Which Countries Take the Cake When It Comes to Resilience? FM Global Breaks Down the Most Pressing Global Risks

FM Global released its annual FM Global Resilience Index, ranking countries on their ability to adapt and respond to emerging risks.

By: Joel Berg | July 1, 2022

Risk managers can grasp what the problems are by scanning the headlines: war, inflation, climate change, broken supply chains.

An index from insurer FM Global can identify where the problems are likely to pose the biggest challenges.

The FM Global Resilience Index, produced annually since 2014, ranks 130 countries on a scale measuring their vulnerability to — and ability to recover from — unexpected events ranging from floods to cyberattacks to political violence.

It is a relative measure of resilience, not an absolute measure.

The purpose of the index is to help risk managers figure out where and how to allocate resources, according to Pentti Tofte, staff senior vice president for data analytics at FM Global.

“There are practical things you can do as an organization to harden your facilities against whatever perils you may be looking at,” Tofte said.

As in previous years, countries and regions of Western Europe and North America fare well on measures of resiliency, while countries in Africa, Central America and Central Asia languish toward the bottom.

Still, as the challenges facing risk managers evolve, so does the FM Global index. The company has added several new measures, capturing insights into areas such as climate change, supply chains and public health.

The index relies on data from the International Monetary Fund, the U.S. Energy Information Administration, the World Bank and the World Health Organization, among other institutions, as well as data gathered by property risk engineers from FM Global.

Pentti Tofte, staff senior vice president for data analytics, FM Global

The index is not necessarily a predictive tool, Tofte cautioned. It could not have predicted the war between Russia and Ukraine, which has roiled energy and food markets.

But the index can point to the likelihood of political violence and war through a measure of political risk. Ukraine and Russia both have ranked low, meaning the risk is higher.

And it can also point to a country’s ability to manage the ripple effects. The war in Ukraine, for example, is testing the resilience of lower-income countries that rely on imports of food and energy, Tofte said.

Not Just Where, But When

Supply chains are topping most risk management lists as companies struggle to deliver all sorts of goods, from baby formula to sriracha sauce. FM Global has previously measured supply chain visibility, or the ability to identify a shipment’s location.

But, Tofte said, “What the last few years have shown us is that is not enough.”

A shipment may have arrived at a port, but it may be waiting offshore to be unloaded. To drill down further, FM Global introduced a new measure on supply chain timeliness, which gauges the frequency at which shipments arrive on time.

As they evaluate their supply chains, risk managers can take the data from FM Global and overlay it with their existing data, Tofte said. Companies, for example, may be looking to shift supply chains away from Russia and Ukraine.

“The obvious question becomes, ‘Where do I go, then?’ ”

Despite complaints of shortages across the U.S., the country is performing in the top 25 on measures of both visibility and timeliness, Tofte said.

FM Global divides the U.S. into three regions: the East Coast including Texas and the Southeast, the West Coast and states in between.

Top scores for timeliness go to countries in Western Europe, including Belgium, Denmark and Germany. Singapore, Japan and the United Arab Emirates also ranked in the top 20. The lowest scores go to Guinea, Ethiopia and Zimbabwe.

China, a manufacturing powerhouse that is divided into three regions for the FM Global index, is in the top 30 for timeliness. Hong Kong, listed separately, is in the top 20.

Extra Attention to ESG and Climate

For the first time, the index seeks to illuminate areas conducive to corporate efforts around environmental, social and governance issues, also known as ESG, according to Tofte.

“The ESG filter enables users to focus exclusively on ESG-related measures within the resilience index to better understand inherent country risks and identify opportunities through this lens,” Tofte said.

The filter is accessible through an interactive map created as part of the FM Global index. It incorporates some existing measures of resilience and adds new ones: a country’s vulnerability to climate change, known as climate risk exposure, and also how well its infrastructure is prepared to meet the risk, a driver called climate risk quality.

The existing measures include control of corruption, corporate governance and productivity.

Users also can filter countries specifically for climate-related issues. “In some cases. it’s OK to have a high exposure as long as you go in eyes wide open,” Tofte said.

The United Kingdom, for example, ranks 111th for exposure to climate risk. But the island nation is 17th in terms of climate risk quality. The Republic of Korea, meanwhile, jumped 36 places to 53rd on climate risk quality after publishing a national flood map, which improved awareness of the risks, Tofte said. The country ranks 110th in terms of climate risk exposure.

