims staff has an engineering background. With that experi-ence they are capable of understanding the complex issues that often arise in the large and complicated losses clients may have. When hired, each person participates in two months of training over the next two years in an array of relevant subjects, including ethics, insurance policy construction, inter-nal claims processes, reinsurance, account-ing, business interruption, writing skills,
insurance law, subrogation and equipment hazards. inexperienced claims hires then shadow a more experienced adjuster, pro-gressing through ever larger and more com-
plicated losses as their career matures. this intense commitment results in a highly sea-soned claims force prepared to deal skill-fully with whatever situations arise. of course, all this work starts well before a loss. When a client is brought on board, a representative from claims is assigned to each account. these reps, with the account manager, then visit with the risk manager or insurance buyer to go over contingency plans in case of a loss and to review the policy. together, they point out the various features and how they can benefit the client. in fact, policyholder workshops are also provided. these workshops employ true-life scenarios so that the client can see exactly what will happen during a loss. How will the policy respond to the cost to rebuild or repair damaged property after a loss? How will the policy respond to their resul-tant loss of revenue? it also shows the client what role the adjuster plays in returning the damaged facility back to operational mode, as well as what role the client plays in this
scenario. the workshops and meetings are instrumental in providing each client, each risk manager, the certainty of how the policy will respond in case of a loss.
By all accounts, Fm global’s ability to provide leadership in this area is well known in the insurance market. this highly regarded position was achieved by using thoroughly trained staff adjusters who are able to respond to losses wherever they may happen and who can make critical deci-sions and come to agreements at the loss site where and when it is most needed. our adjusters keep the client informed not only during the process, but also well beforehand, so that the client knows what to expect when the unexpected happens. that is a promise well-kept.
Burton Wright is vice president and manager of staff claims at FM Global.
about 70 percent of the company’s claims staff has an engineering background. With that experience they are capable of understanding the complex issues that often arise in the large and complicated losses clients may have.
ISSUE 2 : 2011 [ Reason ] 27
[ the IDea ]
hosam ali, a former professor and structural engineer and currently the director of structural hazards and response research, discusses his background, his group’s groundbreaking research, and the role science plays in the world of commercial property insurance.
FIRst PeRsoN
Hosam Ali
28 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
let’s talk about your background in science. Can you walk us through your experience? i am a structural engineer. i have a ph.d. in structural dynamics from the university of southern california in Los angeles (usa), a master’s degree in earthquake engineering from mcmaster uni-versity in canada, and a bachelor’s degree in civil engineering from my time in egypt. i have experience in design, teaching and research, as well. Before coming to Fm global, i was a professor at the polytechnic institute of new York university (usa) teaching earthquake engineering and bridge design. i am a registered profes-sional engineer in california and new York. since i was a kid, i always wanted to be an engineer. i enjoy learning about complex structures and how they behave, and i enjoy teaching, designing and conducting research.
Can you describe what your responsibilities are here? i am the director of structural hazards and response research, one of three research areas in Fm global’s research division, and i have 12 scientists in the group. they all have ph.d.s and diverse back-grounds, from engineering to earth and atmospheric sciences. my job is to help coordinate the team’s efforts. they are very smart people; i lead the discussion about what the problems are and what is our best approach to help our clients.
In your opinion, has your academic background as a professor helped you in your current role at FM Global? Yes, certainly. as a professor, i was concerned primarily with con-ducting research, and i get to do that here, as well. the main differ-ence between academia and industry is that, in industry, one tends to be more practical; most of the time i know the problem that i want to solve and i go after it. my teaching experience helped me to hone my ability to simplify complicated problems.
tell us about your group’s work with flood. as part of our natural hazard strategy, we have an emphasis on flood research. We employ four scientists in the flood group and they are doing interesting and very challenging work. one of our goals is to develop flood models and maps. in the united states, we rely on the Federal emergency management agency (Fema) for flood maps, which can be outdated or inadequate. internationally, some countries or regions don’t have maps or if they do, they are inconsistent. they differ from one region to another or from one country to another. this inconsistency is a big challenge for our engineers, because we want to have the same risk applied anywhere in the world. our solu-tion is to develop consistent maps and to give our engineers tools to personally analyze the risk in some areas, instead of relying only on third-party data.
this sounds similar to FM Global’s recent work in developing earth-quake maps.Yes, it is, but it is more challenging. there is much more established research with regard to earthquakes. For flood, we have concerns about the validity of existing local and global data. there are many factors to consider with flood—elevation, landscape, rainfall. so it is more challenging and more involved, but the ultimate objective is to develop flood maps similar to what we have done for the earth-quake hazard.
How do you go about deciding which areas of the world to map first? mapping the whole world is a big challenge. We want to take advantage of what is available. in order to do this, we need to understand exactly what needs to be done and control the quality. We decided to start with a small area in europe where we need maps and there is good information, so at least we know that we can look at our results and be comfortable that the methods we are using make sense. after that we are going to move to an area where we don’t have much information. this means we need to rely more on remote sensing and on satellites and our work with outside organizations.
Is there a sense in your department or among your colleagues that the flood threat is growing? growing, no, but flood has always been a risk, similar to wind and earthquakes, and will continue to be. Because our clients are expanding to less developed areas of the world, we need to have a consistent and easy way for our engineers to do their job anywhere.
One of the missions of the research group is to produce scientifically based, technically sound loss prevention solutions that are timely and easy to implement. So all we do at FM Global is really based on science, which is amazing in an insurance company.
ISSUE 2 : 2011 [ Reason ] 29
[ the IDea ]
What role does science play in a company like FM Global?science is part of the culture at Fm global. one of the missions of the research group is to produce scientifically based, technically sound loss prevention solutions that are timely and easy to imple-ment. so all we do at Fm global is really based on science, which is amazing in an insurance company.
Can you talk a little bit about the relationships we have or that we are trying to cultivate with some government agencies? in the united states, we are striving to work more closely with gov-ernment agencies, with the private sector and with universities. We are talking more now with the national oceanic and atmospheric administration (noaa) and the climate prediction center (cpc). also, we work with agencies like the u.s. geological survey where we are supporting a post-doctor right now to advance seismic models for the pacific northwest.
What reaction do you get from a government agency when you approach them to perhaps develop a rela-tionship or share research? many of them don’t know what we do. some of them do. once they learn what we have done and what we are trying to achieve, they become very impressed. our approach is to balance our need to con-duct research related to Fm global’s core competency of loss pre-vention and also leverage extensive research worldwide in a manner that takes maximum advantage of Fm global engineering. collabo-ration with universities, the private sector and government agencies accelerates our support of clients’ needs, but requires skilled internal nat Haz research teams, which we currently have and will continue to strengthen.
Do we have modeling capacity in terms of aggre-gate losses? We have commercial software developed and based on losses from the general industry. the risk reflected is based on locations and facilities that are not really improved according to our standards. these models tend to underestimate the general industry losses, but overestimate ours. We work with vendors to improve their models so that they would reflect our standards and our facilities and the risk improvement that we have. it makes a difference.
so you think you have improved their products? Yes, but it is not really a product that anyone else can use. it is a prod-uct that we use. But again, they learn from us, which is expected. in the end, the model that we develop with them is for our use. given the complexity of the model and all the information and data that you need, no one else can actually use it.
Can you draw a parallel between the work that your department does and the company’s underwriting
capabilities?in terms of natural hazards, underwriting is interested in aggregate losses, events that will impact not only one facility but also thousands of facilities. improving the catas-trophe models we use to reflect our risk is important to underwriting. and, evaluating any model that underwriting may consider using is important, too. investigating areas where the risk is not well understood can also help make critical business decisions.
What do you think is going on in the world in terms of natural
catastrophes? Is there a connection between all of the activity and the sense of responsibility that we as a company have to utilize our research capabili-ties productively? Well, natural hazards have been around and they will continue to be around. Whether we see them more frequently now or not, there are different opinions about that. ultimately, for us, it is a matter of preparing our clients for the expected level of risk or hazard, and if we do this right, whether it is going to happen today or 10 years from now, they are prepared. When our clients have good facilities, they can minimize their losses, or prevent them, and if we just continue to do what we do best, and what has been really valuable for almost two centuries, to identify the hazard properly and to provide simple loss prevention solutions, then i believe our clients will be happy.
If we just continue to do what we do best, and what has been really valuable for almost two centuries, to identify the hazard properlyand to provide simple loss prevention solutions, then I believe clients will be happy.
