With insurers operating today in a volatile economic climate, shareholders and underwriters are placing greater emphasis on the safety and loss prevention factors associated with risk engineering: the practice of anticipating, identifying, managing, and minimizing risk exposures. Risk engineering certainly has its merits. Such an approach not only protects people (from accidents and injuries), property (from fires, weather-related incidents, etc.) and organizations (from business interruptions, equipment breakdowns and financial losses), but can also potentially optimize policyholders’ access to insurance markets and the coverage they need. Here, we’ll explore three essential facets of risk engineering that can help organizations prevent losses and better anticipate growing risks.
Pre-loss mitigation strategies
As part of a broader approach to enterprise risk management, many businesses are adopting more proactive ways to manage exposures in order to minimize the extent of losses or prevent them altogether. On a basic level, it’s important for every organization to understand and accurately document their assets, including buildings, equipment and inventory. From there, they can conduct a formal risk assessment — a comprehensive evaluation to identify potential hazards, as well as the likelihood of those hazards adversely affecting the business and to what extent.
Building on the risk assessment findings, organizations can then develop strategies to minimize or eliminate their risks through hazard mitigation. These may include the implementation of various engineering controls, safety protocols, contingency plans and asset protection measures to safeguard property and inventory from accidents, natural disasters and malicious acts. Ensuring compliance with industry standards and government regulations is also a critical part of mitigating legal and financial risks.
A foundational piece of strategic risk mitigation that is often overlooked is stakeholder communication. It benefits everyone to forge strong relationships and establish a regular exchange of information between property owners, business operators, insurers (including captives), underwriters, regulatory agencies and other key partners. This open approach helps all parties be more proactive in preventing losses and managing risks.
Data-driven evaluation
Like any strategic initiative, an organizational focus on risk engineering must continue to evolve and improve. Businesses should regularly review and update their risk management strategies based on emerging threats, technological advancements and lessons learned from incidents, near-misses and the effectiveness of previous risk engineering efforts. While anecdotal evidence and qualitative observations can certainly be helpful, many insurers and their customers are looking for quantifications of risk. Field surveys, reviews and other assessment tools can be used to produce this information, which can help organizations tie together their pre- and post-loss efforts.
Technology is proving to be a key enabler in supporting the data-driven evaluation of risk engineering. Modern data science allows risk managers, insurance professionals and other stakeholders to connect the dots when it comes to their risk narrative. For example, Sedgwick’s leading-edge analytics tools, such as dashboards and artificial intelligence (AI), help clients leverage their aggregate claims data and erosion monitoring to better understand the impact of pre-loss measures on their claim exposures and program management. With this information, they are well equipped to drive more strategic prevention efforts — and the cycle of improvement continues.
Further, technology continues to broaden the claim professional’s toolbox. The addition of thermal cameras, drones and other gadgets means more loss data can be collected and businesses can glean even more risk insight.
To illustrate the power of data-driven evaluation in risk engineering, consider the scenario of a high-rise building:
- Comprehensive monitoring: Let’s assume the building is equipped with an array of Internet of Things (IoT) sensors that continuously monitor structural integrity, concrete strength and potential corrosion. These sensors feed data into a centralized system, providing real-time insights into the building’s health.
- Predictive analytics: Advanced algorithms analyze the sensor data, along with historical information and environmental factors. This helps identify subtle patterns that may indicate developing structural issues long before they become visible problems.
- Integrated systems: The structural health monitoring system is integrated with other building management systems, such as those controlling water usage and electrical systems — allowing for a holistic view of the building’s condition and performance.
- Risk scoring: Based on the data collected, the system generates dynamic risk scores for various building components. Scoring helps prioritize maintenance activities and alert managers to potential issues requiring immediate attention.
- Stakeholder communication: Interactive dashboards provide building managers, engineers and tenants with visualizations of structural health. Automated alerts are triggered when predefined risk thresholds are exceeded.
In practice, this data-driven approach could prevent catastrophic failures by detecting early warning signs. The system might identify a gradual increase in structural movement or a consistent pattern of concrete degradation that, while not immediately dangerous, could indicate a developing problem. By catching these issues early, building managers can implement targeted interventions, potentially averting disaster and saving lives. As this example demonstrates, advanced monitoring technologies, data analytics and integrated systems can significantly enhance risk engineering strategies in building management and help organizations practice more proactive risk management.
Strategic partnerships
Businesses today — including insurance companies — are mired in a tangled web of economic and geopolitical dynamics. These complex circumstances demand multifaceted solutions. It’s become a given for organizations to work with various outsourced partners and specialist vendors to effectively overcome challenges, manage exposures, and control the cost of risk. As businesses are eager to improve their claim records and lower their insurance premiums, it’s no longer sufficient for these relationships to be transactional in nature; they want strategic advisors who deeply understand, and even anticipate, their risk management needs. Collaborative strategic partnerships bring together insurance carriers, brokers, service providers and corporates around common goals: reducing risk via loss prevention at the front end, best-in-class claims management and reducing indemnity in the middle, and at the back end using data to drive insights and loss prevention efforts.
With a strong network of partners, organizations can be better prepared for the unexpected and have greater flexibility in addressing ever-changing requirements. Because risk appetites tend to wax and wane over time, established partners can augment internal resources with additional insights, know-how, technologies and human resources as needs arise. (For more, see our previous blog on the value of strategic partnerships in insurance.)
To explore how our experts at Sedgwick and EFI Global can help your organization pursue its risk engineering goals, please don’t hesitate to contact us at [email protected] and [email protected], respectively. We’d be honored to serve as one of your strategic partners in navigating today’s challenging landscape.
Tags: building, damage, equipment, manufacturing, property, property loss, risk, risk management, technology