Insurance Against Terrorism & Political Violence

Insurance Against Terrorism & Political Violence

9/11, the Madrid train bombings, the attack at the Manchester Arena or the London Tube bombings: Modern-day terrorism has many faces and continues to evolve. Despite that, it was only after Russia invaded Ukraine that the demand for insurance against political risks and violence significantly increased.

Terrorist attacks, strikes, violent protests against social evils and other political unrests can cost lives and directly or indirectly impact businesses as well. While insurance policies cannot prevent human suffering, they can help companies offset material damages, facilitate reconstruction, and get back to business as usual. An insurance policy reduces financial losses incurred due to business interruptions, it minimizes rental losses or even a loss of reputation. 
 
However, the insurance possibilities against terrorism and political violence have not yet reached companies in Europe. These insurances are still regarded as providing niche coverage only, even though banks and investors increasingly ask for this coverage. Despite major international events, such as 9/11 or the terrorist attacks in large European cities, neither the demand nor prices have increased on international markets for protection against political risks. 
 
This changed gradually only a few days after Russian troops invaded Ukraine. The demand for Political Risk & Violence Coverage has increased. Companies now want to be on the safe side and are thus willing to accept higher costs for insurance premiums. At the same time, the war has caused the coverage market to shrink. The good news is: It has remained largely intact. 
 

Possible Risk Exposure

Critical infrastructure such as energy and communication are typical high-risk targets for terrorist attacks. Similarly, industrial plants, commercial properties, tourism or health facilities have also been targeted. With globally connected national economies, their supply and value chains as well as background infrastructure, the scope of possible damage has changed over the past decades. Unlike earlier on, the potential for major financial losses without material damage to companies has spiked. A “Non-Physical Damage Business Interruption“ (NPDBI) protects against financial losses due to terrorist attacks that happen in the vicinity of the company, yet cause no material damage at the company’s location.

Additionally, there is a risk of being held accountable and obligated to pay compensation for damages if safety and security measures are found inadequate for protecting the lives and property of others, such as employees. Special terrorism liability insurances safeguard companies against such potential liabilities.

Risk Transfer

Terrorism insurances are so-called “named perils”, providing coverage against known and named dangers. This also means that the insurance only provides coverage for the contractually agreed dangers or events that protect documented financial assets and gross profits. A risk analysis is thus a prerequisite to determine the coverage that best meets the company’s potential risks. Possible threat scenarios, their impact and potential for damage must be closely looked at.

The aim is to adequately safeguard the client against any impact in the event of damages. Our GrECo risk specialists develop tailored insurance solutions for their clients. In doing so, their task in providing such special concepts for coverage is to also define the limits of other, more conventional (all risk) material damage and business interruption insurances and avoid overlaps or insurable coverage gaps.

The Devil’s in the Details

It is impossible to insure clients against all potential risks or events. A world war is the major exclusion of insurance coverage, meaning that if war breaks out between at least two of the five global powers – USA, Russia, China, UK and France – insurance coverage shall not apply. Cyber terrorism is also excluded from this coverage.
The construction sector and construction project managers pay attention! Normally, construction policies do not protect against terrorism and political violence. Insurers do provide coverage against strikes, riots and civil commotion (SRCC clause) with sub-limits. This type of coverage is usually subject to a special right of termination on part of the insurer, a right that may be exercised at any time.

Zviadi Vardosanidze

Group Practice Leader Energy, Power and Mining

T +43 664 962 39 04

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Diving into Supply Chain Insurability

Workers working on supply chain insurability

Insurability in relation to supply chains is currently only possible in rudimentary form, as the insurance industry is also not yet in a position to map complex supply chains transparently. Individual market participants such as Swiss Re are currently working on digital solutions.

GrECo Risk Engineering implements and controls the Business Continuity Management (BCM) of numerous clients. The question of whether BCM can also identify and manage risk potentials within the supply chain arises more and more frequently.

BCM prepares companies to regain their ability to deliver as quickly as possible after a business interruption or shutdown. Acting instead of reacting is the motto here.

Identifying loss events within a company, assessing them and finding effective preventive measures requires a lot of experience and methodical knowledge. But it also ties up considerable internal company resources in order to be best prepared for the worst-case scenario. Risks that affect a company externally, such as the dependence on suppliers or entire supply chains, make the issue far more difficult.

Most manufacturing companies operate extensive systems for supplier selection and evaluation. The focus is often on delivery reliability, quality, price and economic parameters. However, the consideration of suppliers in terms of their exposure to operational risks such as fire or natural hazards is often neglected. In the case of direct suppliers, this is still possible with a corresponding expenditure of resources and can be argued to the supplier as necessary.

Where transparency ends – Supply Chain Insurability

However, when it comes to the supplier suppliers, the limits of what is organisationally, legally and economically feasible are quickly reached. “Deep-diving” into supplier structures thus belongs to an exotic discipline that hardly anyone can afford at present. How can a company now prepare for supply chain disruptions or better protect itself against them?
 
Insurability in relation to supply chains is currently only possible in rudimentary form, as the insurance industry is also not yet in a position to map complex supply chains transparently. Individual market participants such as Swiss Re are currently working on digital solutions to identify locations via extensive databases, which can lead to supply bottlenecks across industries in the automotive sector, for example. In most cases, however, any cumulative losses cannot be sufficiently estimated, and a risk transfer is often not possible. It is therefore essential to actively address this risk within the company.

  • Step one: The first step is to identify the most important suppliers and estimate possible loss potentials. This assessment is necessary in order to be able to set priorities objectively and to compare the necessary effort with the benefit.
  • Step two: The second step for risk managers is to dive into the deeper structures of the supply chain for the top three to five suppliers in order to shed light on the suppliers on which these suppliers are dependent, which, if the worst comes to the worst, will also affect their own company. However, evaluating risk exposure could be difficult. After all, there is no direct business relationship with the suppliers of the suppliers and thus no basis for carrying out a risk analysis directly on site.

One approach that is recommended in this case is to raise awareness among one’s own key suppliers so that they collect appropriate risk information from their suppliers or commission experts to identify possible potential exposures. If neither of these is possible, knowledge of one’s own “white spots” in the supply chain is still a parameter that should flow into the selection of suppliers and lead to the examination of alternatives. This is also part of a practised and practicable business continuity management.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 664 883 805 04

Risk assessment: light at the end of the tunnel

The loss potential for supply chain disruption is large and runs into the billions. A new, promising risk assessment approach can lead to the loss reduction we have been longing for.

Recent events have shown the vulnerability of optimized, high-throughput global supply chains. Very localised events such as the EVER GIVEN accident in the Suez Canal described earlier in this issue have direct – and supposedly unpredictable – effects on the global flow of goods: namely, empty shelves for consumers.

What to do? Are there solutions? Can a traditional risk analysis still cope with the high complexity? And can such a loss event be quantified based on data, such as the duration of the shipping blockade or the share of the global market flow of goods at the Suez Canal per day?

Risk Engineering at Swiss Re Corporate Solutions deals with these and similar questions, pursuing the development of holistic solution concepts. The motto is “create value beyond risk transfer”. One example of this is the Swiss Re FLOAT flood assessment tool.

Visualising the risk assessment

Events such as Hurricane Harvey in 2017, where a large proportion of flooded sites were outside official flood zones, highlight a gap between current flood zones and actual loss experience. Here, Swiss Re FLOAT offers a cost-effective way to assess flood risk with drones and collect site-specific elevation data. The collected data set is transformed using 3-D game engines – known from video game development. By linking the drone and game technologies, a simple but realistic visualisation of flood risk can be created. The companies receive an interactive application that allows them to comprehensively spatially assess the impact of different flood levels on their site.    

Initial successes have already been achieved with this. In one case, the risk manager of a client was able to dispose of a six-figure budget for flood protection measures at short notice after showing the simulation to the CFO. This contributed significantly to the preparation of a detailed flood protection plan. According to our natural hazard models, this reduced the statistically expected annual loss at the site by over 60%.

But the added value for our client goes even further: the site is the only one in the group that produces essential components for the company’s cash cow product. Since the “residual risk” of flooding was assessed as a threat to the company, the group management decided to build up further production capacities at other locations with a lower probability of flooding.
 
This was an example from the natural catastrophe sector, where we work very closely with natural hazard modellers as well as underwriters. In the risk analysis, we create an overall view and focus on the most exposed locations for floods, windstorms and earthquakes. If necessary, we extend our consideration beyond the reported site business interruption values – including internal supply relationships (interdependencies).   

Data, data, data

Data plays a major role in our business model. We have for example developed our text-mining algorithm (PARSE – Property Account Risk Screening Engine), which we use to transfer the data into a database. Unfortunately, the data is often unstructured and partly only provided as text files. We also use this to give underwriting an initial overview of the risk assessment right from the start and to determine focal points together with the risk engineers. This is a promising approach that is currently still in its infancy. The data is often unstructured and partly provided as text files.

Our global industry expert group Automotive for example successfully implemented a pilot project last year. We digitised supplier lists and were able to determine the critical nodes and locations where supply bottlenecks are to be feared if they fail, for example after a fire or an explosion.

Focus on serial approaches

Some of these approaches are not yet ready for series use. Data protection and data ownership must first be clarified. We expect to be able to carry out several “deep dives” and pilot projects with customers, their suppliers and possibly other stakeholders over the next few years. We still have a long way to go before this conceptual approach can be transformed into a scalable, partially automated process. After all, there is still no generally recognised data standard for tangible locations (physical location assets).

In addition to isolated approaches, the use of address lists is popular. It is still common practice to digitally sketch supply chains (supply chain mapping) based on address lists (sometimes several thousand suppliers with postal addresses). We are currently investigating whether and how the resulting geo-coded lists (longitude and latitude) can create added value for all parties involved. Swiss Re Corporate Solutions Risk Engineering has filed a patent for this at the end of 2021.

Conclusion: The loss potential for supply chain disruptions is large. We assume that in the automotive industry alone, the insurance gap amounts to 1 billion EUR or more. Our goal is to establish the relevant data points with the right partners in concept development (co-creation). Once all parties involved feel clear added value, we are confident that the light at the end of the tunnel will soon shine brightly.


This article is a part of our latest Spotlight publication focusing on supply chain issues. Read the publication and learn more about how you can protect your business from changes and unpredictable supply chain disruptions.

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Philip-Brandl Swiss Re

Philip Brandl

Head Risk Engineering Services EMEA

T +49 69 767 255 170 

Risk Management Fit for Global Risks

GrECo was invited to take part in a tender for the insurance and risk management of ENGEL, a global leader in the manufacture of plastics processing machines.

GrECo Austria was invited to take part in a tender for the insurance and risk management of ENGEL in 2019. ENGEL is one of the global leaders in the manufacture of plastics processing machines.

ENGEL is one of the global leaders in the manufacture of plastics processing machines. The Group offers a full range of technology modules for plastics processing as a single source supplier: injection moulding machines for thermoplastics and elastomers, complete with the required automation. Their individual components are equally competitive and successful in the market. The family company was founded in 1945. Today, ENGEL operates with about 7,000 employees at 9 production plants in Europe, North America and Asia (China and Korea) has subsidiaries and representatives in more than 85 countries

Insurance based on risk management

GrECo Austria was invited to take part in a tender for the insurance and risk management of ENGEL in 2019. The tender aimed at changing the focus of ENGEL ́s insurance management to a dedicated risk-based approach for the Group’s worldwide companies. The decision to mandate GrECo was based on their integration of operational risk management and risk engineering into our insurance programmes. In addition, they are an owner managed company, like we are. They understand our values of a family business rooted in the region and the visions of a global company”, recalls Christian Zoidl, Head of Legal/Insurance at ENGEL Group.

The cornerstone of the new strategy was the provision of services along the entire risk management process of operational risks. GrECo‘s own subsidiary, GrECo Risk Engineering GmbH, comprises specialists who are familiar with the development and implementation of company-wide risk management systems. The specialist team looks back on many years of industry experience and has used efficient tools to support ENGEL ́s operational risk management activities.

GrECo is an owner-managed company, like we are. They understand our values of a family business rooted in the region and the visions of a global company.

Michael Grininger
VP HR/Legal/Insurance at ENGEL Group

New setup of worldwide property & liability programmes

In order to optimise the property insurance cover and minimise the operational risk, all sites around the globe are and were subject to a risk assessment. During the pandemic, remote and hybrid risk surveys were the order of the day. After the first recommendations were implemented and the risk made “fit” for further treatment, GrECo experts were able to arrange the transfer of the remaining risk to a suitable insurer. “In a change management process, the quality of the risk manager becomes all the more visible. GrECo has displayed its determination and professionalism, has achieved the best results in the insurance market and has shown us the way forward with comprehensive risk management measures,” comments Michael Grininger, VP HR/Legal/Insurance at ENGEL Group.