30 [ Reason ] ISSUE 2 : 2011
[ the IDea ]
[ thesCIeNCe ]
According to FM Global data, the AverAGe lIfespAN
of most industrial buildings is approximately
50 years
There is at least a
40-percent chance the building will experience
A sIGNIfIcANt flood at least once during that time
if located in a high-hazard flood zone
9 percent
of FM Global’s gross losses from 2000-2009 (indexed to 2010 dollars) was caused by
flood sUrfAce wAter
Flood loss data demonstrates that when flood waters remain in a building for
3 or more days, wIckING moIstUre ANd hUmIdIty cause substantial damage to the building’s finishes
and products located above the water line
Flood
Flood
Flood
knoWledge is PoWeR.
And acquiring that knowledge is as easy as turning on your computer. Visit our website to access a stockpile of educational resources and valuable loss prevention information, all for your benefit, as a service to our clients and others interested in preventing property loss.
www.fmglobal.com
BusINess INteRRuPtIoN,
equIPMeNt DaMaGe at
FaCIlItywhat happenedHeavy rain occurred over several days, and trees and other debris accumulated at a small bridge, obstructing water flow in a nearby river. this caused it to overflow its banks and flood waters entered all the buildings up to a level of approximately 2 ft. (.6 m). Basement areas and service entry tunnels were filled to their ceilings with water. electrical supply equipment, production equipment and paper records stored in these basement areas were inundated with water. all of the equipment required inspection to determine if it could be cleaned and repaired, or if replacement was necessary. specialist cleaning companies were retained in an attempt to restore the paper archives.
positive Factors ■ plant personnel noted the rising water and electrical service to the facility was shut down. ■ Quick and effective cleaning operations began as soon as the water receded.
negative Factors ■ the location is in a flood zone, by a nearby river. ■ Lack of a formal response plan hindered efforts to relocate critical equipment and
storage to higher levels. ■ Lack of physical protection measures allowed water to access below-grade areas. ■ the debris obstruction at the nearby bridge likely increased the amount of water seen
at the facility.
business impact ■ this facility produces products requiring recertification upon process upsets. the entire
manufacturing process was shut down due to this flood. Fortunately, lost sales were mini-mized due to the use of stockpiled finish product. production lines were brought back into service as repairs were completed, between 3-8 weeks after the flood.
■ the gross property damage exceeded us$19 million. While there was no structural damage to buildings, much of the service and production equipment had to be repaired or replaced.
■ the business interruption was us$500,000.
what Could have minimized the loss?it is vital to remove critical equipment and storage from basement areas. if it cannot be permanently removed, a plan to relocate and/or raise as much of it as possible is needed. a thorough, well-rehearsed Flood emergency response plan is the key to mitigating prop-erty damage and reducing downtime at flood-exposed locations. the plan should designate responsible personnel for shutting down equipment, relocating vital property, installing physical flood protection and overseeing clean-up operations. obviously, the best defense against flood is to choose a site or relocate operations outside of flood-prone areas. When that cannot be done, implementation of a thorough emergency response plan is vital, including installation of physical protection as needed.
ISSUE 2 : 2011 [ Reason ] 33
Understanding the Loss [ thesCIeNCe ]
knoWledge is PoWeR.
DIRty WateRFloodwater often contains
various contaminants, like mud, sand and sewage
in any given year, financial loss caused by flood is estimated to be between us$2
billion and us$3 billion. and, during years that see extreme events, such as when Hurri-cane Katrina hit new orleans, La., usa, in 2005, or when Queensland, australia, expe-rienced flood in 2011, that figure can exceed us$20 billion. stuart ulsh, a senior staff engineering specialist at Fm global and flood hazard expert, said that, “Facilities located within high-hazard flood zones will experience a major flood. in fact, they are five to seven times more likely to experience a flood caus-ing us$100,000 or more in damage than to suffer a fire or explosion of a similar mag-nitude. However, despite those facts, the majority of flood loss is preventable.” With approximately one in 10 existing industrial facilities located within a flood zone, the need to understand the flood haz-
ard and take action is critical. “Flood maps focus primarily on highlighting geographic areas often referred to as ‘high-hazard flood zones,’ meaning those places at greater risk of flood from rivers and seas,” explained ulsh. “these zones identify areas that have been flooded in the past or are predicted to flood in the future. History tells us that approximately 80 percent of all flood loss occurs within these zones.” the obvious solution is to avoid build-ing a facility within a flood zone, but it’s not always that simple, acknowledged ulsh. “When planning a new facility, the best solu-tion to the flood hazard is to build outside known flood zones, including levee-pro-tected areas, and design the site to ensure all storm-water drainage systems are adequate,” he said. But, what about existing facilities already constructed within or near a flood zone? there
34 [ Reason ] ISSUE 2 : 2011
[ thesCIeNCe ] Understanding the Hazard
FM GLOBAL Flood LOSSFlood loSS History: 1996-2010 Loss values is US$ (2010)
are two main strategies, said ulsh: “Keep the water out of important buildings where practical, and limit what gets damaged when floodwater does enter a structure.” Long-term planning should consider relocation of the operations to higher ground, he added.
the key to preventing flood loss at a facility is to fully understand the exposure to the site. “it’s critical to be aware of how much warning time you have, how deep the floodwater is likely to get, what the possible impact of fast-moving water might be, and how long it might take the floodwater to recede,” said ulsh. He stressed that flood-water often contains various contaminants, including mud, sand, chemicals (such as gasoline and oil), and even raw sewage. “Waves of little more than 3 ft. (1 m) in height begin to cause structural damage and can even demolish lightweight or poorly constructed buildings,” he added. to reduce the impact of flood at a facility, there are simple, practical steps that should be taken immediately, such as moving critical items out of basements and away from low-lying areas. “the risk can be further reduced by making perma-nent, physical changes to a facility to keep floodwater out of key areas and/or by per-manently elevating equipment and storage,” ulsh said.
“ It’s critical to be aware of how much warning time you have, how deep the flood- water is likely to get, what the possible impact of fast-moving water might be, and how long it might take the floodwater to recede.”
Stuart ulsh SENIOR STAFF ENGINEERING SPECIALIST
FM GLOBAL
a second component to risk mitigation is developing a Flood emergency response plan (Ferp). according to ulsh, a Ferp should include five key ingredients: a reliable flood-warning method; a defined and desig-nated leader with authority to take action; plans for safely shutting down production lines and electrical systems; simple actions to reduce the financial impact of the flood, such as relocating high-value equipment and
supplies; and practical clean-up, temporary operation and recovery plans. “a Ferp can be very effective,” said ulsh, “but relies on human action; our best advice is to rely upon permanent risk improvement solutions and supplement these permanent solutions with Ferp actions. the emergency response team should understand the Ferp and how to execute it.”
Flood and SurFaCE watEr LOSSES around the Globe: 1996-2010
LOCATION # OF LOSSES GROSS 2010$ AVERAGE
Asia 200 $83,701,618 $418,508
Australia 124 $52,705,495 $425,044
Europe 963 $666,366,682 $691,970
Latin America 157 $114,554,689 $729,648
US and Canada 3,365 $3,493,474,654 $1,038,180
Other* 50 $57,368,505 $1,147,370
grand total 4,859 $4,468,171,643 $919,566
* South Africa, Jamaica, Haiti, Dominican Republic, Bahamas, Netherlands Antilles and Island of Man
Spikes in loss dollar amounts are due to catastrophic events. For example, the spike in 2005 is primarily attributable to Hurricane Katrina, which resulted in substantial coastal flooding along 135 miles (217 km) of the Gulf Coast of the United States.
ISSUE 2 : 2011 [ Reason ] 35
Understanding the Hazard [ thesCIeNCe ]
regarding the role of human activities in altering the major atmospheric/ocean circu-lation patterns, such as el niño, La niña, the pacific decadal oscillation and the north atlantic oscillation. “it is these climate pat-terns that determine where droughts, floods and tropical cyclone activity occur,” he explains. pilke goes a step further, insisting that looking primarily at greenhouse gases as the culprit may obscure other important human climate drivers and skew modeling. in tes-timony before the u.s. congress, pilke said additional factors should also be thoroughly examined, including the influence of human-caused aerosols on regional (and global) radiative heating, the effect of aerosols on clouds and precipitation, the influence of aerosol deposition (e.g., soot, nitrogen) on climate, the effect of land cover and land use on climate, as well as the “biogeochemical effect of added atmospheric carbon dioxide.” thus, notes pilke, climate policy that is designed to mitigate the human impact on regional climate by focusing only on the emissions of carbon dioxide is seri-ously incomplete “unless these other first-order human climate forcings are included, or complementary policies for these other human climate forcings are developed.” moreover, he notes, it is important to recog-nize that climate policy and energy policy, while having overlaps, are distinctly dif-ferent topics with different mitigation and adaptation options. He says a 2010 statement on inadver-tent Weather modification from the american meteorological society also raises questions about the accuracy of current climate predic-tions. With respect to the ability of the climate models to predict climate change over multi-decadal time periods, such as changes in trop-ical cyclone intensity and track, pilke says models must be able to accurately simulate these atmospheric/circulation patterns, and accurately predict changes in the patterning that results from human climate forcings (and natural internal climate variability). these tasks have yet to be accomplished, he says.
as scientists continue to assess the long-term outlook for the planet’s climate, a
practical question is, what will be the affect on weather? Further, will we all face more severe and damaging weather events, such as blizzards, hurricanes and tornadoes? dr. roger pilke sr., a researcher at the university of colorado (Boulder, colo., usa), has studied the impact of humans on the climate system and says it is not contro-versial in the climate science community. However, he notes, there are disagreements
Has tHeRe BeeN a CHaNGe IN
tHe WeatHeR?What do we know right now
about shifts in climate, and what can we glean from the
current increase in the intensity of storms?
