When businesses assess risks, they often consider factors such as data breaches, operational disruption, compliance or reputational risk. Natural disasters are unlikely to top the list, but increasingly, extreme weather events are disrupting business operations and affecting the bottom line.
According to a recent report by Allianz Global Corporate & Specialty (AGCS), natural disasters are the largest driver of corporate insurance losses in the US. And with climate change increasing the frequency and severity of extreme weather events – such as hurricanes, floods, wildfires and heat waves – businesses would be wise to consider these factors as part of their corporate planning and risk assessment. ,
rise of disruptive events
Natural disasters will continue to pose a tremendous risk to corporations as recent events have shown the impact weather can have on business operations. Take heat stroke for example. Across Europe, rail delays caused suspended flights due to runway damage, power and cloud-computing outages caused by overheated equipment and speed restrictions due to extreme heat. Higher temperatures are an emerging trend, not an anomaly. Our research shows that by 2050, 350 million people in the world’s largest cities are projected to be affected by heat stress.
In addition, the Atlantic experienced another busy hurricane season with 14 named storms, including eight hurricanes. The damage from Hurricanes Ian and Nicole caused spikes in already volatile materials costs, affecting building construction and reconstruction costs across the country. Meanwhile, drought affects agriculture and transportation businesses, as seen in recent disruption from low water levels in the Mississippi River. The costs of these types of disasters—both in terms of property damage and business interruption—are expected to rise. Our analysis estimates that disasters will result in approximately $123 billion in annual global insured losses, compared to an average of $74 billion in actual losses over the past 10 years.
expansion risk scenario
While some areas of the country are prone to extreme events, such as tornadoes in the Plains states and wildfires in California, no matter where a business operates, there is a high likelihood that an extreme event will affect it. Will affect According to a recent study by Research by Design, 90 percent of counties in the Americas have experienced a weather-related disaster in the past decade.
Traditional regional weather risks are on the rise. The threat of hail is no longer limited to states considered “hail alley,” and tornado activity has been moving eastward for several years. In 2022 alone, catastrophic flooding events ravaged inland areas of Kentucky, Missouri, southwest Virginia and even the Las Vegas Strip, which were not typically susceptible to flood risk. “Weather” specific risks are also on the rise, as wildfires become a year-round concern due to warming trends in the West, drought patterns, and earlier snowmelt.
These trends require corporations to take a broad view of the risks and assess the myriad ways they could affect their business. For example, even a company with a largely remote workforce may experience a decrease in productivity if a significant number of employees are unable to work due to an extreme event in their respective area. This was the case during the Texas deep freeze in February 2021, when more than 4 million people lost power, many of them working from home during the height of the pandemic.
build resilience
As weather risks increase in frequency and reach, corporate interests must build resilience to these extreme events and their impacts. Businesses should broaden their view of risk and expand existing business continuity and emergency management plans to consider potential exposure to climate risks.
Leveraging a wide variety of data (including geospatial, asset, structure, location, landscape and climate) to build predictive analytical models to assess insurance industry risks, forecast potential losses and inform resilience strategies has been monitoring and developing mitigation strategies over the years.
Those strategies have the potential to help businesses and communities become more resilient to disasters by better understanding risks and promoting mitigation. An example of this has been the development of robust building codes. In Florida, structures that followed the new building code fared better during Hurricane Ian than those that did not follow the existing rules.
As the impacts of climate change become more significant—costing businesses both financially and operationally—risk mitigation and resilience strategies will become paramount for corporations. And the insurance industry already has the blueprint.
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