As far as liability insurance is concerned, a dedicated programme solution for ENGELS ́s state-of-the-art
industry 4.0 solutions was created. The integration of peripheral equipment with customised automation concepts and the development towards a network-based, self-optimising injection moulding production demanded a new worldwide setup. The new programme takes into account ENGEL ́s digitisation efforts by including IT insurance into the worldwide liability programme.

Christian Zoidl sums up: “We made the right choice in partnering with GrECo. They are also a 3rd-generation family business that has successfully ventured out internationally, GrECo is a stable, reliable, and global partner for us.”


This article is part of our new Annual report 2021. The annual report gives you a review on GrECo`s facts & figures of the last business year and our most important developments. In addition you can find testimonials on the services the GrECo Group provides to its clients. The case studies are from different industries and GrECo regions.

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A risk management look beyond the horizon

Events can lead to business interruptions and production shutdowns without causing any property damage. This is a difficult risk management starting point, especially for insurance companies. 

Natural disasters, power outages or a pandemic – all these events can lead to business interruptions and production shutdowns without causing any property damage. This is a difficult risk management starting point, especially for insurance companies. 

A major fire. Parts of the buildings and production facilities are damaged or even destroyed. There is a business interruption. Sales cannot be generated, revenues cannot be earned, and the ongoing costs cannot be financed. Damage of this kind can quickly run into the two to three-digit millions. Traditional property and business interruption insurance offers suitable cover in such cases. It provides compensation for the property damage as well as for the ongoing costs and loss of earnings.
 
However, established insurance concepts are unsuitable if a production stoppage or business interruption occurs without prior property damage, for example, due to the ash cloud over Europe in March 2010 or due to a widespread power outage, i.e. a blackout.
 
Currently, the best-known event that has led to shutdowns and outages in many industries is Covid-19. This event is derived from a single cause and occurred almost simultaneously worldwide. From an actuarial point of view, a risk transfer via insurance solutions is currently not possible without government involvement.

Alternative coverage concepts

For other failure scenarios, so-called non-damage business interruption policies, or NDBI for short, offer insurance coverage. Examples include natural events such as extreme cold, which causes river routes to freeze over, or regional flooding, which impedes access to and departure from operating sites and thus interrupts necessary raw material deliveries.

Limits to risk transfer and risk management

Many companies want to insure themselves against all the uncertainties that can occur in their value or supply chain, including market risk and price fluctuations. However, this is where the insurance industry reaches its limits. As in traditional insurance, innovative risk transfer solutions such as NDBI must meet criteria such as randomness, uniqueness, estimability and independence.

Here is a brief insight into the small 1 x 1 of insurability:

 Randomness means that the risk is uncertain and uncontrollable when the contract is concluded. To eliminate moral hazards, uncertainty must be present in both contracting parties. Besides moral hazard, information asymmetry is one of the biggest challenges for the insurance market. Often, the insurer does not have the same level of knowledge about the circumstances that may lead to a loss and may impose limitations on the scope of coverage. Customised solutions based on weather events as triggers, offer the advantage of objective risk assessment here, as the data is often provided by an independent third-party provider, such as NASA, satellites or weather stations.
 
Uniqueness requires that all essential characteristics of the event as well as the obligation to perform must be definable. Any residual risks must be borne by the policyholder. For example, the values from a weather station may have to be extrapolated to cover a larger area or region. In this case, the damage presented may deviate from reality.
 
Estimability is the ability to determine the expected value and spread of the loss distribution to be insured (loss amount and probability of occurrence). Estimability is not sufficiently ensured if there is not enough meaningful data to be able to create an appropriate risk model. Otherwise, subjective risk assessments – but with an increased risk of error – can also be considered.
 
Independence ensures that the risk can be diversified for the insurer. This means that many risks that do not materialise in the same event must be insured in the risk community of the insured. The aim is to avoid accumulation risk, i.e. the probability of a simultaneous or staged occurrence of loss for many insured risks. In a global value chain where just-in-time delivery is required, a strong correlation of various events can be assumed. A disruption at a manufacturer of certain components in Asia can cause massive damage and interruptions in Europe and vice versa.
 
These basic principles essentially define the limits in risk transfer. The criteria for insurability do not necessarily have to be met in full; a level at which risk equalisation is sufficiently ensured is adequate.

4 Findings for the Insurance and Risk Management Industry

The key findings of various studies on the development of global insurance markets by Deloitte, Ernst & Young, A.M. Best Rating Agency and Swiss Re show that:
 
1. The pandemic has highlighted the relevance of the insurance industry as a financial relief for households, companies and governments in times of crisis.
2. Supply chain disruptions require better protection to make businesses and society more resilient.
3. Insurers must adapt to widespread change, become more agile, and develop new solutions and even more specific services.
4. Digitalisation accelerated by the pandemic will enable improved risk assessment through Big Data & Co as well as more transparent pricing in the future. Optimised processes will lead to efficiency gains and favour the development of new, more attractive products based on AI and Big Data.
 
Risk managers are also challenged to evaluate alternative solutions for risk transfer (e.g. in the form of an NDBI) to make decisions for targeted deployment. There are no standardised products or parameters for such solutions. Each contract is tailor-made and individual. Here, too, integrative networking of risk and insurance management is a recipe for success in supporting the company’s success in the long term.


This article is a part of our latest Spotlight publication focusing on supply chain issues. Read the publication and learn more about how you can protect your business from changes and unpredictable supply chain disruptions.

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Rudolf Schiel

Practice Leader Property & Engineering

T +43 664 822 27 58

Zviadi Vardosanidze

Group Practice Leader Energy, Power and Mining

T +43 664 962 39 04

How to Manage a Transforming Risk Landscape

How to manage a transforming risk landscape

This article focuses on the multiple and diverse challenges to the risk management of intangible assets given their structural differences compared to tangible assets.

Over the past decades, the value of intangible relative to tangible cor­porate assets has steadily increased. According to the Ocean Tomo Intan­gible Asset Market Study (2020), the relative aggregate value of intangible assets of corporations listed in the S&P 500 has continuously risen from 17% in 1975 to 90% in 2020. Man­ aging the risk exposure of intangible assets is therefore critical for shield­ing corporate value from threats.

This article focuses on the multiple and diverse challenges to the risk management of intangible assets given their structural differences compared to tangible assets. However, it must be emphasised that risk exposures of tangible assets have neither disappeared nor become less relevant. On the contrary, they might interact with and be superimposed by new types of threats in relation to intangible assets.

Tangible vs. intangible assets

Tangible assets, by definition, are physical and thus geographically confined, relatively easy to identify and value in contrast to intangible assets. Most intangible assets are not listed on the balance sheet of corporations. Their ownership is difficult to verify. Typical examples are reputation, goodwill, brand recognition, R&D investments in joint ventures, or confidential information about customers. Intangible assets and their value are likely to be globally interdependent across corporations, industries, and with the public sector due to, for example, supply chains, social media, cyber threats, and other forms of interconnection.

Above all, tangible assets often interact with intangible assets. Environmental contamination and damages can lead to substantial reputational losses of a corporation that, in turn, might critically reduce sales and profits. The loss or theft of confidential data can cause similar reciprocal effects that are at times hard to identify separately.
The rapid shift in public perception and judgement of corporate social and environmental responsibility exerts reputational and regulatory pressure on corporations to invest in, sometimes, premature technologies and products that involve risks that are difficult to anticipate. Social media plays a crucial role in amplifying those effects by its potential to spread news and information globally within a very short period of time.

Emerging risks threaten the value of both tangible and intangible assets. Their amplifying effect on risk exposures of intangible assets, however, is likely to be much larger due to their global interdependence. Emerging risks are difficult, if not impossible, to anticipate, to identify, and to value. The risk profiles of emerging risks change dynamically. There is little, if any, historical experience and data, and causal effects are hard to identify.

Emerging risks typically impact globally and affect many industries. The inter- action with emerging risks thereby increases the difficulty of identifying and valuing intangible assets.

Intangible assets in risk management

The challenges in identifying and valuing intangible assets directly translate into difficulties in the subsequent step of the risk management process: managing the risk exposure of corporations through risk avoidance, risk mitigation, and/ or risk transfer.

The functioning of risk transfer mechanisms through corporate insurance and derivatives contracts crucially depends on the feasibility of writing contracts that are enforceable by courts. As intangible assets are difficult to identify and to value, and their ownership is hard to verify, writing such contracts for the transferring of risk exposures is challenging, if not impossible. Ambiguity about the contract’s enforceability ex post impedes risk transfer and its value-added ex ante.

Global interdependence between intangible assets and thereby between their risk exposures constitute further challenges. These interdependencies can lead to strongly correlated and globally clustered risks. Consider, for example, cyber and pandemic risks. The capital costs to insure those clustered risks through private insurance markets at a reason- able solvency level might just be too high. Moreover, interdependencies are often the result of contagion effects between the risk exposures of multiple companies across industries, sometimes between the private and public sector. Contagion effects are inherent in supply chains, reputational risks, and cyber threats.

