It has been 25 years since FM Global was formed through the merger of Allendale Mutual Insurance Co., Arkwright Mutual Insurance Co. and Protection Mutual Insurance Co., which all used Factory Mutual engineering. The Johnston, Rhode Island-based insurer continues to specialize in combining loss control engineering with property insurance. Malcolm Roberts, who joined Factory Mutual as an engineer in 1995, took over as CEO of the insurer in 2022. He recently spoke with Business Insurance Editor Gavin Souter about the development of loss control engineering over the past quarter century and the current property insurance market. Edited excerpts follow.
Q: How has loss prevention evolved over the past 25 years?
A: Data, technology, analytics. We’ve always had the research capabilities, but if we were trying to help a client understand a risk or a hazard, we would, and we still do, build that at our research campus. So, we’d say, “Are you making boats? Well, let’s build the manufacturing line to see what happens.” With the evolution in the early 2000s of the data and computing power, we built models. So, we still do the fire science, but we can accelerate and augment that knowledge. That really allows us to scale the knowledge quickly.
That carried on in the 2010s, when we could really get a better analytic view of risk and start to predict the main loss drivers.
Then cyber came along, and while we’re not in the cyber insurance writing business, we do lots of cyber loss prevention coverage, so we’re very much on the engineering side of the cyber risk. Then, as technology became better, we saw real-time monitoring of risk on turbines, generators, transformers, that kind of thing.
And in the past 10 years, the biggest evolution is really the climate side of things where we’ve started to prove you can do something about stopping floodwater entering your building or stopping a cat five hurricane taking your roof off.
Q: It’s quite an investment to be an FM client — is it a barrier?
A: If you go back to 1999, absolutely, but we’ve worked hard on that and said, “Why are we putting people off that way?” The trick is you have to have a client that believes it’s a competitive advantage for them. They’re not doing it to buy insurance. The C-suite of that company must believe they are investing to make their supply chain robust and it’s a good investment for the company, not because the insurance company says they should do it.
Don’t get me wrong, we spend a lot of time in the prospecting phase saying, “Here’s what we see and here’s what we believe you should do,” but it’s not “Here’s a mandatory list of 50 things.” What we’re looking for is continuous improvement on the journey. We’ve just got to keep getting better because the hazards and risks aren’t standing still.
Q: How does the focus on resilience over the past 10 years play into this?
A: It’s huge. Out of all the many horrible things with COVID, one thing that came out of it was that whenever you turned on your TV there was a government minister talking about resilience and how we all need to think about that. Just draw that parallel to the way we talk about risk and what we can do about it. COVID made everybody see, from their personal lives to business, that if a virus can close the world, maybe that flood scenario at a key manufacturing facility isn’t so far-fetched. The world of resilience has come to us. We’ve been banging this drum for 25 years, and sometimes, at the bottom of a soft market, you think you’re banging your head against the wall, and I think the combination of climate change, supply chain issues, and the COVID scenario led everyone to resilience.
Looking into the future, we’re looking at how to take this resilience knowledge we have and not just reserve it for the elite companies who can afford it. People say, “I believe in it, but I can’t invest all that money in two years or three years.” So, we need a product that we can sell to them, and we’re working on that to come out at the end of this year.
Q: Where else do you see loss prevention headed?
A: Everywhere you turn, there’s AI, and I think there will be a lot more targeted, laser-focused use of data and analytics. Our scientists are looking at how they can detect, through cameras and tech, the seat of a fire almost before it starts and get water to that instantly. It’s the intersection of science and tech.
And we’re building a new science and research center in Luxembourg to focus on robotics, smart factories, machines, the Internet of Things. You might have a safer factory, but you are much more reliant on tech, the internet and cyber.
The other area that isn’t going to slow down is climate. We’ve got to keep getting after these secondary perils, so solutions for severe convective storms, hail and wildfires. Before, we knew what a wildfire would do, we just didn’t have any way to collect the data and the heavy imagery, but now we have that. And then in a world where water is going to become scarcer and scarcer, I’m challenging my team to tell me what’s beyond the sprinkler.
Q: Where do you see the property insurance market headed over the next year?
A: I would say it’s stabilizing. Our pricing levels are pretty strong right now, and as an industry we need to start focusing on relevance, client solutions and value, not how we run away from risk. If we run away from risk, it doesn’t come back. That’s when clients use captives and take it themselves.
But I don’t see rates going back down to where they were. There might be a little bit of rate relief over the coming years, but I never see it going back to 2017-2018 levels because I think that basically everyone can see risk has gone up — climate, supply chain, inflation. The industry can’t run at a loss for 10 years again, so I think this is the client, carrier, broker thing that we have to solve, and let’s make sure none of us are winning too much.
