Andy Miller, Loss Control Engineering Technical Manager at Allianz, answers questions about current and emerging trends that pose threats to business continuity.
Risk management and loss control. I’m the Technical Manager of Loss Control Engineering within Allianz UK, with key responsibilities for the technical capability, standards, training and development of the loss control team, as well as the technical content of the Allianz Risk Management website, and supporting our commercial underwriting standards.
I’ve worked in loss control and risk management for some 30 years, starting out at General Accident (now Aviva) in 1989 as a trainee surveyor before moving on to Independent Insurance in 1991, then joining Allianz in 2001. I also sit on various industry working groups including the Association of British Insurers, DEFRA flood resilience and RISCAuthority.
What risks should businesses be protecting against?
Taking risks is a key characteristic of many successful businesses but no organisation wants to put their future on the line as a result of something they could have prevented. Identifying and managing risk is key to business continuity.
The annual Allianz Risk Barometer highlights the risks that are keeping chief executives awake at night. Two risks – changes in legislation and regulation and cyber incidents – grabbed the top spot in 2019, with business interruption, market developments and new technologies also cited as potential concerns.
As well as looking at the issues that worry businesses, it’s also sensible to look at the claims statistics. Figures from the Association of British Insurers (ABI) show that in 2018 the top risks to businesses were fire and explosion (30%), escape of water (22%), weather (16%) and theft (12%).
By putting adequate and appropriate risk management in place, the likelihood of suffering a loss from these events can be significantly reduced, and if they do occur, the right business continuity planning can help alleviate disruption and get the business back on track as soon as possible.
What's the threat to the business if it doesn't have appropriate risk management measures in place?
In the worst-case scenario, any of these types of incident could potentially result in the business closing down. As well as the loss of the building, materials, equipment and stock, a firm could suffer loss of business and earnings while they’re recovering from the event. It can take many months to fully reinstate a business.
How significant are these risks?
These risks cost the UK economy billions of pounds each year in damage and disruption. In terms of insurance claims alone, the figures are staggering and increasing year on year.
ABI statistics show that insurers paid £938m to commercial clients for fire and explosion claims in 2018, up from £885m in 2016. Similarly, escape of water claims costs have increased by 30% in recent years and now represent 22% of all claims, with insurers paying out £2.5m for this every day.
The theft claims statistics don’t make pleasant reading either. Organised crime costs the UK more than £34bn a year according to the National Crime Agency. Motor theft claims have risen by 20% in the first quarter of 2019 compared to the 1st quarter last year and we also see construction plant remaining an attractive target for criminals. In 2018, 730 pieces of plant were stolen, up from 428 in 2016.
Businesses need to identify the risks that are relevant to their operations, put in place appropriate risk management strategies and have continuity plans in place if the worst does happen.
As an example, take the risk of escape of water:
There are plenty of different ways to reduce this risk. As well as obvious ones such as using a competent contractor to install plumbing systems, clearly marking stopcocks that can be readily accessed and turned off in the event of an emergency, and regularly inspecting and cleaning underground drains, a company could invest in water management systems that can detect leaks and automatically turn off the water supply to minimise damage.
Solutions are often specific to the type of business, its location and its budget. For instance, to counter the theft of catalytic converters, one firm may be able to keep its vehicles locked in a garage at night; another might have to invest in security lighting, remotely monitored CCTV and defensive parking within it’s forecourt or compound to deter thieves.
Changing policies and procedures can help too. As an example, as criminals target plant hire firms with fraudulent intentions using fake IDs and last-minute requests for equipment, it’s prudent to put robust processes in place. Checking ID carefully, asking for two trade references and checking them out with Companies House will help weed out those with less than honourable intentions. It may also be worth signing up to a plant registration scheme such as CESAR and MicroCESAR for portable tools to make it easier to recover stolen items and make the business less of a target.
What do brokers need to know to help their clients?
Brokers can also access risk management information to help them support their clients. As well as looking at different risk topics, our website – allianz.co.uk/riskmanagement – looks at the specific issues faced by different industry sectors.
The website also contains advice on how to draw up continuity plans – being prepared can make a huge difference if the worst does happen.
What future risks do businesses need to think about?
The risks aren’t all high tech either. The ageing workforce requires attention from employers. As well as ensuring the right risk assessments are conducted and the findings acted upon, they must cater for this group or risk discrimination charges.
Similarly, employers must seek to safeguard all employees’ mental health and wellbeing. This area of our health has rightly received much more focus over the last few years and there are benefits for employers who take steps to protect their workforces.
Changes in legislation remains a key concern for business owners. Against the Brexit backdrop it’s hardly surprising that this risk shared top billing in the Allianz Risk Barometer in 2019.
Also, sadly on the risk radar is terrorism, with the issue of non-damage business interruption highlighted by the London Bridge terror attack in 2017. In this, although they didn’t experience any damage, businesses in Borough Market were unable to trade for 10 days when they found themselves behind the police cordon. Cover is now available for this, but businesses need to make sure they factor this into their risk assessments and continuity planning.
Author:
Andy recently presented a webinar that covered various topics mentioned here. You can view it on-demand here:
