July 18, 2016 by Canadian Underwriter
Many mid-sized firms may lack adequate insurance, continuity planning, risk management and civil infrastructure support to prepare for and recover from large-scale natural disasters, suggests a new report from Assurex Global, a privately-held commercial insurance, risk management and employee benefits brokerage group based in Colombus, Ohio.
Even as middle market businesses in all parts of the world view their exposures to natural catastrophes as increasing, many fall short of managing these risks effectively, Assurex Global said in a statement on Monday. The survey, conducted by Assurex Global of its partners firms around the world, involved more than 80 independent insurance brokers whose commercial clients operate primarily within their own countries.
In the survey, inland flooding was considered the most significant natural catastrophe risk for middle market businesses, cited by 70% of the brokers; followed by hurricanes, cyclones and windstorm (50%) and earthquakes and tsunami (38%). Responses varied somewhat by region, with hurricanes rated the top risk in the United States and Canada, earthquakes/tsunami in Latin America and the Caribbean, and inland flooding in Asia/Pacific and across Europe, the Middle East and Africa (EMEA).
“Although the types of natural catastrophe risks facing businesses vary somewhat in different areas of the world, there’s a common thread in terms of what must be in place for middle market businesses to manage them effectively,” said Jim Hackbarth, CEO of Assurex Global, in the statement. “Certainly, having sufficient catastrophe insurance, effective business continuity management and a civil infrastructure that supports preparedness, response and recovery are all keys to managing these significant exposures. Further, senior leadership’s support of the company’s risk management measures is universally paramount to their implementation as well as to the company’s ultimate success and survival.”
According to the survey, which was conducted in June and July, more than half the brokers indicated that their clients believe their exposure to natural catastrophe risks has increased in the past five years (including 78% of those in Latin America and the Caribbean and 67% of those in Asia/Pacific).
In the face of increased risks, nearly one-fourth of the brokers surveyed worldwide estimated that fewer than 20% of middle market businesses in their regions now feel they are adequately prepared and insured for natural catastrophes. These estimates varied sharply by region, with 44% of brokers in Latin America/Caribbean citing the same low level of preparedness; 33% in Asia/Pacific; 28% in EMEA, and 11% of U.S. and Canadian brokers.
When asked to list steps taken by clients that feel adequately prepared for natural disasters, 90% of worldwide brokers cited client purchases of catastrophic property insurance; 68% pointed to the establishment of business continuity plans and 40% indicated their clients retrofitted their facilities to withstand a disaster. In addition, 30% indicated these clients had worked to strengthen supply chains and 27% noted client efforts to increase worker response training, the statement said.
On the other hand, when brokers were asked to list reasons clients might offer for not being adequately prepared for natural disasters, lack of effective business continuity planning was the biggest factor, cited by 60% of brokers. Meanwhile, 39% mentioned lack of affordable insurance coverage for catastrophe risks, and 36% noted lack of support from leadership for measures to manage catastrophe risks.
Although one-third of the brokers worldwide indicated their clients would tie inadequate readiness to the lack of available government/civil infrastructure to facilitate preparedness, response, recovery and protection of affected plant and equipment, the issue is especially pronounced for businesses in Asia/Pacific, where it was cited by 67% of brokers. By contrast, only 13% of brokers in the U.S. and Canada expressed the same concerns. In addition, issues related to lack of leadership support also appear acute in the Asia/Pacific region, cited by 60% of the brokers.
Among the most significant factors flagged by brokers around the world in determining whether a client is adequately prepared for a natural catastrophe, 71% cited internal support from senior leadership; an equal percentage identified company size and resources, believing clients view these factors as correlated with better protection and preparedness. In addition, 45% of brokers cited the presence of a corporate risk manager or risk management function, and 42% pointed to the availability of a civil infrastructure (including emergency responders, evacuation routes, shelters, and related resources) to help facilitate preparedness and recovery.
According to the brokers surveyed, middle market clients would cite several elements of disaster risk management as needing improvement, with the responses varying markedly by region. For instance, although 25% of brokers worldwide cited the availability of adequate and affordable property catastrophe insurance, 56% of those in Latin America/Caribbean identified that issue, ranking it the region’s top factor for improvement. And while 25% of brokers around the world cited improvements in government infrastructure to facilitate preparedness and recovery, these needs were cited by nearly half those in Asia/Pacific and 38% in EMEA, making it the biggest element to target for improvement in those two regions.