RIMS Recap: Developing Your Formula for Property Loss Control
3 min

RIMS Recap: Developing Your Formula for Property Loss Control

At RISKWORLD 2024, we partnered with nVent to outline best practices for establishing a successful property loss control strategy.

Date: 30 May 2024

RIMS Recap: Developing Your Formula for Property Loss Control

The necessity for loss control has never been greater. According to the 2024 Commercial Property Insurance Trends report by Marsh McLennan Agency, commercial property insurance rates have increased for 24 consecutive quarters, with an average hike of 11% in 2023. Since then, the market has finally shown signs of softening, yet risk managers are still facing challenges managing risks and getting insurance placed.

During RISKWORLD 2024 in San Diego, Charlie Carriker, Strategic Sales Manager at Global Risk Consultants, and Felix Brobbey, Director of Risk Management and Insurance at nVent, demonstrated how to devise an effective property loss control formula. They discussed the current market conditions, essential practices every business should adopt, emerging risks, and more.

Constants in the Formula

All formulas have constants and variables. In risk management, "constants" refer to fundamental elements that remain stable across companies, industries, and operations. These include:

Insurance asset valuations. With recent inflation and supply chain disruptions, the insured values of property and equipment are deeply out of alignment with reality, often resulting in under-insured claims that do not cover full rebuilding or replacement costs. It is crucial to conduct on-site valuations at least every five years or following significant changes such as additions, renovations, or process modifications. Brobbey shared that nVent has developed an internal valuation index based on assessments conducted at their largest facilities, which is then extrapolated across their global operations.

“In the last couple of years we have done valuations in our largest facilities,” said Brobbey. “We are using the numbers to model out the rest of our facilities globally.”

Property risk assessments. Risk engineers should regularly identify risks and potential loss scenarios while collecting critical analytics such as Construction, Occupancy, Protection, and Exposure (COPE) data. These assessments provide a snapshot of a facility's current risk profile, which should be continuously updated based on the recommendations from risk engineers.

Accurate loss estimates. Accurately predicting the potential impact of an event is critical for understanding the extent of possible property damage or business interruption, which helps in quantifying loss exposure.

RIMS Recap: Developing Your Formula for Property Loss Control

Variables to Consider

In this context, "variables" refer to emerging risks that vary by organization and industry. They can include:

Climate change. Increasing temperatures and shifting weather patterns are causing more severe and costly weather events. The National Oceanic and Atmospheric Administration (NOAA) noted a significant increase in weather-related incidents in 2023 with 28 billion-dollar disasters. It estimated average annual losses for the last 5-year period at $110 billion. Over 90% of these losses were related to water events like floods and hurricanes.

“This trend is not going away, we’re seeing an increase in the quantity, severity, and location of these natural disasters,” said Carriker.

Increased sustainability regulations. Various global directives aim for net-zero carbon emissions by 2050. Meeting these requirements involves significant adjustments, such as installing solar panels or implementing fire safety measures for new energy storage technologies. But taking steps towards sustainability may bring new property risks. For example, can the roof hold those new solar panels you just installed? Are you prepared to fight the complex fire if a battery energy storage installation ignites?

“As a publicly traded company we also have government regulations we need to abide by so right now we are implementing solar panels in our global manufacturing facilities,” said Brobbey. “We work with our partners at Global Risk Consultants from the beginning so we don’t have any problems.”

Cybersecurity risks. The rise of ransomware attacks and other cyber threats necessitates heightened vigilance. New attack vectors, such as voice phishing and industrial equipment hacking, highlight the evolving nature of cyber risks.

Geopolitical instability. With numerous elections scheduled globally in 2024 and ongoing conflicts, understanding and preparing for geopolitical risks is more important than ever.

“Things are constantly changing so be ready,” said Brobbey.

Developing Your Strategy

Developing a winning property loss control strategy is tailored to each business. There is no one-size-fits-all model. Begin by identifying the constants that apply universally, stay informed about macroeconomic trends, and pinpoint the variables relevant to your specific circumstances. Collaborate with loss control professionals and risk engineers to assess and mitigate risks, thereby enhancing your risk profile and strengthening your position in underwriting negotiations.

Start by finding the constants applicable to almost all businesses and keep your finger on the pulse of macroeconomic trends. Then, identify variables that apply to your business in the form of emerging risks. As you put them together, consult loss control professionals and risk engineers who can help you identify critical issues in your facilities and offer recommendations to mitigate those risks to strategically lower your risk profile and gain leverage in underwriting negotiations.

Throughout the presentation, Brobbey emphasized the importance of proactive property loss control measures and the advantages of partnering with Global Risk Consultants for specialized services such as fire surveys.

"Thanks to our focused efforts in loss control, we have managed to avoid the steep price increases that many other companies are facing," Brobbey concluded.

Want to learn more about loss control? Check out our webinar Secrets to a Winning Loss Control Formula now.

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