Countries with the highest climate risk quality include Croatia, Finland and Ireland. At the bottom are the Dominican Republic, Guinea and Honduras.

The U.S. interior is in the top 10. The East and West coasts fared worse but still landed in the top 25. All three U.S. regions are in the middle of the pack when it comes to exposure to climate risk.

Pandemic Questions

The 2022 index also addresses questions raised by policyholders about COVID-19, Tofte said. The researchers wanted to know if the index could help them understand how well a country might recover from a pandemic.

In response, FM Global added a measure based on health care expenditures, Tofte said.

“There is a correlation between how much a country spends on health care per capita and average life expectancy.”

The three U.S. regions ranked at the top for spending, though the country has faced criticism for what it gets in return. Behind the U.S. are nations of Western Europe. African countries Chad, Madagascar and Ethiopia are at the bottom. &

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected].

Making the Connection: Are You Prepared for Rising Property and Equipment Breakdown Costs?

Property’s biggest risk factors can directly impact the price of equipment repairs. Risk management and loss prevention start when insureds make the connection with valuations and work with the right partner to mitigate their potential impact.

By: AXA XL | October 1, 2024

The commercial property insurance market has had its ups and downs in recent years. The good news is that property rates seem to have stabilized in the second quarter of 2024, though businesses are still seeing single-digit increases. It’s a reminder for businesses to keep an eye on their property exposures, especially when it comes to the large equipment they use to keep their operations running.

Equipment breakdown can lead to property damage, business interruption, and additional expenses for repair or replacement. This can increase the overall cost of property risks, as organizations need to account for the potential consequences of equipment breakdown when assessing their property risk management strategies.

Today’s business equipment is more high-tech and specialized than ever before, making unforeseen breakdowns, malfunctions or damages a substantial risk, should they occur. Even the most well-maintained piece of equipment can experience mishaps and cause significant financial loss.

“The changing nature of property risks, especially with high-tech equipment in distribution centers and electronic sorting equipment, is a significant factor contributing to an increase in insured property losses,” said Michele Sansone, CUO property, Americas, AXA XL.

“The equipment breakdown aspect is critical. If specialized machinery is the only source and there is no backup, it creates significant exposures for the business,” added Cheryl Geidel, vice president, equipment breakdown, AXA XL.

The value of complex equipment continues to climb alongside the cost of fixing it, as more expensive replacement parts and specialized diagnostic technicians contribute to an uptick in pricing. Coupled with the recent strain on property insurance, this is one risk businesses can’t afford to overlook.

For those operating large machinery and other equipment that requires regular maintenance, it is imperative to get ahead of potential breakdown and disruption, and to make sure they have the right risk mitigation tools in place.

Two Key Factors Impacting Property Rates

Michele Sansone, CUO Property, Americas, AXA XL

The first piece of the equipment protection puzzle is the need to understand exactly what is affecting property rates and, consequently, pricing.

Verisk’s 2024 Global Modeled Catastrophe Losses reported that the average annual loss from global natural catastrophes has reached a new high of $151 billion. In the past five years, the actual annual insured losses from natural catastrophes averaged $106 billion, compared with less than $83 billion in the preceding five-year period.

“The pricing in the catastrophe insurance market is highly dependent on the specific peril being insured. With the increased frequency and severity of catastrophic events, insurers are seeing a significant uptick in activity in this segment,” said Sansone.

“As a result, pricing is being adjusted to account for the heightened risk exposure. The specific rates will vary based on the particular catastrophe being covered, such as hurricanes, wildfires or floods.”

That can place rates at the mercy of Mother Nature — a challenge that’s led some insureds to take on their own risk.

“To control pricing, customers are increasingly retaining more risk through captives or larger deductibles, removing exposure from the market,” Sansone explained.

Supply chain disruption is another big factor: “Supply chain issues and long lead times for components and equipment have created challenges, often extending business interruption periods to 15 to 18 months while waiting for critical parts to arrive,” Geidel said.

Supply chain delays aren’t the only things causing strife; the rising cost of materials and labor do as well. These factors continue to impact property insurance, driving up the frequency and cost of claims and drawing attention to contingent business interruption risks.