36 [ Reason ] ISSUE 2 : 2011
[ thesCIeNCe ] Research
“the presentation to policymakers of climate forecasts (projections) of social, economic and environmental impacts decades from now is not scientifically robust and is providing policymakers with erroneous confidence in our ability to predict future climate,” he adds. still, others feel there is enough evidence to sound the alarm. in the united states, dr. tom peterson, chief scientist at noaa, the national oceanic and atmospheric admin-istration, has studied the issue, along with colleagues around the globe. He is convinced we are in for a rougher ride. He cites the find-ings of the report, “global climate change impacts in the united states,” which was largely based on the work of the u.s. global change research program (usgcrp). according to the report, climate-related changes have already been observed globally and in the united states, including increased air temperature, reduced frost days, a rise in sea level, as well as reduced snow cover, gla-ciers, permafrost and sea ice. another report, which peterson helped edit, “Weather and climate extremes in a changing climate,” was even more pointed in its warnings. that report points out that any change from the present state will be disruptive, because our infrastructure has been designed with the climate of the recent past in mind. “We are seeing an increase in heavier precipitation on a daily basis around the globe,” says peterson. “if you are build-ing a road and you design the drainage cul-verts based on what you think the maximum amount of rain will be, in these changing scenarios you might find that the road will wash out,” he explains. “Because the climate is changing some of the older infrastructure may not accommodate some of the weather changes we are starting to anticipate,” he says. therefore, he says, from now on, when new infrastructure is built it will need to take into consideration the impact of climate change. For its part, Fm global has issued a policy statement outlining its determina-tion to respond appropriately to climate change—including internal actions to reduce the organization’s carbon footprint—and, of
course, recognizing that climate change has the potential to seriously affect its clients. the statement notes, “Fm global continues to evaluate the potential for natural catastro-phes, develop innovative methods and tools to predict and prevent property damage, and provide practical engineering solutions.” one of the people studying the threat at Fm global is shangyao nong, senior research specialist. Like peterson and pilke, he points out that research is still far from offering solid conclusions regarding how climate change will alter weather events. For example, he notes, there have been no systematic studies
on the impact of climate change on severe thunderstorms (including tornadoes). “in other words, scientists don’t know whether the annual frequency, the intensity and loca-tions of severe thunderstorms will change or not in future climate,” he says. two possible reasons, he notes, are the lack of reliable his-torical data to help demonstrate trends in the past and current climate. He adds that current climate models with resolution of only about 100 km (62 miles) cannot represent tornadoes. Likewise, though there is still consider-able controversy on the subject. nong says current modeling studies and theory indicate that the global averaged intensity of tropical cyclones will increase 2 to 11 percent by 2100. For example, he notes, a category 3 hurricane with 120 mph (193 kph), one-minute sustained wind, would add only about 1.3 mph (2.1 kph) on average a decade in the future. current modeling studies also indicate that the glob-ally averaged frequency of tropical cyclones will decrease by as much as 34 percent, but the frequency of the most intense cyclones
(category 4 and category 5) will increase. in conclusion, he notes, scientists have made significant progress in understand-ing climate science and extreme weather events using theory and numerical model-ing. However, he says, currently there is no conclusive evidence that climate change has or will increase the overall severity or fre-quency of natural catastrophes. “as the com-puter becomes more powerful in the future, the model resolution can be increased to less than 10 or even less than 5 km (3 miles). then scientists can truly simulate extreme weather events and draw some conclusions,” he says.
still, he explains, even without more severe storms, their impact may become greater because more and more people are choosing to live in vulnerable coastal areas or near rivers. “to prepare ourselves for the future, we not only need to monitor closely any scientific developments in climate research, but also carry out rigorous risk evaluation and loss mitigation under current climate condition.” if a building can survive 120 mph (193 kph) wind today, after 10 years, the same building, he adds, will need to survive 121.1 mph (195 kph) wind.
Alan R. Earls is a freelance writer from Boston, Mass., USA.
“ Because the climate is changing, older infrastructure may not accommodate some of the weather changes we are starting to anticipate.”
dr. tom peterson, CHIEF SCIENTIST,NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION
ISSUE 2 : 2011 [ Reason ] 37
Research [ thesCIeNCe ]
ties, pulp and paper plants, and chemical processing facilities. Because these exhaust fumes are corrosive to most metals, at pres-ent, most ducts are fabricated from chemical resistant combustible plastic material, such as polypropylene (pp), chlorinated poly-vinyl chloride (cpvc) and fiberglass rein-forced plastic (Frp). damage to a ductwork system due to fire will usually result in significant shut-down of a key process or an entire plant for an extended period, which can, of course, lead to substantial financial loss. From 1996 to 2010, Fm global clients reported a total of 412 fire incidents involving industrial exhaust
many industrial facilities generate cor-rosive exhaust fumes. these fumes
often include high concentrations of sulfu-ric, hydrochloric, nitric and hydrofluoric acids; smoke; and high velocity solid par-ticles. various ductwork systems found in these facilities are designed to remove or filter some hazardous materials. this duct-work can be as big as 12 feet (4 meters) in diameter and hundreds of feet long, with interconnecting vessels. these systems can be found in appli-cations as varied as metallurgical smelters, steel mill pickling lines, power generation plants, semiconductor fabrication facili-
at last, a sPRINKleR Nozzle
FoR CoRRosIve, INDustRIal DuCt
eNvIRoNMeNts
38 [ Reason ] ISSUE 2 : 2011
[ thesCIeNCe ] Research
systems, totaling more than us$565.6 mil-lion in gross losses (before deductibles and reinsurance and indexed to 2011 values). this is an average gross loss of approxi-mately us$1.4 million per fire incident. to date, no sprinkler system has been successfully designed to survive for an extended time in these highly corrosive acidic environments to protect against fires originating in the ductwork. in some cases, even stainless steel sprinklers have deterio-rated in the course of a few months in these environments. until now. the objective at Fm global in this arena was to evaluate corrosion-resistant properties of candidate materials and coat-ings in order to develop corrosion-resistant sprinkler nozzles and fire-protection hard-ware to protect these combustible plastic duct and exhaust systems. structural plastic materials and limited types of alloys can survive this environment. researchers selected 10 of these materials, including high-nickel alloys and stainless steels for evaluation. additionally, because of the aggressive nature of some exhaust environments toward metallic and non-metallic materials, several coating systems were also selected for evaluation, including one epoxy type coating. a corrosive fluid was selected as the simulated environment for liquid immersion tests and electrochemical measurements in the laboratory. metal coupons of candidate alloys were used to study the crevice corrosion resistance of the alloys. these assem-bled coupons were immersed in bottles filled with test fluid and were periodically removed from the bottles and evaluated for their corresponding corrosion properties. electrochemical techniques were uti-lized to study the alloys’ corrosion properties in the laboratory. this allowed us to select the best candidate alloys for field testing. several Fm global client industrial sites participated in the in situ field tests, including metal-pickling locations with a sulfuric and hydrofluoric/nitric acid pick-
ling process and the sulfuric acid plant of a mining company. two sets of test racks were fabricated for field tests, one set was assem-bled with bare metal alloy coupons and the second set with coated metal alloy coupons.
test racks were installed in the exhaust ducts exposed to the highly corrosive environ-ment for periods ranging from two weeks to three months depending on the maintenance schedule of different facilities. Based on laboratory and field testing results, high-nickel alloys such as alloy c22 demonstrated good corrosion resis-tance in environments like industrial flue gas desulfurization simulant and sulfuric acid exhaust fumes, but not as well in the nitric/hydrofluoric acid processing environ-ments. in addition, certain fluoropolymer type coatings were found to effectively pro-tect the underlying alloy substrate from cor-rosion in flue gas desulfurization simulant, sulfuric acid exhaust fumes and nitric/hydro-fluoric acid exhaust fumes. these test results provided the basis for the development of a new fire protection system capable of pro-tecting combustible exhaust ducts from fire within extremely corrosive environments. as a final step in validating the technol-ogy, it was felt important to install a small pilot fire protection system in an industrial environment with highly corrosive acids. once again, an Fm global client site was chosen for the pilot system consisting of cor-rosion-resistant sprinkler nozzles fed from a small deluge valve and activated by linear heat detection. Both the linear heat detection and sprinkler nozzles require extraordinary corrosion-resistant properties.
once field testing confirmed that the nozzle and linear heat detector were suffi-ciently robust and functional in the corrosive application, Fm approvals—a member of the Fm global group and a leader in third-
party certification of property loss preven-tion products and services—revised its stan-dards to incorporate the new requirements for these products. additionally, Fm global actively shared the research and testing conclusions with the sprinkler industry to ultimately provide cost-effective solutions for clients. With the two revised and published standards, manufacturers are now able to submit their products for testing, certifica-tion and use in these extreme environments. Fm global property Loss prevention data sheet 7-78, industrial exhaust systems, has also been revised to incorporate fire protec-tion system design and installation guidance. By providing expertise and by working with manufacturers of sprinklers, heat detec-tors, flexible sprinkler connections, and with a fire system installer, Fm global is ensuring that fire protection systems able to withstand corrosive industrial duct environments will soon be widely available.
