FM Global, one of the world’s largest commercial and industrial property insurance providers, has launched its 2018 Resilience Index to help global executives plan where to do business. The interactive online resource reflects data related to economies around the world and addresses deep concerns about business risks such as natural hazards, cyber risk, political and economic risk and the overall control and quality of supply chain.
The Resilience Index is the first and only publicly available data-driven tool to annually rank 130 countries and territories by the resilience of their business environments. This year’s index reveals Australia is again among one of the most resilient countries globally, ranking 17th overall.
Twelve drivers determine a country’s overall resilience ranking. In the case of Australia, the country improved in the past year from 23rd to 17th in the world for political risk, due to perceptions of a stable government with low levels of politically motivated violence and terrorism. Australia is also recognised for high natural hazard risk quality (ranked 15, driven largely by the quality and enforcement of its building codes in respect to natural hazards like floods and windstorms. Australia’s strong supply chain visibility (ranked 21st) is also notable as is the country’s control of corruption (ranked 14) and supplier quality (ranked 24), ensuring the country’s overall resilience remains high.
However, key findings from the Index also reveal that Australia did experience a fall in certain resilience drivers during the past year.
Australia fell seven places based on perceptions of the quality of its infrastructure (from 34 in 2017 to 41 in 2018), possibly due to recent blackouts in South Australia and pressure to continue operating ageing assets such as the Liddell coal power station. The drop may also reflect the increasing proportion of distributed energy sources in Australia which lower the overall resilience of the country’s traditional power networks.
The country also experienced a drop in its ranking for inherent cyber risk where it fell nine places—from 66th in 2017 to 75th in 2018. This is due to slightly greater access to the internet and thereby greater exposure to cyberattack. Increased cyber risk means business leaders should be acutely aware of the risk of stalled operations, disrupted supply chains, class-action lawsuits and permanent brand damage in the event of an attack.
Managing risk in Asia
For many Australian businesses, Asia represents a considerable opportunity to lower input costs and access potentially lucrative markets. However, executives and managers need to fully understand the risks as well as the rewards of locating operations or increasing supply chain exposure in Asian countries.
Three contributing drivers of a country’s resilience to disruption are urbanisation rate, natural hazard exposure and natural hazard risk quality. Rapidly urbanising areas with high natural hazard exposure and weaker natural hazard risk quality can be especially vulnerable. Among countries with high urbanisation rates, significant flood exposure and less robust risk management practices include many major global manufacturing hubs such as:
The average annual rate of change in the extent to which a country’s population is living in an urban area.
|Natural Hazard Exposure
The percentage of a country’s area devoted to economic activities that is exposed to at least one natural hazard.
|Natural Hazard Risk Quality
The quality and enforcement of a country’s building code combined with the level of natural hazard risk improvement achieved
|China region 1||118||71||67|
|China region 2||118||83||67|
|China region 3||118||67||57|
The potential for severe disruption across business operations and global supply chains from flooding or other natural hazards could be considerable. For companies with key facilities and operations in regions exposed to such risk, the lesson is clear; build resilience through targeted investment in prevention and recovery programs.
Lyndon Broad, operations manager, Australia, FM Global, said: “For many Australian businesses, Asia is a lucrative market, however, executives and managers need to understand the environment in each country in which the business has a current or proposed presence and how it is critical to operational resilience and effective risk management.”
“FM Global’s mission is to provide business leaders with powerful intelligence to support their decisions surrounding operational resilience and effective risk management. The index enables business leaders to decide where to site new facilities or expand existing ones; select or assess suppliers and business partners; evaluate established supply chains and identify potentially vulnerable customers” he added.
Australia ranked 17th overall in the index, falling well behind Switzerland and Luxembourg, which ranked number one and two respectively. Switzerland’s top spot is attributable to the quality of its infrastructure and local suppliers (ranked 1st for both drivers), its low political risk (ranked 5), high control of corruption and economic productivity (ranked 8 for both drivers), while Luxembourg ranked second, held back by only inherent cyber risk (ranked 96) and vulnerability to an oil shock (ranked 92).
About FM Global
Established nearly two centuries ago, FM Global is a mutual insurance company whose capital, scientific research capability and engineering expertise are solely dedicated to property risk management and the resilience of its client-owners. These owners, who share the belief that the majority of property loss is preventable, represent many of the world’s largest organisations, including one of every three Fortune 1000 companies. They work with FM Global to better understand the hazards that can impact their business continuity in order to make cost-effective risk management decisions, combining property loss prevention with insurance protection.