With natural disasters including devastating hurricanes, horrific wildfires and widespread floods making big headlines this year, CEOs have their antennae up when it comes to risk management and what they can do to protect their businesses from the unexpected.
FM Global president and CEO Tom Lawson knows the risks companies and CEOs face, as his mutual insurance company specializes in loss prevention services to large corporations. A 35-year veteran with FM Global who was appointed CEO in 2014, Lawson previously managed the company’s insurance operations in North America, South America, Europe-Middle East-Africa and Asia-Pacific in his role as executive vice president.
Chief Executive sat down with Lawson to talk about recent incidents and how business leaders can best prepare their organizations to handle what may lie ahead in 2018.
Q: What are some big risk areas CEOs should have on their radar screen as we move in to 2018?
A: There’s nothing like a lot of catastrophes to remind people of what kind of risks are out there. Taking a step back, I think the biggest risk is not making loss prevention and risk management part of your strategic planning. I think some companies do a phenomenal job with that, but sometimes that type of thing doesn’t make it to the top of the list when people are putting together their strategies and business plans.
“The biggest risk is not making loss prevention and risk management part of your strategic planning.”
I think we’ve seen evidence of companies that do include this planning in their approach do much better. They’re the ones, after the event, that not only maintain their operations, but are actually taking advantage of the fact that some of their competitors didn’t. They can increase market share and profitability simply by making risk management/loss prevention part of their strategy.
There are some good examples of that with the recent string of catastrophes—whether it’s Hurricane Harvey, or both of the earthquakes in Mexico, or the California wildfires, or the floods in South Africa—some companies came through that very well, and some companies didn’t. The companies that are interested in identifying where those risks are, where the loss could happen, how likely is it to happen and how large could it be, but most importantly how they can prevent the loss do much better in profitability, share price and market share. They really turn risk management and loss prevention into a competitive advantage in their marketplace.
Q: What steps are companies taking to mitigate risk once they recognize the importance of planning for potential problems?
A: It all starts with knowledge and an awareness of where that risk is and some quantification. But the real knowledge lies in how you take that situation and provide the loss prevention technology and the expertise to help prevent the loss. It’s one thing to know you’re in a flood zone or in an earthquake-prone area. The second part is asking “What can I do about that?” And, lastly, “How do I get that done?” Knowing you have a problem is just the beginning, it’s really how you use that knowledge to your advantage.
Q: Why should business owners in areas that aren’t hotspots for natural disasters still focus on risk management?
A: It’s about making people understand what they’re up against. If you have a facility on the San Andreas Fault you’re probably attuned to earthquakes, because you probably live somewhere close. If you’re in the middle of the Midwest and it’s about needing to protect a facility from fire, that may not be at the top of your list.
A CEO may not fully understand the fact that a facility needs sprinklers, but if you tell them that if they have a fire at that location it will put them out of business for two months and have an impact on their market share, then they get it.