Dr. Paul Su is a senior research specialist and technical team leader at FM Global.
From 1996 to 2010, FM Global clients reported a total of 412 FIRe INCIDeNts involving industrial exhaust systems, totaling more than us$565.6 MIllIoN IN GRoss losses.
ISSUE 2 : 2011 [ Reason ] 39
Research [ thesCIeNCe ]
Part iii of FM global’s
three-part series on the world’s economy
OPEN FORBUSINESS
Developing markets lie at the core of today’s new corporate order.
Equal doses of patience, pragmatism and visionary
leadership take the guesswork out of entering new markets.
Ten years ago, companies like Samsung, CEMEX, Embraer, Lenovo, Haier, Modelo and Infosys were unfamiliar names in the global marketplace. Yet, today, they are leaders in their respective industries. Did you know that in 2010, 91 of the Fortune Global 500 were from emerging markets compared with 20 in 1995? Most of the companies are multinational corporations that have significant insured locations in developing markets, either through acquisition or organic growth. And, they are in a better cash position to expand their global presence than their developed-world counterparts. The reality of the new corporate world emerging from the financial crisis of 2008-2009 is that competition is truly global. That reality will continue to accelerate well into the foreseeable future. By the year 2040, half of the world’s gross domestic product will originate from emerging markets.
(Source: Goldman Sachs Global Economics Paper 99, Dreaming with the BRICs: The Path to 2050 )
OPEN FORBUSINESS
How did this happen? a basic step: knowledge transfer. in his book, Emerging Markets Century, antoine
von agtmael explains that multinational companies or organizations in developed markets planted their seeds through foreign direct investment. and a confluence of other economic factors took place: the transition from centrally planned to market-based economies, the privatization of industry as a means to eliminate hyper-inflation in Latin america, government economic policies that got their “houses in order” eliminating budget and trade deficits, the globalization of skilled workforces, and the phenomenon of outsourcing. emerging market companies leveraged these factors through visionary leadership willing to take business risks that their counterparts in developed countries did several decades ago. these risks were taken out of necessity to survive as fierce compe-tition in those markets arose as a result of those factors. Bret ahnell, senior vice president and Fm global’s western division manager, says: “Just as these developing market com-panies demonstrated early visionary leader-ship to exploit changing economic factors, they must now demonstrate leadership to proactively invest in protecting their physi-cal assets in these countries where loss pre-vention is still often considered visionary.” “We have observed,” says marc raga-zzi, vice president, operations manager for Fm global’s Latin america operations, “that
successful companies pursuing global growth have started regionally, where similar lan-guage, culture, as well as bilateral trade agree-ments present in Latin america increase the chances of a profitable investment.” “a few countries in Latin america have indeed aligned their internal economic and political structures in such a way that promotes the global enterprise,” says Jose Figueroa, Fm global’s operations vice pres-ident and manager, global services. “more legal certainty and less government interven-tion in international trading, added to clever-ness in conducting business, has resulted in the current trend toward globalization from many companies in the region.” this new reality has opened up oppor-tunities for property and casualty insurers in these markets. But with opportunity comes challenge, the most critical one being how to penetrate these markets while continuing to offer and build upon the services for clients’ existing insured locations. dennis Bessant, vice president, operations manager, asia operations, says, “the only borders that exist for us now are those that exist in our organi-zational mindset. However, the barriers and stakes to becoming a player in the global commercial property market are still very high. top line growth is not the mandate in the short-to-medium term. servicing exist-ing corporate clients in developing markets is the first priority and ensuring they can achieve well-protected risk with certainty is always the principal desired outcome.” Fm global already covers its clients’ global needs in more than 130 countries through its WorldReach® network, but to address indigenous opportunities, it must either obtain a license in those countries and/or change the nature of the relationship of its WorldReach partners. “We have been blessed with a rush of new business in Latin america and this has added challenges to our relationship with our WorldReach partners,” says Figueroa. “this is especially true in terms of compli-ance, as our legal status in the region, except mexico, is that of a reinsurer. in these coun-
tries we are migrating from a traditional ‘fronting’ business model where our part-ners would only provide insurance services to our connected business, to one where they act in a different role with those indig-enous clients.” Whether obtaining a license or chang-ing the nature of the business, these deci-sions are not simple. they require a signifi-cant amount of research and planning, both short- and long-term, to make them happen. the execution of those decisions can take years and cost millions of dollars. one must be doubly sure after committing to one or the other. over the past half a dozen years, Fm global conducted market research out-side of north america to develop a thought-ful framework to identify and effectively address this situation. the main premise of the protocol is to service clients first, and not compromise that service to address new busi-ness opportunities in developing markets. “our mutual structure gives us a unique client focus that drives consistent service to our multi-national clients,” says ragazzi. “over time, this approach has developed opportunities for new business in devel-oping markets through unsolicited client testimonials.” “We never enter a market by first stick-ing a flag in the ground and declaring that we are open for new business,” says ahnell. “to the contrary, our sole focus in any new market that is attracting our multi-national clients is to ensure we provide them with the same level of quality service they receive in their country of domicile.” adds Bessant, “our mutuality allows us to take a long-term view when it comes to market-entry scenarios.” the market entry protocol is a series of steps that allows Fm global management to make the most informed strategic decisions in determining whether or not to obtain a license, partner with WorldReach partners on indigenous business, or maintain its cur-rent status. there are four critical steps to that process.
ISSUE 2 : 2011 [ Reason ] 43
Step 1: Crow’s Nest Analysisthe crow’s nest is a reference to the look-out poised aloft in sailing vessels, a point of reference that would give the captain insight about what lay ahead, as the elevation allowed the ship to look out onto the earth’s curved surface. trying to see what’s coming by simply standing on deck limits the vision. to take advantage of the view from further up, Fm global researches a half dozen key economic and business statistics each year to determine whether a country is experienc-ing accelerated development. the result is typically a list of no more than half a dozen countries to further explore. “in the past,” says ragazzi, “growth has been a result of multi-national companies investing in Latin america bringing with them the highly protected risk approach. in recent years, we have seen some local com-panies following a similar building safety and loss prevention approach to become competitive abroad.” “many companies in the region used to look at their insurance needs on a localized basis,” says Figueroa. “they took a very nar-row approach, many times not even able to obtain gap or dic coverage in their home countries for those subsidiaries located in other jurisdictions. Financial or internal require-ments brought on by expansions, acquisitions or green field projects have prompted these companies to take on a more sophisticated risk management philosophy. We now have the ability to understand the complexity of global property insurance programs.”
Step 2: Initial AssessmentFor those countries identified, the next step is to conduct some desk research on a hand-ful of criteria that impact connected business (insured locations of existing clients) and the indigenous business opportunities and challenges. the criteria include items such as the connected business premium growth, political stability, market size and growth, the cost of licensing, local competition and distribution channels. the result is a strat-egy that can range from licensing to holding
DIMENSION
ENVIRONMENT Relate to people
TIME Perception of time
COMMUNICATION
POWER View power relationships
INDIVIDUALISM Primarily defines the entity
STRUCTURE How change is approached
THINKING How individuals conceptualize
SPACEHow physical and psychological space is demarcated
ACTION View their own actions
BRAZIL
Harmony
Event focus, fluid
High context, indirect
Hierarchy
Competitive and cooperative
Flexible
Deductive, systemic
Private and public
Being
Sources: “The Cultural Orientation Indicator,” Competitive Intelligence, Volume 12, Number 5-6, September-October, 2009, and David Livermore, Cultural Intelligence, American Management Asso-ciation, New York, 2010.
