• Clay McCraw

A Changing Landscape – Strategically Navigating the Evolving World of Property Risk Management

Updated: Jun 2, 2020

ISI Risk’s twenty years of experience providing property risk management consulting, guidance and coaching has shown us that property risk management and loss prevention is often an underdeveloped, and sometimes altogether missing, core component in many businesses today. The property risk management function at the operational level is often misunderstood and undermanaged, reducing its effectiveness as a program that assists businesses in achieving steady growth through strategic planning.

These oversights cost global companies millions in lost and unrealized efficiency and effectiveness, translating into decreased profit and stakeholder value; however, what risk managers, CEOs, CFOs and COOs are beginning to learn is that correctly implementing a comprehensive, process-based property risk program provides not only traditional insurance benefits, but a wide range of strategic business information and benefits used to improve and add value to the companies’ bottom line.

In the past, risk management and risk managers have traditionally been perceived as an appendage to the rest of corporate operations. Now, unprecedented change, tightening economies and new regulations are defining new risks. The growing impact these changes are having has highlighted the need for top executives and their staff specialists to reconsider the meaning, scope and objectives of their risk management programs.

Quickly shifting market conditions, such as the ongoing COVID-19 Pandemic, have caused many companies around the world, including ISI Risk, to reevaluate traditional business and supply chain methods, aiming to improve operational investment and function. Likewise, the world of risk management and property loss prevention needs to reevaluate its role within the company in order to more clearly focus on the corporate goals of preventing waste and inefficiency (minimizing risk threats), and increasing company/shareholder value and profits (capitalizing on risk advantages) through strategic, informed operational-level decision-making and, of course, administering a more effective insurance program.

While change is never easy, even on a personal level, an ever-evolving business landscape demands that we evolve with it for our businesses and careers to thrive. It is becoming clearer, and more critical than ever, for risk managers to not only utilize methods and strategies to identify, mitigate and prevent “organizational accidents”, but to use these methods and strategies to provide strategic data used for corporate decision-making.

To paraphrase author James Reason in the book Managing the Risks of Organizational Accidents:

“Organizational accidents are circumstances that result in failures of the organization as a whole, or, significant portions of it, rather than failures from the acts of a few.”

These organizational missteps, big and small, lead to losses ranging from wasted resources and inefficiency to catastrophic accidents, the type that make the evening news and become case studies for what went wrong, known in the realm of risk management as a “black swan event”. The only way to truly manage property risk is by developing a uniform, comprehensive program implemented at the operational level. Once in place, a complete program not only effectively manages property risk, but creates upward channels of communication providing information and data needed for managers at every level of the enterprise to make better informed decisions.

Property risk management has evolved as an appendage of the corporate organizational structure, and therefore physical property assets have remained largely under managed. Risk management and property loss prevention has primarily been conducted defensively, focused on mitigating risk, and ignoring potential risk advantage by failing to utilize the risk management and loss prevention programs as a part of the company’s strategic decision-making process.

However, we believe now is the perfect time for risk managers, supported by their COOs and CFOs, to become the “point people” in developing a property risk management program that streamlines and upgrades existing risk and assets management and organization efforts, resulting in a program that not only reduces and mitigates property losses, but provides strategic, valuable operational data and information needed to make informed business decisions.

When implemented correctly, risk management is a business function that not only responds to risk threats effectively, efficiently, and dynamically, but identifies risk opportunities and advantages for the company as a whole. The ability to recognize and quantify both sides of the risk coin significantly enhances strategic decision-making, and therefore stakeholder value, in every level of the business, from the operational level all the way to the C-suite executives and risk management departments.

As risk professionals, whether a corporate risk manager, consultant, broker or insurer, our job is to provide valuable, needed information and services to our respective companies and clients, especially during unusual market conditions. The uncertain and unprecedented business environment we find ourselves in makes examining your property risk management and loss prevention program with a critical eye, and adapting or improving where needed, more important today than ever.