"You need to take a broader view"

It's complicated: Modern value chains are usually highly complex and very finely meshed. In order to gain a competitive edge, each member of the chain has to interlock perfectly with the next. The main concern is preventing trouble. If everything depends on everything else, and even the smallest leeway is exploited, the system becomes more vulnerable. We spoke with Matthias Böhm, Managing Director of NW Assekuranz, about ways to grow without ever increasing risks, and the role of tailor made risk management in this context.

Mr Böhm, what do I have to do to ensure that my company is well protected?
As a business leader, I have to consider more than the security of my own company. I have to consider, in a clearly structured way, the risks along my entire value chain. Like the physical hazards at the business premises. Like the dependence on suppliers and customers. Like liability agreements that could get me into a difficult situation. And then there are the risks along the supply chain, ranging from the choice of transportation to the political situation along the transport route. You need to take a broader view.

That sounds highly complex.
It is. To consider and assess all this, you need a risk manager—a partner who is able to identify risks down to the last detail. That is what we offer. We screen a company’s entire value chain from an insurance perspective. For effective protection, you need an integrated analysis that combines the various risks and insurance divisions and regards them as a whole. This requires a wide variety of skills and capabilities.

Such as?
For the physical hazards, you need engineers who analyse your technological infrastructure, identify risks, and make suggestions for improvement, e.g. in the field of fire safety. For the liability, you need legal experts who analyse your contracts, e.g. with e view to liability agreements, and quantify any consequences for the latter. For the field of IT, you need specialists who can identify and assess your dependence on IT networks and structures. And then you need logistics experts who analyse the safety of your goods during transport. Who is the stevedore, what usually happens at this or that port, which risks ensue from the political climate? We offer a one-stop shop for the entire risk management because we have all these specialists under our roof. This broad range of our services makes us pretty much unique on the market.

And this is why you are able to optimally place the risk with an insurer?
That is the second step. First, we aim to increase the company's level of security by identifying weaknesses, suggesting improvements and helping to implement them. Passing on the risks is the second step, which is, of course, just as important: Only a perfectly worded policy is effective in an emergency, and good risk concept makes it easier to place. Incidentally, this is an argument for banks and investors as well.

You claim that you look more closely than others usually do?
Yes. For example, we advise a company that produces cosmetics, and the sleeves are not produced to the same specifications and in the same quantity anywhere else in the world. This means that you cannot simply switch to another manufacturer. And this is why we analysed the supplier and came up with a plan to make them safer in order to make our client safer. This is not commonly part of typical insurance services, but for us, it is part of what we do.

Which are the common mistakes in risk management that you come across in your daily work?
With respects to contracts in particular, companies often assume risks because they simply adopt extensive liability clauses in agreements with suppliers or customers. What we see, looking through an insurer's eyes, is frequently legally questionable at best, and at worst, a true threat to the respective company.
Another recurrent issue is the fact that companies fail to develop even rudimentary contingency plans. If the power supply fails, where can I find an alternative quickly? If there is a great storm, do I have the roofer capacities to stop any leakage as quickly as possible? These damage scenarios are not unlikely, and they need to be clarified. Once a damage occurs, things get hectic and the company loses valuable time. But the important thing is to return to full production capacity as soon as possible! That is something many people fail to consider.

What is your role in all of this?
First of all, we make our clients aware of this issue, and we develop appropriate contingency plans with them in advance. We become part of the contingency plan: If a damage occurs, our experience allows us to mediate in a highly professional manner, and we can ensure that decisions are made quickly. We communicate with the insurers and obtain initial emergency investments. We are in direct contact with all the service providers that you need in the respective case. Often, the clients are inhibited in this respect. Can I even make this decision? How do I handle this with the insurance? All of this takes time. We are not only there to develop policies that are effective when needed—we are on site immediately if anything happens.

In your opinion, what are the risks of an economy that is becoming ever more differentiated and globalised?
Virtually every company is reducing their warehouse stock to the bare necessities and merging production locations to gain a competitive edge. With previous redundancies being eliminated, companies grow more vulnerable to business interruptions. Identifying possible interruption scenarios and at the same time considering how to minimise the effects is a challenge. It is always all or nothing: It is obvious that companies on the market are becoming more and more replaceable—if I am no longer able to deliver, I am out. Long-term relationships and supplier loyalty are less and less important.

That sounds rather unkind.
It is a necessity resulting from the globalised economy. The continuous increase in production and efficiency, the utilisation of the machinery to maximum capacity, and the continuous reduction of inventories cause companies to grow more fragile. Companies used to stockpile in order to be able to sell from stock for a couple of weeks if necessary—that no longer works in most cases because it unnecessarily ties up capital.

Will the COVID-19 pandemic cause companies to make their value chains a little less complex in the future, e.g. by reintegrating outsourced production into their own business?
No, I do not see that. The present crisis shows that many commercial issues can be dealt with from mobile workplaces. But Covid also shows just how interconnected our economic system is on a global scale. This has evolved over the course od decades, and for good reason: because it makes sense to shift process steps. I do not think that the companies are going to reverse that.

From an insurer's point of view, would it be preferable for companies not to build their house of cards quite so high?
Reducing one's dependences is always a good idea. On the other hand, there are some arguments for expanding and intensifying the networking: Companies that were already well established with a broad range on the sales markets before the crisis appear to be doing better now because they can react more flexibly. It is okay to build high, as long as every new floor is appropriately protected.

Many thanks for the interview, Mr Böhm!