UNITED STATES
Control
Fixed appointment
Low context, direct
Equality
Competitive
Flexible
Inductive, linear
Private
Doing
A CULTURAL SHIFT: United States vs. Brazil
steady in the current position. the change in strategy can come from either the connected business assessment or indigenous business assessment or both. in 2008, in mexico, for example, Fm global obtained a license pri-marily due to the significant growth in con-nected business.
Step 3: In-Depth Researchthe result of the initial assessment may war-rant considering a change in strategy in the local market. if that is the case, then further research is needed to validate that recom-mendation. a research firm is hired to sur-vey the local market to understand the local
buying habits, risk management mindset, cultural practices and marketplace. the final analysis provides greater insight for devel-oping a robust strategic plan. “We carried out market research in Bra-zil and mexico in late 2010,” says ragazzi, “confirming that we had significant oppor-tunities in these two countries. By listening to our clients and partners, the research has been extremely valuable in developing a realistic and fact-based three-year plan.”
Step 4: Creating the Business Plana cross-functional team is formed between staff departments and the operations respon-
44 [ Reason ] ISSUE 2 : 2011
sible for that geographic territory to review all research conducted and develop a busi-ness plan. the plan consists of operational, legal, financial and marketing goals, strate-gies, and resource requirements to ensure appropriate execution. “our biggest challenge remains com-pliance with ever-changing regulatory requirements including reinsurance rules, policy language, taxes, etc. our clients per-ceive Fm global as having the competence and capabilities to deal with these issues,” says Figueroa.
Bessant agrees. “Fm global is one of very few global property insurers today with the necessary geographic reach and experience; there is a certain sense of secu-rity for clients who can access both consis-tent, compliant risk transfer coupled with world-class leading loss prevention risk identification and assessment in countries far away from the corporate office, where in many cases risk management is still at an incipient stage of development.” over the past half dozen years, Fm global has followed this protocol in researching more than 40 countries, with the greatest attention given to the Bric (Brazil, russia, india and china) countries. an exam-ple of how this works can be demonstrated with china. in 2005, china was identified as being a potential future core market through conducting steps 1 and 2. However, the chal-lenges associated with writing indigenous business in that country were enormous:
evolving licensing regulations, a limited risk management mindset, and several signifi-cant cultural barriers. market research was conducted in 2006 and 2007 to understand how to be best positioned for market entry. this led to a business planning team formed (step 3) to develop the plan, determining the appropriate business strategy based on research and licensing requirements. Following local insurance regulations, Fm global first established a representa-tive office in 2007 and has taken initial steps toward the ultimate goal of establishing a licensed insurance company.
However, a critical component of the business plan is what to do about the cul-tural and localization challenges. this is where cultural intelligence enters the pic-ture; Fm global’s experience with existing clients with insured locations in various countries and the existing, on-the-ground staff aid this effort. For example, the context of doing business between the united states and Brazil is radically different (see chart, previous page). While Fm global’s main premise, the majority of loss is preventable, is a globally applicable concept, how to communicate and influence risk managers and others in emerging markets is still a major challenge. if mcdonald’s, one of the most recognized american brands, can be successful with localization in india with products such as the “chicken maharaja mac,” then anyone can succeed. (note: mcdonald’s mission, stated in their annual report, is “a leading share in
the globally branded, quick service restaurant segment”; there is no mention of hamburg-ers). ultimately, it comes down to having the right product, delivered by the right people, in the right place, at the right time. to that end, Fm global and its vari-ous departments have collaborated with local operations to identify and plan how to educate prospects on raising their level of awareness and understanding of property conservation. in addition, a codes and stan-dards group educates and influences govern-ment entities that play a role in establishing and modifying local jurisdictional building codes. this helps increase the level of risk management sophistication so that develop-ing market companies can consider the mer-its of Fm global’s offering. more impor-tantly, it helps level the playing field for its clients in these markets as they compete with emerging market companies. inter-nally, it also helps clients attain a consistent risk management philosophy across global operations. “companies often enter developing markets to gain a sustainable competitive cost advantage,” says ahnell. “investing in loss prevention should not be in conflict with that goal. today, companies can build a highly protected facility in most developing countries at a comparable cost to that of a developed country.” the march to globalization is inevita-ble. in the words of former united nations secretary-general Kofi annan, “it has been said that arguing against globalization is like arguing against the laws of gravity.” Fm global is on its way to dealing with cur-rent and future challenges related to global-ization. most importantly, the company fol-lows its clients to serve their global needs. then, it looks at how to address indigenous opportunities without impacting connected business. the market entry protocol serves as an objective framework, carefully con-sidering client needs and remaining watch-ful for new opportunities in developing markets.
FM Global already covers clients’ global needs in more than 130 countries through its WorldReach ® network, but to addressindigenous opportunities, it requires obtaining a license in those countries and/or changing the nature of the relationship of its WorldReach partners.
ISSUE 2 : 2011 [ Reason ] 45
26.30
41.58
28.6529.35
45.65
HOw enHanCed flOOd mapping will revOlutiOnize lOss preventiOnRising Tide
32.54
26.23
24.57
35.24
as rivers overrun their banks, levees strain
against the rush of high water, and businesses
brace for the deluge, a team of flood specialists
takes on the challenge of mitigating loss in the
face of looming peril.
By any measure, 2010 into 2011 has been a terrible period for catastrophes. major earthquakes killed thousands and resulted in billions in losses. volcanoes, wildfires, land-slides and winter storms, not to mention the largest oil spill in history, all wreaked havoc on the earth. and then there was the flood-ing. record-breaking floods struck pakistan, the philippines, africa, india, Brazil, aus-tralia, north america and china. and the mayhem doesn’t show any signs of slowing. if the first half of 2011 is any indica-tion, this year may be the year of the flood. australia continued its misery as flooding carried over through January, inundating the state of Queensland and its capital, Brisbane. While Japan experienced a cataclysmic tri-fecta in early 2011, floods were also experi-enced in thailand, colombia and Brazil.
in the united states, melt water from unusually heavy mid-winter snow storms and persistent rains caused flooding of several midwest rivers, including the red, ohio, missouri and mississippi. the u.s. army corps of engineers used all of the tools at its disposal to try to mitigate or transfer damages, including blowing holes in miles of levees, diverting water through flood gates and spillways, releasing reser-voirs, and evacuating areas. the extent of the inundation rivals the midwest floods of 1993 and 1927 and has the potential to cover an even greater area should major levees fail. the damage from the current midwest flooding will likely result in a multibillion dollar price tag in agricul-tural, industrial, municipal and residential losses.
HOw enHanCed flOOd mapping will revOlutiOnize lOss preventiOnRising Tide
ISSUE 2 : 2011 [ Reason ] 47
according to a report by munich re, 950 natural catastrophe events occurred in 2010 resulting in an estimated us$130 bil-lion in damages, of which us$37 billion were insured losses. of this total, an esti-mated 61 percent of both total losses and insured losses were attributable to meteoro-logical and hydrological events. While no single catastrophic event stood out in 2010 for Fm global, the com-bination of small- and medium-sized events resulted in a net aggregate loss that rivaled the company’s experience in 2005, the year of Hurricanes Katrina, rita and Wilma. Fm global losses related to natural disasters amounted to more than us$650 million in 2010, including the may flooding of nash-ville, tenn., usa, which received more than 13 inches (330mm) of rain in two days. “natural disaster-related losses were felt throughout the industry,” notes clive goodwin, assistant vice president, manager of wind and flood underwriting. “However, thanks to our overall business model—based on an engineering approach to risk analysis and underwriting—our clients have been provided with the best possible flood risk assessment and been advised and supported in ways to achieve risk improvement. on-site flood evaluations are the key, and ensure that clients understand the impact flooding can have on their business and enable us to maximize the flood insurance capacity we are able to provide.”
with global growth comes rising flood riskFlooding is one of the most complex prop-erty risks facing property owners and insur-ers alike. Fm global approaches the flood peril from the same perspective it does all other property risks—the majority of flood loss is preventable. as Fm global has extended operations around the world to bet-ter serve policyholders’ expansion activities, the challenge of accurately evaluating flood risk and recommending appropriate mitiga-tion strategies and actions has grown as well.
Fm global’s marc surleraux, vice president, division engineering manager for emea (europe, mideast and africa) and asia-pacific, provides this insight: “We have many clients around the world who are investing in areas that have been made available for business by local develop-ment authorities. in many cases, this land is reclaimed from river banks and unsuitable for residential development. unfortunately, many of these properties are exposed to flood issues.” surleraux continues, “the founda-tion of our risk assessment methodology is the site evaluation. to conduct a thorough flood risk analysis, our engineers need cer-tain key information, including flood maps, elevation and topographical data, rainfall intensity, and other information. We have found that critical flood and hydrologi-cal data is often unavailable or inaccurate in many parts of the world, particularly in developing countries.” For green field site evaluations, this information is quite impor-tant. a client may raise the level of an entire construction site or consider changing loca-tions altogether due to the flood risk. “in those cases,” says surleraux, “we need to provide the risk manager with clear and convincing evidence to support these often costly recommendations.” to help provide more consistent and accurate flood risk assessment anywhere cli-ents may require it worldwide, Fm global has launched a major flood research proj-ect, hired additional scientists, enhanced flood specialist training, and is develop-ing new flood mapping and analysis tools. “in 2009, we polled client service manag-ers throughout the company, asking them what they felt was one of their biggest challenges,” surleraux says. “at the top of most lists was the need to excel at under-standing the flood hazard. the better we can understand the risk posed by flooding and help achieve risk reduction, the better we can underwrite that risk and the more capacity we can offer.”
Consensus provides directionsurleraux is the chairman of Fm global’s international engineering Leadership group, which meets once a quarter to review a wide range of engineering and cli-ent service topics. the group reviewed and adopted a plan developed by surleraux that includes several key long-term recommen-dations, including creating a consistent database of flood information—similar to the 100-year and 500-year flood maps and data available in the united states—for use by field engineers outside of north america; developing a flood resource tool for use by flood specialists wherever flood risk is suspected, but cannot be adequately evaluated due to lack of information or undocumented river basins; and identify-ing or developing a tool or model to evalu-ate the risk of flash flooding from surface water runoff in urban or developed areas.
48 [ Reason ] ISSUE 2 : 2011
24.57
24.57
some of the key goals and objectives of this group were tackled by Fm global. the reinforcement and advancement of research resources in flood, wind, earthquake and man-made hazards were already top priori-ties included in the company’s strategic plan to address natural hazards. “For flood, wind, earthquake and other areas, we are following a similar strategy and that is to first increase the number of staff scientists (see page 56) for each discipline to achieve an optimal level and, secondly, col-laborate with outside research organizations and government agencies to leverage knowl-edge and tools that already exist—and avoid reinventing the wheel,” notes Fm global’s Hosam ali, director of structural hazards and response research. “We have a grow-ing number of research projects and objec-tives designed to support our engineering and underwriting groups. We have a team of
strong individuals who can work with out-side organizations and resources.” the long-term goals of the current research effort are to develop tools and mod-els that can be used by Fm global flood specialists to accurately estimate and map river flood hazards, flash flood hazards, and estimate flood risk for individual cli-ent locations. to gain an initial foothold and work out some of the expected early kinks, Fm global researchers have selected a basin in europe as its first mapping target. “We chose a river basin in europe because there is already some data available, which will enable us to compare the mapping tools we develop against existing information to verify accuracy,” ali explains. “this basin was also chosen because it is not as large as some other river basins in europe, such as the seine or the rhine. our goal is to establish and validate a development technique and this
“ the better we can understand the risk posed by flooding and help achieve risk reduction, the better we can underwrite that risk and the more capacity we can offer.”
Marc surleraux, FM global vice president, division engineering manager for eMeA (europe, Mideast and Africa) and Asia-Pacific
ISSUE 2 : 2011 [ Reason ] 49
28.65
asia poses special challengesJiang Fenghui, the first Fm global flood spe-cialist based in china and now chief engi-neering technical specialist for Fm global’s shanghai, china, operations, says knowl-edge of the local language and close col-laboration with local government officials and research organizations is particularly important in china and throughout asia. “in many cases, local authorities are reluctant to release flood data due to fear that they may be jeopardizing a business deal or other offi-cial arrangement,” Fenghui says. “You must be flexible and able to adapt to each new situation as a flood specialist in this region. in china, Japan and Korea, we have local departments of flood and drought control that often have very good information. For other asia countries, we often have to call upon the services of flood experts.” Fenghui is a member of the china chapter of the international association for Hydro-environment engineering and research (iaHr), headquartered in the china institute of Water resources and Hydropower research (iWHr). valu-able flood data and consulting services are available from iWHr, including river gage information, such as flow, discharge and water levels. one important project in which iWHr provided consulting services was flood modeling and mapping for some key industrial zones in shanghai and adjacent taihu Basin areas. Fm global’s michael scheffler, senior staff engineering specialist, supervised this project. in one case, Fenghui and scheffler, as well as other client service team members, assisted a major multinational client that wished to build a new manufacturing facility along a major river in southeast china. “the first line of defense in flood loss prevention is to not locate in a flood zone,” notes Feng-hui. “sounds like basic advice, but you would be surprised how many businesses choose to ignore it for various reasons and rationales.” the Fm global client service team got involved with this multinational client early enough in the selection process that
basin was just the right size and simplified the data-gathering process.” according to ali, some of the key flood research goals include developing the best flood maps possible for areas where data is available, but may be inconsistent or incomplete, including many areas of europe, and developing the best flood maps possible for areas where it is more challeng-ing to obtain flood data. these areas include eastern europe, china, Latin america and asia-pacific. another goal is to create and refine tools for flood specialists to use in the field to alle-viate the need to escalate flood risk analysis to engineering standards or research. these tools would help provide timelier client ser-vice and better risk assessment accuracy.
site evaluations essentialexperts are quick to point out that flood maps, no matter how accurate, are just a starting point in the risk assessment process. thorough flood analysis is never complete until a site evaluation has been conducted by the field engineer and, in many cases, by a flood specialist or an outside consultant. at least one Fm global flood special-ist—several in many cases—are assigned to every operational group around the world. Flood specialists are field engineers who have received specialized training in flood risk assessment and have shadowed other flood specialists on numerous site visits. training for flood specialists is con-ducted by senior staff engineering spe-cialist stuart ulsh and covers topics such as hydrology, hydraulics, storm water analysis, site elevation measurement, tidal flooding, levee evaluation, a review of recent losses and lessons learned. “a key requirement for flood specialists is knowledge or familiarity with the region they will be serving,” ulsh notes. “they need to speak the local language wherever they are in the world, know where to find local information, establish relationships with local authorities, and focus on providing the best possible flood risk analysis for our clients.”
50 [ Reason ] ISSUE 2 : 2011
26.23
26.30
35.24
they were able to work with the client to understand that their first choice in sites was too risky. the original site along the river depended on a levee of questionable condition and effectiveness. the client was intent on staying within the city limits in order to provide a reliable local labor force. Fenghui served as the flood specialist for this relocation project. “it is ideal when we get involved early enough to help a cli-ent choose a less flood-prone site,” Fenghui relates. “in this case, it was questionable as to whether the site was even protected
to the 100-year level, let alone the 500-year plus 2 feet (0.6 meter) that we like to see. time pressures are always an issue and were in this case as well. We worked non-stop, first to provide evidence that the original site was unsuitable from a flood risk perspective, and then to quickly evalu-ate the flood risks posed by the new site. the second site was much more robust and well protected, although we recommended a mod-est increase in site elevation there as well.” Less than a month after the decision was made to relocate the factory, the deci-sion was reinforced by monsoon rains and 25-year flooding. the original site was inundated, while the relocated site was completely dry. this “result” was wit-nessed by the company president during a visit that coincided with the flood event.
“ flood specialists need to speak the local language wherever they are in the world, know where to find local information, establish relationships with local authorities, and focus on providing the best possible flood risk analysis for our clients.”
stuart Ulsh, FM global senior staff engineering specialist
ISSUE 2 : 2011 [ Reason ] 51
35.24
24.57
28.65
32.54
47.65
“it’s not often you see such an obviously positive impact from the recommendation you make,” Fenghui observes. “it was very gratifying to have assisted our client in such an immediate and beneficial way.”
in india, the risk of monsoonssimilar flood risk assessment and risk reduction has been achieved by Fm global clients around the world. sKF india, a division of sKF aB, sweden, followed Fm global’s recommendations to both raise its overall site elevation by 4.92 feet (1.5 meter) and size its drainage system for peak monsoon rainfall, common to the area. sKF also confirmed Fm global’s site elevation and drainage recommendations with an outside consultant before backfill-ing the site. Just a few months after the plant began production in 2010, an early and prolonged
a tide sCOreA handful of key flood goals
• develop the best flood maps possible for areas where data are available, including many areas of europe.
• Produce flood maps for areas where it is a challenge to obtain data. these areas include eastern europe, china, Latin america and asia-Pacific.
• create and refine tools for flood specialists to help alleviate the need to escalate flood risk analysis to provide more timely client service and better risk assessment accuracy.
