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Climate risk is changing the way work with various external partners
businesses – and in turn, risk managers – plan for the future. Risks related to climate change are a relatively new factor for companies to consider, and the ripple effects of developing a prop- er risk management plan will be felt throughout organizations, says Max- ine Nelson, U.K.-based senior vice president at the Global Association of
Risk Professionals (GARP).
“Rather than appearing as another
risk type [alongside] the common un- derwriting risks, asset liability risk, or credit risk, it should be embedded in the day-to-day risk management of risk managers,” she says.
Many organizations, including in- surance companies, are moving to enact stronger climate change plans, although these plans are still under- developed, according to research from GARP. As boards develop and refine their approaches, risk managers an- ticipate that executives will look their way for guidance.
“I always see the risk manager as the person who is pulling it all together,” says Katherine Klosowski, vice presi- dent and manager of natural hazards and structures with FM Global in Rhode Island. “They understand the risk and they can take action to reduce it. They have to do that at the facility level, to harden individual buildings against damage, as well as with exec- utive managers to maintain business resilience across the organization.”
To some extent, climate change is highlighting the changing role of risk professionals, who are assessing and re- sponding to emerging risks in more ho- listic ways. As Nelson puts it: “In some ways, the climate risk function can be seen as similar to a stress-testing func- tion, which takes input across all the dif- ferent existing risk types and aggregates them to see the overall picture.”
As part of this holistic approach, risk managers must increasingly
such as community planners, emer- gency planners and their insurance companies, Klosowski adds.
Thus far, however, few companies actually have a team dedicated to climate-related risk, GARP’s study found. For those that do, their teams are more or less focused on environ- mentalriskoraspartofCorporateSo- cial Responsibility (CSR) teams. It’s es- sential to separate the functions so that a full team is set up to watch over the climate risk file, rather than put it all on one person’s lap, Klosowski warns.
“This is a really important topic,” she says. “The risk manager has many different perils to be concerned about. Each peril may have a different impact on the company and require a different mitigation plan. Simply put, one per- son can’t have a handle on everything, and a team approach works best.”
To put it another way, consider the example of an oncoming flood. One person can’t be monitoring the flood while filling sandbags at the same time.
Risk professionals will also need to assess how they manage, transfer and mitigate risk.
“Transferring the risk may become more expensive,” as Klosowski ob- serves. “Risk managers who take mea- sures to harden their facilities against the risk of flood or hurricane damage will fare best in the insurance markets, and more importantly, in maintaining their business operations.”
Many diverse climate risks exist these days, from hurricanes to wild- fires. Managing all of the possible exposures is a large undertaking, not to mention understanding the vari- ous risks each facility faces from the changing climate.
“It is especially important to un- derstand the geographical risks and the aggregate impact of that risk,” Klosowski says. “Risk managers can partner with their insurance compa-
CLIMATE CHANGE PLANS l FEATURE
canadianunderwriter.ca | September 2019 41