Boardroom decisions are generally the subject of deep consideration and unsurprisingly the key factor is often financial. This is why FM Global has developed its Total Financial Loss (TFL) model to help risk managers demonstrate the uninsured costs of risks in real dollar terms and in a language that speaks to boardroom decision-makers.
Because we believe the majority of property losses are preventable – and we know how important being resilient is to our clients’ business performance – we have incorporated the often unidentified and non-transferable business exposures into our model to strengthen the case for it.
More companies in Asia are jumping into the “strengthening resilience” bandwagon as they increasingly appreciate its connection to positive business performance. The TFL model gives executives across the region the opportunity to fully understand their business exposures, or in other words how much the iceberg (cost of risk) sits hidden under the waterline?
Looking Beneath the Waterline
The total cost of risk is often viewed as an iceberg, with the exposed tip being the insurable costs and the far larger part that is hidden underwater being the uninsured and often non-transferable costs.
A major business disruption can result in large uninsurable costs, eroding the value of any organisation. These can include long-term customer losses, missed growth opportunities and higher costs of capital. Even after normal operations are restored and insured costs are recovered, a business may lose customers for a significant period of time, if not permanently. Losing out on its potential business growth impacts future cash flows, which can lead to higher borrowing costs, as investors’ confidence in the business declines.
Executives need to be looking beneath the water line and better understand these hidden and non-transferable impacts. The TFL model helps to quantify them, providing executives insight into the full financial benefit an investment in risk improvement can deliver.
Quantifying the ‘Unknown’
The model works by looking at a company’s enterprise valuations based on business-as-usual versus business disruption scenarios and uses the difference between the two to determine the potential total financial loss. These losses can be broken down into three distinct financial impacts: lost market share, missed growth opportunities and negative investor sentiment.
Through our unique combination of financial analysis, science-based engineering research and data analytics, we formulate credible scenarios to produce holistic outcomes. These outcomes are presented to key decision-makers to provide a new context and perspective for property loss prevention, risk management and business resilience conservations.
We are focused on keeping pace with the growing demand across a maturing Asian commercial and industrial landscape, where many properties will benefit from focused loss-prevention strategies.
Taking Action Towards Resilience
We know capital in most companies is limited and the competition for it is intense. Since its introduction in Asia in May 2019, TFL has helped companies to view the costs of risk differently, see risk improvement within its reach and appreciate the overall enterprise value of taking action. TFL has helped risk managers across the region present a stronger financial justification for investment in risk management resources.
By quantifying not only the insured cost of risk but also the non-transferable costs, TFL allows for more meaningful and competitive return on investment calculations, which is where your boardroom decision-makers focus.