52 [ Reason ] ISSUE 2 : 2011
45.65
monsoon season delivered near-record rain-fall to the Haridwar area, raising the river ganges 6.5 feet (2 meter) above flood level. according to the sKF india plant manager, the sKF site remained out of harm’s way and showed that its drains could handle extremely heavy rains. “it was a good test of our drainage system and site level,” he noted.
making a difference in the midwest in the united states, Fm global flood spe-cialists assigned to each regional operations group serve as liaison to local authorities, particularly the united states army corps of engineers and the Federal emergency management agency (Fema). Fema is required by statute to identify and map the nation’s floodplain areas and to establish flood-risk zones in such areas. the u.s.
army corps of engineers builds, maintains and operates levees, flood control dams, flood gates and other flood-control systems nationwide. “We have many clients who rely on us for help with flood exposed locations,” notes sandy estep, chief underwriting technical specialist for Fm global’s st. Louis, mo., usa, operations. “We are often responsible for explaining flood scenarios and devel-oping risk-transfer solutions for locations where our clients were not aware of their risks. We are fortunate to have the engineer-ing expertise—from flood specialists to our research resources—to support our under-writers in developing customized insur-ance solutions, developed with the best risk advice we can offer.” estep notes an example where a 100-year rated levee in missouri was sup-
posed to protect an industrial district that included two Fm global client loca-tions. However, after careful analysis by Fm global flood specialists, it was deter-mined that the levee system would have to be downgraded from an underwriting per-spective unless the levee could be repaired and properly maintained. “the clients were taken on tours of the levee so they could better understand why we needed to downgrade the levee and the resulting underwriting impact,” estep says. “meetings were held with the u.s. army corps of engineers and the local levee board. eventually, our flood specialists helped to get city, county and federal officials involved in the issue. the levee district eventually contracted to have the levee slopes cleared of vegetation and repairs made. By educating the clients and
involving local, state and federal officials and agencies, we were able to help the clients benefit from risk improvement and return the levee to 100-year protection, at the same time avoiding reinsurance and other cost increases.” goodwin observes: “the risk posed by flooding is a major challenge for many areas around the world. as we have grown glob-ally, along with our clients, our approach to flood risk analysis and risk improvement continues to prove its validity.”
“ we are fortunate to have the engineering expertise—from flood specialists to our research resources—to support our underwriters in developing customized insurance solutions, developed with the best risk advice we can offer.”
sandy estep, chief underwriting technical specialist for FM global’s st. Louis, Mo., UsA, operations
ISSUE 2 : 2011 [ Reason ] 53
45.65
26.30
26.2324.57
28.65
the January 2011 floods in the eastern states of australia caused tremendous hardship and loss. they have also challenged the response of governments and the insurance industry to what is considered one of the largest catastrophes—and the largest insur-ance loss—in australia’s history. uncertainty and controversy arose regarding the extent of flood coverage that may be available and, among other things, the different policies and policy language that exist in the consumer end of the market. in the past, efforts by the industry to address a common definition failed as a result of a determination by the australian competition and consumer commission (accc). However, after the Brisbane flood the federal government decided to work with the industry to classify common definitions for policy terms, as well as ensure clearer disclosure about flood coverage in insurance policies. a conclusion will soon be reached
and will ultimately lead to better consumer knowledge. another area of discussion since the flood has been the availability of flood maps, and why the insurance industry needs them. in order to underwrite and price risk, an insurer needs to understand the risk and be able to qualify the severity and the probabil-ity of that risk of loss occurring. Flood is no different from any other risk. if the likelihood and severity is high, the premium will need to be high to adequately fund the insurance pool. that is, unless there is a specific strategy of cross-subsidizing the bad risks with the good risks; rare within the risk appetite of a private insurer. For flood risk, an assessment means identifying the potential flood height and return period at potentially exposed properties. this requires a reliance on flood maps. unfortunately, there is no federal rep-resentative responsible for flood mapping in
in tHe wake Of
tHe flOOdin australia, some
insurers believe it’s actually the government’s
role to establish an adequate flood map of
the country. here’s why.
(AP Photo/Janie Barrett, Pool)
an opposing View
54 [ Reason ] ISSUE 2 : 2011
32.54
35.24
41.58
29.35
30.30
australia. it is the responsibility of disparate local governments and a number of differ-ent bodies. there has been no single access point for those flood maps for anybody—insurers or otherwise.
this is quite different to other developed countries. For example, flood mapping in the united states and the united Kingdom is the responsibility of the central governments, and the information is available to many stakeholders. in 2007, the insurance council of australia (ica) committed considerable funding to the establishment of a database of available flood maps to australia. the estab-lishment of the national Flood information database (nFid) was to enable the industry to access that information and then hopefully be able to offer flood insurance more broadly. and this has happened. Choice maga-zine’s regular surveys of insurance products indicate that in 2006 less than 55 percent of household policies offered flood insurance, whereas in 2011 some 50 percent do. the existence of the nFid has made a big differ-ence, and demonstrates the industry’s com-mitment to providing more broadly based flood coverage. However, there are vast limitations. the nFid draws from current available data sources. this includes mostly local councils and various statutory authorities. the flood information is far from universally available and, in many cases, authorities are reluctant or unwilling to release it. We can all specu-late why. inaccuracy and inconsistency of the data are also issues. Having no common
basis, many councils or authorities have adopted their own methodology, with dif-fering degrees of accuracy. another prob-lem is that flood mapping is not static, and much of the current available data is out
of date. For example, even the most recent flood maps are, among other inputs, based on rainfall and runoff data that is more than 30 years old. With additional infrastructure such as new developments, buildings and roads pop-ping up in the intervening period, the flood mapping that had relevance 30 years ago is not helpful now. Flood mapping needs to be maintained and kept up-to-date. the federal government has only recently agreed to provide funding to update this critical information. Flood mapping techniques have advanced and can now pro-vide very comprehensive, predictive model-ing of floods of all origins, including water runoff, riverine flooding and the effects of the sea. interest in the latter has been height-ened by concerns over climate change and the risks to coastal communities. the starting point is to create digital elevation mapping of the land and overlay-ing areas with sophisticated flood model-ing using a variety of scenarios, including deposition of rainfall. some commentators have suggested the insurance industry dis-agrees on this for a number of reasons, not the least being the concern that the industry could become a de facto approval authority for land development. Flood mapping is and should be a gov-ernment responsibility, and the data and
methodology used must be transparent. accessible, accurate and reliable maps will assist in ensuring sustainable communities, and many stakeholders may use the infor-mation. and insurers can utilize accurate flood maps to underwrite and design their products. Local governments can use the infor-mation to ensure that responsible develop-ment takes place, and that development on flood plains is avoided. property owners and potential acquirers of property can under-stand what their risks are and make informed decisions. critically—and this is the biggest advantage—authorities can use the informa-tion to take mitigation measures that will lead to reduction in the impact of flooding that will, inevitably, occur again at some point in the future. the federal government of australia’s upcoming “national disasters insurance review” has broad terms of reference. the industry supports the initiative and hopes it will be a forum that supports the case for a national approach to flood mapping. the debate about flood mapping is not just about insurance. of course, neither stan-dard definitions nor flood mapping alone will stop floods; nor will they ensure that all properties can be covered by insurance at reasonable cost. But flood mapping will contribute to sustainable communities, better mitigation and more transparent decision-making by a host of different stakeholders.
Ian Berg is vice president and manager of Australia operations of FM Global. He is the director of the Insurance Council of Austra-lia and is a fellow of the Chartered Insur-ance Institute and member of the Institution of Engineers. He is also a member of the Australian Institute of Company Directors.
in order to underwrite and price risk, an insurer needs to understand the risk and be able to qualify the severity and the probability of that risk of loss occurring.
ISSUE 2 : 2011 [ Reason ] 55
26.30
41.58
28.65
among a handful of powerful initiatives
designed to confront flood hazards head on,
Fm global has assembled a highly accomplished flood
research team that will focus its efforts on the
large-scale mapping of critical flood zones.
how did you first get into the field of study related to flood, mapping and modeling? Dr. Jeff McCollum, senior research scientist: i was in engineering in college and one of my civil engineering professors was a big flood researcher. through him i got into the field as an undergraduate, which led to my professional work in civil engineering and flood research. i worked for the national oceanic and atmospheric administration (noaa) for seven years where i studied remote sensing of rainfall. after seven years working for the gov-ernment, i needed to try something different. this job opportunity surfaced on a national aeronautics and space administration (nasa) email list. i was looking for a more applied occupation, which is more practical and efficient. plus, a lot more gets accomplished in the private sector! right now i’m in my seventh year at Fm global and i mostly focus on flood, but also rainfall that causes flood. my first mission is to understand how big a flood could be, because
Rain Men
56 [ Reason ] ISSUE 2 : 2011
32.54
we don’t want to be surprised by a huge flood event. Before a flood, and after a flood, we compare the data we had for expected floods to make sure we were on target.
