The 5-D World of the Modern Risk Manager

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In a world that is constantly changing, so are the risks facing the coffee industry.  In the last few years, we have been reminded just how complex these risks are.  Maybe the biggest lesson to the coffee industry is that not only are the risks complex, but they are also interrelated.

Operational risks, financial risks, legal and political risks.  These are all interconnected – meaning the occurrence of one can lead to the emergence of another…and they can cascade on each other.

Take for example the hypothetical of your coffee logistics provider having their business shut down by a cyber hack.  What cascading consequences would your company face?

Gone are the days when the risk manager can take a “set it and forget it” approach to risks.  In reality, insurance “Acord” certificates don’t ask for much information or give us much information.  Instead, the risk manager must take a “5-D” approach to risks, using data analytics and visualization tools.

Traditionally, there are 5 “dimensions” that risk managers use to talk about risks; impact, probability, timeframe, scope, and control.

Generally, these are risks that might directly confront an organization.  However, when we think about interconnected risks, or the risks facing your counterparty, we have much less information available.

And this is where another dimension of risk comes to play – intuition.  What deficiencies in the risk posture of our counterparty can we discover?  How can the coffee importer improve their “gut feeling” about whether or not they are getting into a good deal, or dealing with a sound counter-party?

Insurance has always been part of the solution to counterparty risk, and in a hard insurance market coupled with new insurance products, this is true now more than ever.  In a hard insurance cycle, insurance companies become even more diligent in separating out “the good, the bad, and the ugly”.

Does your counterparty carry their own cyber insurance?  If not, why?

If your counterparty experiences a theft or fraud of your goods, how will their insurance respond?

If your counterparty is holding your coffee, how are they protected from natural disasters? Do they have insurance that will respond to a weather event?

Just as the coffee importer diversifies their coffee origin sourcing, so should the coffee risk manager diversify their risk intelligence.

As a coffee importer, it is essential to stay informed about new resources of risk management and to implement strategies to mitigate the pitfalls associated with the industry.

We are all familiar with the old insurance “Acord” form.  However, it is important “pierce the veil” of the certificate and discover how a company is truly protected.

This can be done by asking simple questions about insurance and hypothetical situations – your insurance broker can guide you in this.

By touching on all the dimensions of potential risk, you can better ensure the long-term success of your coffee-importing business.


Article originally published in ⁠Tea & Coffee Trade Journal.

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