“Insureds often don’t fully understand the origin of their equipment, products or stock. We view this lack of information as a significant risk — one that must be addressed,” Sansone said.

Accurate Valuations Are Everything

Cheryl Geidel, Vice President, Equipment Breakdown, AXA XL

Another element businesses have to understand is that accurate valuation of property goes a long way in managing the cost of equipment breakdown. Even with rates showing a slow decline, it’s essential to have accurate values for property, including equipment value.

“Regardless of whether the rate is two cents or ten cents, the starting point — the values — must be accurate. There seems to be a misplaced sense of relief in the industry that as pricing declines, the valuation issue will resolve itself. However, the fundamental importance of getting the values right remains unchanged,” Sansone explained.

If a business and its equipment are underinsured due to an incorrect valuation, the insurance payout may not cover the full cost of repair or replacement.

Further, because of today’s higher rebuilding, repair and replacement costs, businesses must be particularly wary about their policy limits. A loss could end up costing significantly more than anticipated, causing insureds to quickly erode any sublimits in place.

“It’s a challenging discussion, especially as the market softens and the focus on values diminishes,” said Sansone.

However, this is one area where all insureds can get ahead. Partnering with insurance professionals will ensure the right questions are being asked and accurate values are being reported. Risk managers, brokers, the account executive and producer all have a role to play in helping the insured to understand their exposures.

Valuating individual equipment can be tricky, noted Geidel, especially as more technology is incorporated into the machinery being used.

Breakdowns or failures often involve individual pieces of equipment rather than an entire building. Insurance partners that ask questions, review and compare values year-over-year on equipment types and rely on risk engineering reports to better understand the equipment being used are a boon to the underwriting process.

“Values are the basis of everything an underwriter does, so focusing on values should be the starting point of the process,” Geidel said.

An Emphasis on Protecting Property and Equipment

Technology is enabling property owners to place a larger emphasis on protection. The unpredictability of hurricanes, earthquakes, wildfires and other Nat CATs can’t be controlled, but technology offers some control over their impact.

Advanced weather modeling, wildfire modeling, drone inspections and other innovations help to predict and assess damages more quickly and accurately than ever before.

Sansone also said that data-sharing can build resiliency into the market, putting clients in an even better position should an incident arise.

“There’s an unfortunate perception that data is proprietary and sharing it could undermine one’s competitive advantage. However,” she said, “this reluctance to share data can hinder the industry as a whole.”

Collaboration and data-sharing among carriers could open the door for better risk assessment and improved underwriting practices, in addition to resiliency.

“Transparency is a game changer in risk management. Sharing data can greatly improve how organizations handle and reduce risks,” said Sansone.

Property Risk Engineering at Its Finest

Effective risk management makes clients better, which ultimately improves their overall risk profile. At AXA XL, the team takes this philosophy and brings it into everything it does. It’s not about a transaction; it’s about maintaining relationships with customers in order to best protect them.

“When we commit to a piece of business, we aim to maintain that relationship. Our focus is on risk improvement rather than just transactions so that we may build lasting partnerships with our clients,” Sansone said.

AXA XL has done this by building a team of more than 400 risk engineers who work closely with underwriting in order to provide the most accurate and detailed insights about each client’s needs.

“Our underwriters rely on the data and insights that our property risk engineers collect on site to price the risk we assume. But we also share the data they collect with our clients to help them in their loss control efforts as well as our own,” Geidel said.

“Our approach to underwriting and risk evaluation streamlines the claims process in several ways. By engaging in bespoke underwriting and thoroughly assessing each risk, we gain a deep understanding of the potential claims scenarios from the outset,” Sansone added.

This comprehensive risk evaluation allows AXA XL to anticipate and prepare for potential claims more effectively. As a result, when a claim does occur, the team is well-equipped to handle it efficiently, because its process has established a clear understanding of the underlying risk factors and policy details.

To learn more, visit: https://axaxl.com/insurance/products/machinery-breakdown-insurance.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AXA XL. The editorial staff of Risk & Insurance had no role in its preparation.

AXA XL, the property & casualty and specialty risk division of AXA, provides insurance and risk management products and services for mid-sized companies through to large multinationals, and reinsurance solutions to insurance companies globally. We partner with those who move the world forward. To learn more, visit www.axaxl.com.