The Key Is to Ensure You Have Backup
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Kidnaps on the rise Ransom demands reflect a rapid spread of unrest RISK MANAGEMENT Page 4 Property & Security FINANCIAL TIMES SPECIAL REPORT | Wednesday November 9 2011 www.ft.com/riskmanagementpropertysecurity2011 | twitter.com/ftreports The key is to ensure you have backup To avoid being snared by the unexpected, companies must be ruthless in rooting out weak links, reports Paul J Davies hen millions of Black- Berry users found them- selves without emails or messages last month it Wwas an annoyance. When the problem grew worse over several days and the explanation turned out to be the failure of one key switch in one UK server farm, inves- tors and users alike could be forgiven their incredulity. If there is one lesson that corporate boardrooms should take out of 2011, it is to look ever more closely across the business for such single points of failure. It could be an over-reliance on a single piece of technology, or a criti- cal component or raw material that a company sources from a single sup- plier. It could be having a key indus- trial site in an area prone to floods or earthquakes. All these have been highlighted by events this year as weaknesses that can have disastrous effects on a com- pany’s ability to conduct its business. The answer to such concerns is sim- Costs below the surface: property damage in events such as the Japan earthquake is relatively simple to assess. The cost in business interruption is more complex AFP ple to put into words – if not always simple to put into action. It is diver- been exposed this year are those in America told dealerships they could 50 per cent, the risks are still under- and 1965 and there have been five an interview published on the sity and back-up. complex worldwide supply chains. have sport utility vehicles in any priced.” since the end of 2004. There were none insurer’s website. The chance of hav- For technology companies such as The global insurance industry has colour so long as it was not black, There have already been clusters of in between or for 25 years before 1950. ing one or more magnitude 6.7 or Research In Motion, maker of the suffered record first-half claims this because of difficulties in sourcing a very large shocks on the so-called Mr Muir-Wood concludes that there larger earthquakes in the San Fran- BlackBerry, or others heavily depend- year from a wave of natural disasters, key paint ingredient from Japan. Ring of Fire around the Pacific Ocean could be greater risk of large tremors cisco region over that period is ent on computing or data sites, it is including earthquakes in New Zea- Last month, Mazda, Toyota and in recent years, including in Indone- in the north-west of the US, or north- greater than 63 per cent, he said. all about building resilience and land and Japan, and flooding in Aus- Toshiba joined the list of companies sia, Japan, New Zealand, Chile and ern Chile. Such a quake would be similar to redundancy into systems so that big tralia and Thailand. suspending production at factories in Haiti. Allianz, the German insurer, went the one in 1906, whose recovery costs fluctuations in demand for resources, Property damage is a relatively Thailand because of the flooding. And Further, as Robert Muir-Wood of further this year. It said it sees a very led to a draining of gold out of New or problems with one area, can be simple element of these claims to Honda Motor had to halt work at its Risk Management Solutions, the high probability of a major earth- York and other financial centres. covered by quickly substituting one assess. Far more complex are those assembly plants in Malaysia because catastrophe modelling company, notes quake in California over the next 30 In a prefiguring of recent events part of a system for the one in trou- for business interruption, mainly of a lack of parts from Thailand. in a column for this report on page 3, years. “The likelihood that there will that does not bode well for already ble. because of breaks in companies’ sup- But as well as cars, electronic goods there is some evidence that the big- be a major earthquake along the San hard-hit markets, the San Francisco Stefano Tranquillo, vice-president ply chains. produced all around the world rely gest of all earthquakes cluster in time. Andreas Fault in California is very earthquake helped bring about a for northern Europe at FM Global, the In the weeks following the Japan heavily on specific parts of Asia – There were seven quakes with a mag- high,” Markus Treml, a seismologist financial liquidity crisis to compare insurance and risk management com- earthquake, Ford Motor in North even very limited areas of Japan or nitude of 8.5 or higher between 1950 at Allianz’s reinsurance unit, said in with that seen in 2008. pany, says it is often about asking South Korea – for certain key compo- some very basic questions that iden- nents. This is a problem not only this tify the weak links. year, but for the future. “After that, it’s about making sure Inside this issue What is more, according to natural you have back-up systems in place Management hazard experts, as companies increas- and working,” he says. “With compa- The culture of a ingly look to invest in Asia and set up nies that are very computer- company is more industrial sites in or near the dependent we do regular checks to crucial in main growth markets of the world, ensure the back-up works.” preventing losses they are often driven towards build- One of FM Global’s clients, Com- Page 2 ing in some of the areas most exposed putacenter, which provides and man- to flooding or seismic activity, usually ages information technology infra- Data security because of a lack of choice. structure to other companies, reckons Any company is In the near term, the biggest con- it has managed to save more than at risk of attack by people seeking to cern about this is the chance of fur- £1m in insurance premiums over the steal the personal data of its ther tremors hitting the country. past five years by following the risk customers Page 2 Earthquake prediction is a notori- management group’s recommendation ously uncertain science, but seismolo- to invest less than half that amount Personal view Pascal, the gists are broadly agreed that one in updating its fire extinguishing 17th century philosopher, may have result of the Tohoku quake in March sprinkler systems. had the best view of risk Page 2 has been an increase in the stress In other areas, however, diversity Property levels on faults both to the north and and back-up are nowhere near so easy to the south of Tokyo. Companies cutting to achieve. costs could be Since March, reinsurance rates for A report from the UK’s Royal Acad- offering criminals earthquake cover in Japan have emy of Engineering last spring high- a bonanza of shot up by 50 per cent or more. How- lighted the dangerous over-reliance on opportunities ever, for some, even this is not the US-operated Global Positioning Page 3 enough to compensate for the height- System (GPS), the ageing satellite net- ened risks. work that has a key function in many Guest column Serge Chiaramonte, head of insur- aspects of ordinary life – from the Progress in predicting earthquakes ance-linked strategies distribution at dispensable consumer satnav in cars has wider implications Page 3 Credit Suisse, the financial services to the indispensable dispatch systems company, says his business will not of emergency services. Key man insurance increase exposure to Japanese earth- There are other systems being built, Simple measures can cover the loss quake risk at the moment, because of such as the European Galileo net- of missioncritical staff Page 4 the high probability of further after- work, but this will not begin to oper- shocks. ate until probably 2014 and will not be Directors’ cover Company officers “This and the increase in stresses completed for a further five years. are increasingly being targeted by on the Kanto fragment near Tokyo But the biggest and most important regulators and others Page 4 means that, even though reinsurance collection of weak points that have premiums have gone up by about Source of next attacks defies easy prediction effective work by police and Terrorism other government agencies lowers the chance of attack Regime change has or violence. Examples of many secondary this approach include Saudi Arabia and Israel. effects, writes In other high-risk areas, Libya protest: security agencies have been kept busy EPA Anousha Sakoui however, counter-terrorism capability is weak. of transnational terrorism widespread political up- According to risk consul- from the al-Qaeda terrorist heaval, analysts say. There The Arab Spring this year tancy Aegis Advisory and organisation is generally is also a risk, however, that presented businesses and insurance broker Integro, expected to fall. tensions could escalate if markets around the the Arab Spring has Its approach of using there are long and uncer- world with a number of diverted the attention of extreme violence has been tain periods of transition, challenges. security agencies towards undermined by the success significantly raising the Not only were oil supplies managing civil unrest, of mass and largely peace- threat of attacks over the disrupted, causing shocks weakening their ability to ful protests in forcing medium term, they add.