Introduction 

As brokers, it’s important for you to be able to talk to your clients about risk.  I am sure you’re often asked for advice about different risks in your client’s businesses.  The use of inherent and residual risk in risk assessment processes has been common now for decades. Sure, it is a tool to help us understand the effectiveness of controls, but when we assess a theoretical risk without control when we will never experience that situation, for most businesses this is just a waste of time. We also see the guidance material such as AS/NZS ISO 31000:2018 evolving to focus more on residual risk, so Is Inherent Dead? 

What is Inherent Risk? 

Inherent risk represents the level of risk present in the absence of any controls. It describes the natural, untreated exposure arising from the characteristics of an activity, environment, or process. The COSO Framework uses inherent risk to describe the starting point before evaluating controls. The previous version of ISO31000, published in 2009, suggested the need to assess risk before and after application of controls, the latest version published in 2018 has moved away from this focusing instead on the risk level at time of assessment.  

Although useful for understanding baseline vulnerability, inherent risk is primarily theoretical. In practice, processes almost never operate without some form of control—formal or informal, documented or cultural. For this reason, inherent risk often exaggerates exposure compared to real-world conditions.

What is Residual and Current Risk?

Residual risk refers to the level of risk after controls and treatments have been implemented. This reflects an organisation’s actual exposure today, factoring in how controls are designed and operated.  

While AS/NZS ISO 31000:2018 does not formally define residual risk, it directs organisations to: 

• Identify and understand existing controls,
• Assess their effectiveness, and
• Evaluate whether the remaining risk is acceptable within strategic and operational objectives.

Residual risk is therefore a more accurate measure for decision‑making and aligns closely with governance, assurance, and performance monitoring.  

We find clients that are new to risk frameworks often struggle with the difference between inherent and residual risk and when this occurs, we use the term Current Risk. Pretty obvious, the risk level right now, with the existing controls in place.  

Current risk can therefore be used interchangeably with residual risk. It reflects:

• The controls currently in place, 
• Their real‑world effectiveness, 
• Current operating conditions, and 
• Behavioural and cultural influences. 

Defining Target Risk—and Its Relationship to Risk Appetite

Target risk is the desired level of risk after additional controls or improvements are implemented. It represents what the organisation aims to achieve to ensure the risk sits comfortably within risk appetite. Risk Appetite is a well-accepted governance tool that is typically defined by a Board of an organisation and communicated to the business to define the acceptable level of risk within an organisation.  

Target risk can be taken from the Board’s Risk Appetite and provides risk owners with clear direction on what they are aiming for. Target risk allows organisations to articulate: 

• Whether more treatment is required, 
• What level of control strength is appropriate, 
• How much investment is justified, 
• When a risk can be accepted. 

In essence, target risk operationalises risk appetite into actionable change. 

Integrating Current and Target Risk into the Insurance process 

The concepts of current and target risk can readily be applied to the insurance process. Consider a client who is faced with a number of risk improvements, some of which require capital spend.  The client may be looking at ways to justify this capital spend and implement these risk improvements over time.  The current risk represents the risk level pre-risk improvements. The target risk represents post risk improvement implementation.  The insured will almost certainly be asking you to quantify the improved insurance outcomes between the current state and what we could achieve when we hit the target risk level. The improved risk level presents to the insurer a better risk and the insurers should be looking to reward the insured through improved premiums.  

Whilst I acknowledge this is a simplified analogy, what we can see is that by understanding where your clients current and target risk levels are you can support their risk management journey by aligning their insurance program and ensuring it ius appropriately adjusted as risk improvement is achieved.  

Conclusion 

Risk management continues to mature, moving beyond static categorisations toward more realistic, strategically aligned concepts. Inherent risk helps describe the theoretical baseline and is not particularly useful in practice. Residual (or Current) risk reflects real exposure. Target risk provides a forward‑looking measure that aligns actions with Risk Appetite, ensuring organisations focus on resources where they create the greatest value. By understanding your client’s current and target risk levels you will be well placed to communicate to insurers why your client is above their peers and should attract above average insurance outcomes. 

For more information and enquiries, please contact us.

