Neverending Catastrophe Season.
It can hardly be viewed as a silver lining, but the catastrophe-filled year of 2011 did provide insight into the changing nature of 21st-century catastrophe. Hurricanes and other large events used to dominate the insurance industry’s focus; today, severe weather such as strong thunderstorms, tornados and hail accounts for the majority of catastrophic (CAT) events—and 75 percent of U.S. catastrophe losses from 2006-2011. In the wake of climate change, both the frequency and severity of CAT events is on the rise.
“What used to be the anomaly is seemingly now the trend as it relates to severity,” says Mike Cincinelli, National Catastrophe Team Manager, Zurich in North America Property Claims. Cincinelli joined Zurich in 2004 and helped to create the team he manages.
As CAT events become more commonplace, preparedness becomes more vital. The flattening of the global business world has had many consequences, and more vigilant catastrophe preparedness is no different in this regard. Experts agree that companies must focus on their supply chain and its potentially far-reaching impact: consider the fact that last year’s catastrophes in Japan and Thailand had more indirect than direct economic impact.
“You can’t see directly behind the curtain as much as you used to,” says David Mahoney, who has more than two decades of business interruption consulting experience and is the Forensic Accounting Unit Manager, Zurich in North America Property Claims. “Before, you were purchasing from the manufacturer. That might not be the case now. You’ve got to look beyond your supplier, to your supplier’s supplier.”
Making sure that a business can continue to operate, or return to operation as soon as possible, in the wake of a catastrophe is a many-sided proposition. Choosing an insurance carrier with a global perspective, experience and expertise is at the core. A company such as Zurich that can see exposures and identify risks that are often beyond our borders, can shift resources among various locations around the globe, and has operated in the wake of international catastrophe countless times.
Identifying catastrophic risks—and understanding your exposure to these risks—is crucial, but not always straightforward. Consider the owner of two exclusive hotels, one in Los Angeles and one in Orlando, each of which requires calling a reservation center in Chicago. Protecting against exposure to earthquakes and fires in L.A. and windstorms in Orlando may seem obvious; however, it may not be clear at first blush that the business’ biggest exposure is in fact in Chicago, and should be protected accordingly against power outages, tornadoes, wind damage, and so forth.
“You should work with your insurer to identify gaps and to make sure that that you truly understand your exposure—what risk you’re willing to keep and what you want to transfer,” says Mahoney.
There are several things that businesses can and should do on their own to best prepare for a CAT event. Chief among them: have contingency built into your supply chain. Keeping the business rolling and protecting the source of funds in hard times is vital.
Maintaining redundancy with your financial information is another important consideration. Likewise, keeping a complete pre-loss inventory of assets, including detailed information on make, model and the like, will speed up and help optimize the recovery process. And while every business is different, every business should create a robust business continuity plan, review and update the plan yearly or as needed, and regularly practice or test the plan. When it comes to catastrophe and minimizing the total cost of loss, it’s all hands on deck.
“Operations, marketing, sales, accounting—once a CAT hits, everyone has responsibilities for getting the business back up and functional,” Mahoney says. “It takes everyone.”
This team approach comes naturally to Zurich, whose “one Zurich” approach is built on collaboration and fully integrated expertise—a carrier working with you during the challenges brought on by catastrophe.