Risk Insider: Chris Johnson

Disaster Resilience Varies in Asia. Risk Managers Must Know the Difference or Suffer the Consequences

By: | August 9, 2018 • 4 min read

Chris Johnson is executive vice president at FM Global. He oversees operations outside of the Americas and AFM, a division that specializes in mid-market property insurance. In 2017, Johnson assumed legal responsibility for FM Global’s newly formed Luxembourg-headquartered subsidiary, FM Insurance Europe, S.A., which delivers coverage throughout the EU. He can be reached at [email protected]

As the Asia Pacific region continues to position itself as the world’s manufacturing hub, the riddle for risk managers is: “How do we adjust our mindset and expectations about risk management in one of the oldest parts of the world where the appreciation for risk can be vastly different from Western economies?”

According to the World Bank, Asia Pacific countries are responsible for two-fifths of global economic growth. Yet, at the same time, 70 percent of the world’s natural disasters happen in the region, including earthquakes, tsunamis and floods.

Still, despite the potential for severe disruption across business operations and global supply chains from a wide variety of factors, including political, economic and natural disasters, global companies continue to target the Asia Pacific region for expansion. The region presents a considerable opportunity to lower input costs and access potentially lucrative markets.

The result is a challenge for risk managers who struggle when seeking Western-style risk management in a region that includes culturally, politically and economically diverse countries. The list includes China, India, Japan, Indonesia, Singapore, Korea, Vietnam, Malaysia, Thailand, Papua New Guinea, Myanmar, the Philippines and more.

The Philippines is repeatedly hit with cyclones in the same places, and yet construction continues in these areas. Why do these practices continue? Why don’t these countries simply put strict building codes and standards in place to ensure property is well protected?

There are no uniform building codes or standards, and the appetite for risk mitigation varies by country.

In fact, the FM Global Resilience Index, which ranks nearly 130 countries according to the resilience of their business environments to disruption, shows a wide disparity among the ranking of countries in the Asia Pacific region. While Australia, Japan and New Zealand all rank highly for overall disaster resilience, others such as Myanmar, Thailand and Vietnam are not as resilient.

In many of these countries natural hazard exposure is high, and manufacturing facilities and other key business operations continue to be built in areas more susceptible to wind and flood damage. Thailand, for example, has been hit with severe floods time after time, and yet the landscape stays much the same.

The Philippines is repeatedly hit with cyclones in the same places, and yet construction continues in these areas. Why do these practices continue? Why don’t these countries simply put strict building codes and standards in place to ensure property is well protected?

Culture Diversity Changes Risk Approach

To understand why some countries in the Asia Pacific region are more receptive to risk management than others, one must acknowledge that those attitudes, in large part, are drawn from the unique culture and experiences of each country. Some are communist, some have a Buddhist philosophy, some are wealthy; many are not.

Some cultures believe natural disasters are beyond their ability to prevent and are going to happen no matter what. In other cases, if a country has limited economic means and its people have a short life-span, one must understand they likely don’t have the wealth to undertake certain risk management measures commonplace in other parts of the world.

Yet risk managers can and have learned a great deal about risk management best practices from the region as well. Singapore, as an island nation, is entirely reliant on electric power generation to drive its world-leading financial center. It has some of the most advanced risk management programs in place to make sure the lights stay on.

Japan, with a long history of earthquakes, has some of the most rigorous programs in place to ensure its buildings can withstand the shaking of the earth. The Forbidden City in China developed some of the earliest fire protection programs known to man.

Finding Ways to Promote Disaster Resilience

So in a region with vastly different experiences, how can risk managers bridge the gap of disaster resilience?

First, given the disparate appetite for risk management in the Asia Pacific region, insurance and risk management professionals may need to help their business partners understand and visualize just how bad things can get (in an effort to change behavior) and how the majority of loss can be prevented.

That’s what my company is hoping to provide to visitors of the new Singapore-based learning center, the FM Global Centre, which is slated to open in 2019.

The Asia Pacific region is like a multicultural diamond. While some facets may be brighter than others, nonetheless it is a prized gem.

Secondly, especially in those cultures that believe disasters can’t be prevented, the risk management community has an opportunity to help the less informed understand the ramifications of a disaster, ways to mitigate the impact and the benefits of disaster resilience. Sometimes the ramifications of risk beyond one’s personal experience can be hard to imagine.

The bottom line is that these countries cannot be lumped together in terms of their proclivity or appetite for rigorous risk management programs that are more commonplace in the West.

The Asia Pacific region is like a multicultural diamond. While some facets may be brighter than others, nonetheless it is a prized gem. Like diamonds, no two are alike and each have different qualities that need to be considered.

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The R&I Editorial Team can be reached at [email protected]