The Risk Landscape: What Puts Your Client’s Facility at Risk

Food and beverage sites typically combine high staff numbers, high levels of automation, temperature-controlled environments, often heat sources in the process, and large volumes of packaging and raw materials. These conditions can introduce a unique set of hazards, including: 

• Combustible dust from flour, sugar, spices, and powdered ingredients 
• High fire loads from packaging materials such as cardboard, plastic wrap, and wooden pallets 
• Refrigeration system risks, including ammonia or high-pressure CO₂ systems 
• Electrical exposure in wet, humid, or corrosive processing areas 
• Cooking or Heating used in the process and introducing ignition sources 
• Forklift charging or refuelling arrangements 
• Dangerous Goods such as flammable liquids and vapours 
• Maintenance and hot work activities that may introduce ignition sources 

When not properly managed, these risks can lead to fire, explosion, contamination, or extended production downtime—often resulting in financial loss and reputational impact.

Protecting Operations Through Proactive Risk Management 

A single incident in a food or beverage facility can disrupt supply chains, trigger regulatory intervention, and compromise product safety. Beyond physical damage, the cost of business interruption and lost customer confidence can far exceed the value of the assets affected. 

Proactive risk management supports: 

• Operational resilience and reduced downtime 
• Regulatory compliance and audit readiness 
• Lower insurance exposure and improved risk quality 
• Protection of staff, customers, and brand reputation 

Implementing proactive risk management strategies can take many forms. Some examples include: 

• Fire Protection Systems: Well designed and regularly tested sprinkler and fire water systems to protect assets and equipment. 
• Housekeeping and Dust Control: Routine cleaning and effective extraction systems to prevent dust buildup in processing and overhead areas. This improves food safety conditions and also helps reduce fire load in the vicinity of inception hazards such as forklifts or switchboards. 
• Electrical Safety Programs: Periodic inspections and thermal imaging to identify overheating or failing components early. 
• Refrigeration Safety Measures: Gas (leak) detection systems, emergency ventilation, and staff training for ammonia or CO₂ systems. 
• Controlled Maintenance Practices: Formal hot work permits and supervision to reduce ignition risks during repairs and upgrades. 

Building Confidence, Continuity, and Long-Term Growth 

In today’s competitive food and beverage sector, operational resilience has become a critical business advantage. A strong risk management approach not only protects physical assets but also safeguards production continuity, regulatory compliance, and the reputation that customers and partners rely on. 

By identifying occupancy hazards and implementing targeted risk controls, manufacturers can strengthen workplace safety, improve insurance outcomes, and maintain reliable operations. The result is greater confidence in daily operations and a stronger foundation for sustainable growth and long-term business success. 

@ Risk Underwriting interrogate underwriting submissions to understand how organisations are managing these occupational hazards. Our risk score process will provide premium benefits to those who are proactive in the way these risks are managed and our in-house risk management support can assist you and your client in efforts to improve risk mitigation for occupational hazards.  

If you feel that your client could need some support, let @ Risk partner with you and your client to enhance their risk management practices in a planned and proactive manner, delivering a return on investment through premium reductions once risk improvements are implemented.  

For more information and enquiries, please contact us.

Glycol – A Unique Risk to Raise with Your Clients

For brokers servicing clients in the food and beverage sector, understanding the operational role of glycol (more specifically food‑grade propylene glycol) is a unique way of showing you have an in-depth understanding of the wide range of risks that could be faced by your clients. Glycol is widely used due to its low toxicity, chemical stability, and suitability for food‑adjacent environments, making it the preferred option over other more hazardous chemicals. 

Why Glycol Matters to Your Clients’ Operations 

Clients rely on glycol as a secondary refrigerant in chilled-water and brine loops, where it functions by lowering the freezing point of system fluids. This enables refrigeration plants to operate safely at sub‑zero temperatures—critical for fermentation control, pasteurisation cooling, cold-chain integrity, and other temperature‑sensitive processes. Breweries, dairies, wineries and beverage processors depend heavily on stable glycol systems for product consistency and compliance. 

An Emerging Risk Area: Theft and Unauthorised Removal 

A less obvious but growing concern for underwriters and risk managers is the theft of glycol from industrial sites. Because glycol is often stored in drums or IBCs that are easily moved—and because stock levels fluctuate due to normal system maintenance—unauthorised removal can be difficult for operators to detect. The rise of informal markets that can use food grade glycol, including unregulated vape‑liquid manufacturing, can present an attractive source of revenue despite significant safety and legal implications. 

Implications for Brokers and Underwriting Conversations 

Brokers should consider raising glycol‑related risk controls with their clients during site surveys, renewal discussions, and pre‑underwriting reviews. Glycol mismanagement or theft can link to several insurance categories including property, liability, business interruption, and crime/theft exposures. 

