ERM and insurance case study - how NI Water won a top risk award

As with all water companies, NI Water has experienced disruption to services following severe weather events. These severe weather events have led to disruption to water supplies, unhappy customers, reputational damage, large repair bills and warning from the regulator.

NI Water has responded positively in the face of such events and has remained determined to learn any lessons and do everything possible to ensure past mistakes are not repeated. Enterprise-wide risk management was to be at the heart of their strategy.

George Ong, Head of Corporate Governance and Chief Risk Officer, takes up the story. "Our Enterprise Risk Management not only considers threats to the business but also identifies and manages opportunities towards achieving our corporate objectives," he says.

To this end, NI Water developed a system that grades opportunities as well as threats, so risks are managed on an integrated basis across the business.

Earlier this year the company took things one stage further, introducing an 'Integrated Risk and Resilience (IRR) Framework', which is applied on a company-wide basis and includes business partners. It involves a different approach when managing internal risk factors compared to external risk factors. The aim of this is to embed a resilience culture to respond to external risk factors such as adverse weather conditions and supply chain risks. This helps focus the business on unplanned incidents and requires actions to respond and recover at a faster, more efficient rate.

In creating the IRR, George says the team drew extensively on the Airmic publications 'Roads to Ruin' and 'Roads to Resilience'. They are now reviewing the latest in the research series, 'Roads to Revolution', which looks at the opportunities and risks associated with the digitisation of business models. NI Water is highly dependent on technology and therefore vulnerable to cyber-attack.

Customer benefit

The proactive risk management approach paid off earlier in the summer when NI Water took the precaution of becoming the first in the country to introduce a temporary hosepipe ban. Customers were understanding, and the hosepipe ban helped to achieve the necessary changes required to reduce demand on the system before customer supplies were affected. Customers will doubtless be even happier as, at the time of writing, the hosepipe ban has been lifted just as other companies are introducing theirs.

A new approach to insurance

After researching the market, NI Water decided to move away from traditional forms of insurance, opting for parametric cover instead in regard to weather-related and cyber-events. Parametrics pays out on pre-agreed metrics such as indices and, in this case, temperatures. It guarantees quick recompense for valid claims as there is no need to investigate the circumstances in detail. (For more about this subject, see last month's Airmic News article).

The promise came true during the severe winter weather earlier this year when the conditions met the threshold in three of the province's five weather stations. Their insurers AXA had paid in full within four days. And, of course, the premiums had been cheaper in the first place than they might otherwise have been as the company had been able to demonstrate excellent risk management.