Dr. Yizhong Qu, senior research scientist: i majored in hydraulic engineering and also studied geomorphology, which is the study of terrain. i moved to pennsylvania state university to study hydrology, which is a field somewhere between geomorphology and hydraulic engineering. after graduating in 2005, i began working at air Worldwide, doing some
catastrophe modeling. While i was there, i developed a u.K. flood model, which included large-scale storm simulation. i joined Fm global in november 2010, and am doing similar work, supporting field engineers in large-scale engineering and site-specific work. together, we are developing solutions that are suitable to Fm global’s clients.
Dr. Xinya Ying, senior research scientist: i studied hydraulic engineering as an under-graduate student and in my master’s program in china, where i became a research engineer. i earned my ph.d. in computational hydroscience, which is basically numeric modeling, in Japan. in 2001, i began working on flood modeling and dam breaks, doing one- and two-dimensional modeling needed by the u.s. army corps of engineers. i arrived at Fm global just a few months ago to join this new flood team.
Dr. Ed Beighley, senior research specialist: i received my undergraduate and master’s degrees in civil engineering, with a focus on hydraulic engineering. i created terrain models of the earth. i received my ph.d. in civil engineering, where i combined remote sensing, geographic information system (gis) and hydrologic modeling. then i did a post-doctorate at university of california, santa Barbara, where i modeled terrestrial run-off to the ocean. i taught gis and hydrology at san diego state university, where i became interim chair of the civil construction and environmental engineering department. i put a lot of time and effort into developing a hydrologic model, which won a nasa new investigator award. the model allows us to go anywhere in the world, using remote sensing, to set up a river network and model rainfall run-off processes and streamflow with limited in-situ data. this provides a basis for what bigger flood events might look like. realistically, i felt i was going to be a professor forever. i had been working with Fm global for three years via contracts to do some of their modeling work. i was looking at characteristics of what causes a place to flood. every time i’d come to visit Fm global, i was so impressed with the level of expertise, the commitment to research, and the weekly research seminars. When the opportunity arose to work here, it was too good to pass up.
What would you like to accomplish individually and as a team?Beighley: We all have a different skill set. the biggest thing i’d like to see accomplished is to integrate larger scale hydrologic and climate models, which would involve working closely with Jeff to get the climate input right into what i do.
Ying: i’d like to couple my one-dimensional and two-dimensional hydraulic models with our hydrologic models, improving their efficiency and speed to handle large-scale river networks and watersheds for flood risk evaluation and for flood mapping that can consider dam, levee and other flood defense failures.
Qu: i would first like to provide solutions to evaluate the risk of flooding. in the past i have developed an integrated hydrological model. We want to make sure it works. conceptually, it’s correct and technically it’s advanced. But right now we haven’t focused on solving the real problem, and on providing a reliable solution for the future. together we can develop a package of solutions, good for both large-scale mapping and for very detailed, site-specific applications.
McCollum: my work will be more on the precipitation side. Big floods, the kind we’re talk-ing about, are usually caused by precipitation. What could happen? Why would huge rain events occur? i would use statistics and climatic data that could be put into the modeling that my colleagues are all using. then we could find out directly about the vulnerability of our clients’ locations.
getting their feet wet: the new flood team is from left to right, dr. ed beighley, dr. Yizhong Qu, dr. Jeff Mccollum, and dr. Xinya Ying.
ISSUE 2 : 2011 [ Reason ] 57
of these advancements. at the same time, there are quite a few significant events, which will make it challenging as well.
Beighley: We’re all here. We have this idea of what we want. Luckily, we are all able to do what we are passionate about. as the starting place, what i see happening is to figure out how we all fit together. We’ve got experts in precipitation, hydrology and hydraulics. if we can pull together, pull out the contributions from everybody, and put it on a single slide that we can discuss, it will all come together.
Ying: First you must predict how much rain comes to the ground. then you must predict how much of that rain will discharge into the river through hydrology. then you need a hydraulic model to calculate elevations and flood to create the flood map.
do you feel that there is urgency on the flood team to produce results based on the kinds of natural events we’re seeing so often?McCollum: Well, as the population expands, people always want to be by the water. even when there’s a flood and places get ruined, the cities want to have their downtown areas on the water, and therefore, more and more property gets exposed to flood. clients might consult with Fm global before building, but most will still locate there. it just puts them at greater risk for loss.
Qu: the amount of exposures inside the flood plain is growing rapidly. so, nowadays, the same event today versus 10 years ago will cost a lot more.
Ying: the fact is, cities that usually have large impervious areas are growing and rain can-not infiltrate into the ground, producing large run-off, which the drainage network cannot accommodate. this will potentially expose the cities to significant and very costly floods and flood damage. But also, people tend to forget, especially if flood risk is not communicated properly. Last year’s flood in nashville (tenn., usa) is a good example. most people didn’t anticipate that, but it did happen and it was very damaging.
Beighley: From an engineering perspective in terms of flood, there are two lines, the 100-year flood plain and the 500-year flood plain. they are literally two lines on a map: on one side you can get this insurance coverage, and on the other side, you can only get this cover-age. right now we’re trying to get a handle on a consistent way of looking at these things, to really understand why these lines are drawn and what the uncertainties are.
moving forward, will any prospective change in climate have an effect on what you do?McCollum: Yes, i think it will. it’s hard to say. the climate is changing. But the question is also what’s causing it? together, we pay attention to all of the climatic data sets.
Beighley: it is a challenge. in certain areas, for example, it may be more intense here but not there. there’s more rainfall in one place now than there used to be. individual events might change for whatever reason. But when you push these changes out and consider the estima-tion of 100- and 500-year flood elevations, that’s when the uncertainties become greater, because the events are so much more extreme. in any event, we have to consider that there may be more precipitation, and, historically, this may alter the magnitude of flood events. there may also be more winter precipitation, potentially more snow in places that didn’t have that much snow. to the extent that the 100-year or 500-year flood elevations may be impacted by this snow melting will be hard to quantify. it all remains to be seen.
What are your thoughts on working together with this team?Qu: in our field, most people would focus on one aspect of the equation and rely on third-party data for the rest. But if we put everything together—meteorology, hydrol-ogy and hydraulics—it would be unique. only a few other firms do it and most are simply in the business of catastrophe model-ing. We are looking for where the specific risks are, throughout the country and at our clients’ individual sites. We care individu-ally about each risk. Working within a team is not new for me, but with this ambitious goal, it’s quite unique.
Beighley: We have a unique opportunity here. as a professor, i managed a team and managed many projects at once. now if you look at the people in this group, individu-ally we could all serve as the top of a team, or do something completely independently. But to get to work together, with such a broad category of experts so closely is really rare. to have a team where the indi-viduals are so qualified and don’t have to manage other teams, that’s pretty unique. normally, people in our capacity would spend a lot of time searching for funding. at the university, i spent much of my time on finding research funding. did i get to solve the problem defined by the project? Hardly. that’s the big difference. We get to solve the problem here.
so what is the first step now that you’re all here?Qu: Flood mapping and modeling is a corpo-rate objective. From a “research community” modeling perspective, we had advances in hurricane or typhoon modeling in the ’80s, earthquake in the ’90s, and now it’s flood modeling in the first decade of the 21st cen-tury. But much has changed. computational power is the biggest one. Flood modeling requires a lot of data, and collecting that data was impossible 20 years ago. i can see that flood modeling is possible right now because
58 [ Reason ] ISSUE 2 : 2011
gEt thE piCturE. Reason’s First Person video series features in-depthdiscussions with some of the company’s leading experts, including Chairman and CEO Shivan Subramaniam, Vice Chairman ruud bosman, Senior Vice PresidentMarketing and Enterprise Learning Chris Johnson,and Research Area Director hosam ali.
fmglobal.com/reason
FIRst PeRsoNthE vidEo SEriES
yOU
INTERNATIONAL REgULATIONSTERRORIST ACTS
LEgAL COmPLIANCE ISSUES
EARTHqUAkEBREAk IN yOUR SUPPLy CHAIN
FLOOD
100-yEAR EvENTS BLACk SWANBUSINESS INTERRUPTION
FINANCIAL vOLATILITy
FIRE
UNDERSTANDWE
ww
w.fm
global.com
prsrt std
u.s. postage
paid
providence, ri
permit no. 107
ww
w.fm
global.com
“ We buy into FM Global’s model that
loss is preventable, and we know
that you can spend a little money now to
protect your risk, and save a lot of headache, business interruption
and reputational risk as a result.”
Eastman Chemical CompanyPeter roueche, Manager, enterPrise risk and insurance
Fm global corporate officesp.o. Box 7500Johnston, ri 02919-7500 usa
change service requested
Reason is printed entirely on Forest Stewardship Council (FSC)-certified paper. If you no longer wish to receive Reason, please contact our customer service department at phone: +1 (1)401 477 7744, (1)877 364 6726 (toll-free in Canada and United States) or e-mail: [email protected].
The
Rising Tide
ISSUE 2 : 2011
Reason
ww
w.fm
global.com