Recommended Controls for Clients 

Strong site security controls significantly reduce both operational and insurance risk. Best‑practice measures include locked and/or access‑controlled chemical storage areas; strong perimeter security; documented chemical handling and transfer procedures; contractor supervision; CCTV coverage; and routine inventory reconciliation and record‑keeping. 

In any case, raising this unique risk with your clients will show that you have the finger on the pulse, and help build the level of trust they have with you.  

Feel free to reach out to the team to help understand how glycol could be a risk for your client’s facilities.  

Imperial Sugar Dust Explosion 

For food manufacturers, the danger isn’t theoretical—it’s real; it’s preventable, and it’s often overlooked. One of the most devastating global dust explosion events occurred in 2008 at an Imperial Sugar factory in Georgia in the United States. Unfortunately, 14 people lost their lives in this tragic event. This video explains what happens and is an excellent tool for understanding the risks associated with combustible dust.

Preventing the Disaster 

To manage the risk, we can break it down to focus on:  

• Eliminating the dust – ensuring the dust cannot reach “explosive” concentrations, and
• Eliminating the ignition source – remove any potential source of ignition from the area where dust may be present.

I only handle small quantities, is this an issue for me? 

Food industry operators who handle large quantities of grain, flour, or other fine organic materials typically understand the risk associated with combustible dust and the requirements to manage this hazard. For many that handle smaller quantities of these materials, it may not be as clear as what is required.  

The process of defining the hazardous areas in your facility, otherwise known as Hazardous Area Classification (HAC), is a good way of understanding where you have exposure to your facility.  

Understanding Hazardous Area Classification  

HAC involves identifying zones within a facility where explosive atmospheres may occur and determining the likelihood and duration of such events. Australian Standards such as AS/NZS 60079.10.2 govern classification in dust environments. These standards align closely with international frameworks like IEC and NFPA.

Dust environments are typically classified into the following zones:

• Zone 20 – Continuous presence of combustible dust in air under normal conditions.
• Zone 21 – Likely presence of combustible dust during normal operations.
• Zone 22 – Dust may be present, but only under abnormal conditions.

Classification considers dust properties such as particle size, moisture content, minimum ignition of energy (MIE), and explosion severity. 

Ignition Source Controls

• Electrical Equipment Certification: Use dust certified (Ex-rated) electrical equipment suitable for classified zones.
• Hot Work: Implement hot work permits, fire watches, and isolation procedures during welding, grinding, or cutting.
• Static Electricity Control: Apply proper bonding, grounding, and anti-static flooring to minimise static discharge.
• Mechanical Equipment Safeguards: Ensure moving parts such as bearings, conveyors, and motors are monitored to prevent overheating, friction sparks, or metal-to-metal contact.
• Surface Temperature Control: Maintain equipment surface temperatures below the minimum ignition temperature (MIT) of the dust.

Engineering Controls 

• Dust Collection Systems: Installation of enclosed dust extraction units at source points.
• Explosion Venting and Suppression: Use of vents and suppression systems to safely manage overpressure.
• Sealed Transfer Systems: Minimizing open transfers of dry material.
• Inerting: Introduction of inert gases like nitrogen to prevent ignition in closed systems.
• Temperature Control: Avoiding hot surfaces in equipment to stay below the dust’s ignition temperature.

Management and Administrative Controls 

• Routine Housekeeping: Scheduled cleaning to prevent dust accumulation on surfaces.
• Preventive Maintenance: Regular inspection of equipment to detect and repair leaks, corrosion, and overheating.
• Hazardous Area Inspections: Ensuring compliance with area zoning and equipment certifications.
• Training and Awareness: Staff should understand the risks, zoning implications, and appropriate behaviours.

How @Risk Underwriting Can Help

Hazardous Area Classification is a process in maintaining operational safety in dust-prone environments. Understanding how dust behaves, where it accumulates, and how it may ignite is central to mitigating explosion risks. Integrating traditional controls with digital tools strengthens proactive hazard management, enhances compliance with Australian standards, and most importantly, protects people, property, and production continuity.

@Risk Underwriting supports the clients by:

• Identifying dust hazards and ignition sources
• Implementing effective safety controls
• Ensuring regulatory compliance
• Protecting people, assets, and production

Our experts provide practical strategies for facilities of all sizes, helping you manage risk proactively and keep operations safe.

For more information and enquiries, please contact us.