The challenges to the identification and verification of ownership of intangible assets in combination with external, contagion effects of their risk exposure pose difficulties for and reduce the willingness of corporations to commit to risk management strategies aimed at avoiding and/or mitigating their individual risk exposures. This commitment problem can lead to an inefficiently low level of investment in risk avoidance and/or mitigation.

The role of insurance brokers

What are possible responses and solutions to meet those challenges to managing risks of intangible
assets? If the capacity in the private insurance sector is too limited to insure highly clustered and interdependent risks, then the public sector with its authority to tax and possibility to issue government debt can expand the capacity and even transfer and share those risks across generations. The private insurance sector can contribute to this public and private partnership with its expertise in risk underwriting and claims handling.

Insurance brokers can play a leading role as risk experts and consult- ants in transforming emerging risks into insurable risks by developing knowledge about new threats and their underlying structure. This expertise enables the identification and valuation of risk exposures and the establishment of risk standards, which consequently facilitates risk avoidance, risk mitigation, and/or risk transfer.

However, even if insurance contracts are difficult to enforce ex post, brokers can expand insurance capacity for those risks by their power to move their book of business to a competing insurer. If this threat is credible, then insurance companies will settle reasonable claims, even if they are not legally bound to do so. In turn, insurance companies have in interest in equipping their brokers with such power as it enables them to charge the appropriate insurance premium ex ante for the voluntary but credibly enforced settlement of those claims.

Within a network of interdependent risks with contagion effects, insurance brokers can act as coordinators by demanding the commitment of associated companies to avoid risks and/or invest in risk mitigation. In addition, brokers can facilitate efficient insurance solutions based on those commitments. If the entire risk network is too complex and external effects too opaque, brokers can still focus on the closest “neighbours” of their client in the network, analyse the external effects on their client, develop and demand risk standards for their “neighbours”, and thereby increase insurability and insurance capacity.

The above serves to highlight the relevance for corporations to manage their risk exposures related to intan- gible assets, the structure of which differs in various dimensions from the one of tangible assets. These differences pose major challenges and raise many questions related to risk management. Future research is needed to develop innovative solutions for effectively shielding corporations against those threats.

Alexander Mürmann

Alexander Mürmann

Professor for Risk Management and Insurance Vienna University of Economics and Business

christian oppl

Christian Oppl

Dean GrECo Academy

T +43 5 04 04 260

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When risk managers see green …

Sustainability is increasingly becoming a (compulsory) programme and ESG criteria pose new challenges for the risk and opportunities management of companies.

At the end of September 2015, the UN member states adopted 17 Sustainable Development Goals (SDGs) to make our planet a better place to live by 2030. While the previous Millennium Development Goals (MDGs) focused primarily on reducing poverty, the new goals focus on sustainable development worldwide.

The ESG criteria of environmental, social and corporate sustainability are also the starting signal for companies to reorient themselves in risk and opportunity management. The big advantage here is that risk managers can continue to apply the proven methods for identifying, assessing, handling and monitoring risks universally.

New, green coat of paint for best practices

The new challenge is to effectively adapt the risk management cycle. Complementary to this, the increasing demand for ethics, equal treatment, justice and human dignity must be taken into account. Reconciling all of this with the ostensible goal of increasing profits is a real challenge that risk managers must face today for tomorrow.

In order to approach the task in a goal-oriented manner, we recommend that risk managers use opportunity management as a guideline. Think ahead, anticipate possible positive and negative influences on the company and thereby strengthen your view of the future!

More important than ever: forecasting and simulation models

Digitalisation has long been an important ally for risk managers. The use of IT-based forecasting models and simulations will continue to gain influence. Simply illustrated, we see this in the dramatic changes in the area of natural disasters and the protective purpose of monitoring and forecasting in this area. The focus will be on the development of preventive measures resulting from possible future risk and opportunity scenarios. Classic corrective measures derived from past experience will continue to be necessary in the background but will contribute much more to standardisation than to innovation. The increasing dynamics in the risk landscape mean that companies will have to adapt to new situations more and more quickly, leaving no time to work through past influences. Unfortunately, we observe this again and again in the area of cybercrime. The developers of protection systems very often move behind the attackers in terms of time, which means they merely react instead of acting.

