Written by The most challenging thing about risk mapping is risk assessment. For example, how to determine the maximum loss from a crop shortfall? Risk mapping is a good starting point for implementing a holistic approach to risk management for any company and a suitable guiding star for optimizing insurance costs for maximum efficiency.
In the ocean of uncertainty
Risk managers often ask themselves what to insure first. Between cost and potential benefit, what should we choose? Depending on the combination of frequency and severity, the enterprise decides:
Food & Agriculture customers use the methodology developed by us to map 100 insurance risks, divided into 12 categories:
A Risk Map is a graphical depiction of a select number of a company’s risks designed to illustrate the impact or risk’s significance on one axis and the likelihood or frequency on the other. Risk mapping assists in identifying, prioritizing, and quantifying risks to an organization. This representation often takes the form of a two-dimensional grid with frequency (or likelihood of occurrence) on one axis and severity (or degree of financial impact) on the other axis; the risks that fall in the high-frequency/high-severity quadrant get priority risk management attention.
For each category, we analyze risks as follows:
The most challenging thing about risk mapping is risk assessment. For example, how to determine the maximum loss from a crop shortfall? Do we need to account for one growing season with poor productivity, or do we account for a 3-5 year cycle during which we need to estimate the total yield loss? How do we account for the inverse correlation between crop yields and agricultural commodities prices, which is high for crops in some regions? What about a negative global warming trend, on the one hand, but improving agricultural technology and productivity, on the other? Estimating the frequency and severity of losses is also challenging for cyber risks. How can we assess the loss in the event of business interruption for non-property damage? Sometimes it takes time for a company and its consultants to develop the correct methodology and gather enough information.
Risk mapping is a good starting point for implementing a holistic approach to risk management for any company and a suitable guiding star for optimizing insurance costs for maximum efficiency.
This article is a part of our Foodprint publication focusing on issues and risks facing the Food & Agriculture industry. Read the publication and learn more about insurance solutions and the growing importance of risk management and alternative solutions like parametric insurance.
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Johannes Vogl
General Manager GrECo Risk Engineering
T +43 664 883 805 04