Sustainable Support

Companies looking to create sustainable and resilient operations may need to start with the fundamentals of risk management.

That’s advice from Zurich Insurance Group experts in a recent webinar on the role of commercial insurance in supporting a sustainable future. Sponsored by Zurich and conducted by insurance and risk management publication Commercial Risk, the session highlighted ways companies can implement their sustainability objectives while ensuring resilience is not compromised, but, is in fact, strengthened.

“Simply, the first thing you need to understand is, what are your exposures or ‘pain points’ of your organization?” said Amar Rahman, Zurich’s Global Risk Engineering Practice Leader Natural Hazards and Climate Change. “What is critical to your operation, in terms of stock, equipment, infrastructure, people, or other factors? Once you define these exposures, you consider what hazards can potentially impact these pain points. And lastly, assess the level of control for each particular hazard.”

The process, he noted, “is basic risk management. But the definition of pain points may vary for different functions or business units within the same organization.”

Controls include physical as well as organizational measures, Mr. Rahman pointed out. “In many cases, the effectiveness and reliability of the former rely on the latter measures. For example, whether we consider sprinklers, mobile flood protection, lightning protection, or any other physical protection system, regular maintenance and testing programs are imperative to ensure these systems actually work when they’re needed.”

Helping customers in transition

In building a bespoke approach with customers interested in transitioning to a more sustainable operation, Zurich considers what companies have accomplished so far and how they expect the future to look, said Gabrielle Durisch, Head of Sustainability for Commercial Insurance and Head of CI Claims Strategy and Analytics for the insurer.

A number of considerations are involved. “What are their products and services and how do they affect their sustainability goals?” she asked. An airline, for example, would have very different issues than a financial institution. And, Zurich wants to understand customers’ external commitments “so that we can read, be prepared…and bring to the discussion specific solutions that we’ve been thinking about that they may be interested in and could use to support their own transition,” Ms. Durisch said.

Lowering carbon intensity

Zurich is beginning to look closely at its customers’ contributions to the carbon footprint of the insurer’s overall portfolio of business, Ms. Durisch pointed out. “It helps us understand our own transition risk. If we have a large part of the book which is made up of carbon-intense customers, what does that mean for us over the next 10 years?”

That scrutiny also provides insight on how Zurich can tailor products that will help customers who wish to make big changes during their transition to a less carbon-intense operation, she said.

A path to sustainability

Mr. Rahman offered several steps for companies to keep in mind when building resilient and sustainable operations. He said they should:

• Understand what is critical for their operations, whether it is revenue generation, number of people potentially impacted, interdependencies, reputational risk or something else. Identify where these pain points are in the operation.
• Use multiple data sources. For example, in assessing the flood hazard at a location in the U.S., apart from FEMA maps, study county and city maps. Look at historical events and develop a scenario around those multiple sources.
• Don’t focus solely on hazard levels. Look at all other dimensions of risk, such as the exposures and controls, and consider the uncertainties around each of these dimensions.
• Controls should include engineering measures, emergency response plans, business continuity, maintenance and insurance.

When considering controls for natural hazard and climate change risks, risk managers must reject the assumption that building code requirements are enough to protect property and people, Mr. Rahman noted. “The codes are minimum requirements. They don’t accurately reflect the conditions in 30 to 50 years’ time.”

Such an approach is important, he said, because the intensity of windstorms, flooding and other natural hazards is increasing. Building codes, however, are generally based on historical events.

Sustainability is an issue that can sometimes seem overwhelming to insurance customers, Ms. Durisch noted. It takes a collaborative effort to make sure goals are understood and met.

“We need to engage in open dialogue with customers to understand what they are doing, how we can support and the steps they are taking,” she said. “And, finally, we need to enable the transition by reviewing, adapting and developing products.”

A recording of the webinar is available at Commercial Risk’s website.