An essential methodology to approach the view into the future is Business Continuity Management (BCM). This involves evaluating weak points in corporate processes in order to calculate potential damage and derive preventive plans for business continuity measures. This process is rounded off with simulations in which the emergency is trained. The goal is to know what to do when a loss occurs. Particularly in the case of risks that cannot be influenced, such as the supraregional power failure in the context of a blackout, but also in the case of natural disasters, BCM is the only chance to avert or at least reduce expected damage in the best possible way.

In addition to the ability to anticipate, an important task of risk and opportunity management will be to find and apply the right methods to balance the costs of sustainable development goals against the benefits and opportunities.

Competitive disadvantage, yes or no?

One concern of companies committed to ESG is a possible competitive disadvantage compared to those that have not committed to the SDG goals. Consistently identifying opportunities can counteract this, and ESG now sometimes acts as a key innovation driver in the development of production processes, products and services. Classical risk management methods such as the scenario technique or forecasting models also support the methodologically consistent examination and assessment of uncertainties of opportunities here.

The professionals from GrECo

The core competence of GrECo Risk Engineering already consists of flexibly applying and modifying the classic methods of risk management – to a large extent also IT-supported. This enables us to respond specifically to the needs and requirements of our clients. We are happy to take on the challenge of anticipating future risks – and, above all, to point out the opportunities that arise. In this way, strategic considerations regarding risk appetite can be made quickly and flexibly. It also makes it possible to assess the passing on of new risks to the still rather sluggish insurance market at an early stage.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 664 883 805 04

Blackout – Risk and crisis management are the key

While we are all still busy with the COVID-19 crisis, the next shutdown scenario might be just around the corner. Experts predict that a so-called blackout will occur within the next five years. This is a large-scale power failure that would result in the collapse of the entire infrastructure and thus catastrophically restrict the usual processes in our daily lives. After all, without electricity everything comes to a standstill: telecommunications, water and fuel supply, traffic control systems, heating and air conditioning, computer systems and much more are unavailable for an indefinite period of time, considerable personal restrictions as well as significant economic damage to companies due to business interruptions are to be expected.

The triggers are manifold

There can be many reasons for a blackout: Cyber-attacks and terrorist attacks, natural disasters, human error and above all insufficient network stability. The power supply is based on systems that are prone to errors due to their complexity, triggering chain reactions that then lead to supra-regional failures in the power supply. It is not possible to eliminate all these potential causes permanently, so the threat of a future blackout is currently very real, even though the probability of this happening is mathematically low.

The solutions is in risk and insurance management

Blackout scenarios should therefore also be taken into account in the emergency and business continuity plans (business continuity management). Especially municipalities and public institutions as well as companies of the critical infrastructure have a special responsibility in this regard. The preparation of the locally responsible authorities and emergency organizations for a blackout scenario varies widely throughout Austria, there are currently no uniform rules or procedures, and in many places an emergency plan, if it exists at all, has never been sampled or simulated.
All the more, the ability of the population to help itself is a central basis for all other necessary measures. Experts believe that this could take up to two weeks. There is little awareness of this among the population. It is essential to have the feeling of security, to be prepared for an emergency through open security communication and targeted risk and crisis management.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 664 883 805 04

Risk management goes hybrid & meets remote

How the new digital way of working has found its way into the world of GrECo Risk Engineering ─ ensuring the best support for GrECo clients in the future.

By now, we are used to many restrictions that this pandemic has brought. Risk and insurance management has not been spared either. Fortunately, most classic risk transfer activities are very suitable for home office and online meetings.

However, one very essential area of GrECo Risk Engineering (GREG) poses a particular challenge: the performance of risk surveys of operational site risks and the preparation of the corresponding risk reports as a basis for property and business interruption insurance. Comprehensive, detailed and up-to-date risk information is indispensable for the design of the corresponding insurance solutions, today even more than in the last decades with a comparatively soft market environment.

The pandemic has accelerated the hardening of the insurance market. In many cases, this means that without high-quality risk information, capacity cannot be purchased or can only be purchased at very high cost. Travel restrictions, the lockdown, and the understandable caution of many companies only allow very limited appointments at their own operating sites which makes it difficult to obtain high-quality risk information.

Special measures in special times

In the past year, replacement strategies emerged to provide the best possible support to national and international companies. In addition to traditional risk survey services with a pure on-site presence, GREG also focused on “hybrid” surveys, i.e. a combined approach of an online meeting followed by a personal site visit. Particularly abroad, “remote” models, i.e. purely digital visits, have already gained acceptance in the past year.

Hybrid is the trump card

The hybrid approach aims to minimize face-to-face contact and avoid large group meetings. Good preparation for the meeting is essential for success and largely outweighs any disadvantages compared with a purely face-to-face meeting. Experience shows that discussions on topics such as maintenance and repair, business continuation, and financial data are generally very well suited to virtual meetings. The on-site appointment takes place close in time to the online meeting so discussed information is still present. Care must be taken to keep the group small, as all internal areas are visited. This approach will continue to play a role in the future in order to achieve effective results very efficiently, even during the initial inspection of new locations.

Remote as an alternative or for follow-up

“Remote” risk survey services, i.e., fully virtual site analyses, are used when travel or visits are not possible due to pandemic constraints. Again, GREG starts with an online meeting and, as a first step, undertakes a detailed discussion of the available information and documentation.

What is new is that a detailed route for the virtual walk-through is planned during the meeting. GREG’s risk engineers work with the plant manager to determine critical or relevant infrastructure and other areas of interest. A responsible person at the site then walks all areas according to the plan, providing a live video stream.

The remote model is especially suitable for follow-up visits, if good site plans are available and ideally the people in charge on the site are familiar with the process of such visits. The equipment that is suitable for such video streams are, for example, cell phones using Messenger, Google glasses or GoPro cameras. Some of these devices require a WLAN connection, others work via mobile communications. It is also not impossible that certain exposed locations such as basement areas or more distant parts of the company premises cannot be covered if transmission problems occur. Using purely digital recordings such as video streams, it is incomparably more difficult to compile complete risk reports including recommendations. However, such reports are quite suitable and very helpful to provide a property insurer with up-to-date feedback on site risks as a follow-up.

What remains of the pandemic?

On-site, hybrid or remote risk survey services. The pandemic has created many forms of innovation, including in risk management. The GREG remains a toolkit of instruments that can be targeted in the future as needed or adapted to the situation.

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Markus Husa

Risk Consultant

T+43 5 0404 895

The footprint in the insurance market

An IT-controlled risk assessment & monitoring tool from GrECo ensures the transparent depiction as well as the management and monitoring of operational location risks. This is increasingly important for property and business interruption insurances.

More and more insurers are focusing on restoring measures in property and business interruption insurance. Companies are therefore increasingly realising that it is difficult to find the necessary insurance capacities for badly protected or loss-affected risks, especially in exposed industries.

It is all the more important for companies to know their own risk quality and to manage it. Which improvement potentials make sense? How can the risk quality, implemented and planned improvement potentials and their positive effects for risk carriers and other stakeholders be presented transparently and interactively? These are the decisive factors not only to ensure the continuation of the operations in the best way possible, but also for tailored insurance solutions for property and business interruption risks. It is ultimately a matter of addressing the appropriate insurance markets as part of effective balance sheet protection.

The GrECo risk assessment & monitoring tool

GrECo Risk Engineering GmbH has developed a risk assessment & monitoring tool to create risk profiles; this tool has already been used successfully for several years. The tool depicts the entire risk management cycle from identifying and assessing to the management and monitoring of operational risks.

Risks are identified based on documents, on-site inspections and interviews with GrECo risk consultants. They prepare risk maps for specific industries in advance, that shows relevant topics and defines protection requirements. The data recorded as part of the risk identification is compared with the defined requirements and evaluated. Negative discrepancies reveal potentials for improvement that are documented in a list of measures. A risk ratio is determined and the risk profile is presented based on defined categories.

The GrECo risk assessment & monitoring tool therefore offers an objective, transparent and simple depiction of the risk situation. If a company has several similar locations, it is also possible to benchmark the risk quality of these locations. The tool can also be used for risk comparisons in an industry.

Cost-benefit analysis as a basis

The knowledge of its own risk profile evaluated by experienced and independent experts is an essential requirement for defining the future risk strategy and the effective use of safety equipment based on objective evaluation criteria. A cost-benefit analysis completes the functions of the tool.

This provides the management with a basis for making decisions on prioritising measures and the investment involved. All this strengthens the company’s underwriting footprint in order to ensure sufficient capacity at risk-adequate premium costs for property and business interruption insurance, even in an increasingly difficult insurance market.

If there are any questions about the risk assessment & monitoring tool, GrECo Risk Engineering GmbH’s team will be happy to answer them.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 664 883 805 04