Disaster Preparedness

A couple of new studies appear to shed light on the continuing need to communicate the importance of insurance for small business owners.

First, a Nationwide-sponsored survey found that 66 percent of small businesses do not have business interruption insurance (hat tip to Insurance Journal for its report here). This is despite the fact that an estimated 25 percent of businesses do not reopen following a major disaster.

Most small business owners are at risk of disaster, Nationwide noted. Some 75 percent of small businesses do not have a disaster recovery plan in place, even while 52 percent say it would take at least three months to recover from disaster.

Nationwide commissioned the survey from Harris Interactive, which polled 500 U.S. small business owners with fewer than 300 employees from June 8-19, 2015.

In a press release, Mark Pizzi, president and chief operating officer of Nationwide Direct and Member Solutions, said:

Small businesses are least likely to have disaster recovery insurance. And yet they are the ones most affected by a disaster. That’s why it’s essential for small businesses to have a disaster recovery plan.”

Meanwhile, a J.D. Power study found that many small business owners are unaware that insurers even provide commercial insurance.

Less than one-fourth of small business owners said they were aware that nine of the 17 insurance providers included in the study offer insurance for business customers.

Only six insurers had awareness rates above 40 percent for their commercial insurance offerings, and five of these are among the largest personal lines insurers, J.D. Power said.

While advertising is important to spread brand awareness, the study suggested that commercial insurers have better success when they develop awareness through agents/brokers, trade groups and word of mouth from other businesses.

The proportion of customers who considered/shopped an insurer among all potential prospects is 61 percent when awareness comes from an agent/broker or trade group, compared with just 38 percent when awareness is attributed solely to advertising.

Still, the study—now in its third year—found that small business customers are increasingly satisfied with their insurance providers. Overall satisfaction was up 10 points at 793 on a 1,000-point scale in 2015, due primarily to improvements in price and policy offerings.

The 2015 U.S. Small Business Commercial Insurance study is based on 3,292 responses from insurance decision-makers in businesses with 50 or fewer employees that purchase general liability and/or property insurance and was fielded from April through June 2015.

The Insurance Information Institute’s excellent online resource for business insurance is available here.

The Insurance Information Institute (I.I.I.) is looking back at the costliest hurricane in U.S. history that took 1,800 lives and cost $125 billion in total economic losses, via a comprehensive infographic.

Insurance claims by coverage and state, total National Flood Insurance Program losses from Katrina, and other sources of Katrina recovery funds are all detailed.

Another compelling section to the infographic asks where are we now?

One of the fascinating analogies it draws is that even as awareness of flooding due to coastal storms rises, so too does the population of coastal communities.

As the I.I.I. notes, the 10 year anniversary of Hurricane Katrina gives us a timely opportunity to look at the nation’s preparedness for megadisasters.

I.I.I. disaster preparedness experts will be available via satellite media tour on Thursday August 27 to discuss how individuals and small business owners can better prepare.

View the infographic below to see Hurricane Katrina by the numbers:





Technology is not enough in the fight against cybercrime, effective cybersecurity measures require policy and process changes as well.

That’s the takeaway from an analysis of cyber-risk spending included in the 2015 U.S. State of Cybercrime Survey recently released by PwC.

While cybersecurity budgets are on the rise, companies are mostly reliant on technology solutions to fend off digital adversaries and manage risks.

Among the 500 U.S. executives, security experts and others from public and private sectors responding to the survey, almost half (47 percent) said adding new technologies is a spending priority, higher than all other options.

Notably, only 15 percent cited redesigning processes as a priority and 33 percent prioritized adding new skills and capabilities.

When asked whether they have the expertise to address cyber risks associated with implementation of new technologies, only 26 percent said they have capable personnel on staff. Most rely on a combination of internal and external expertise to address cyber risks of new solutions.


As PwC advises:

Companies that implement new technologies without updating processes and providing employee training will very likely not realize the full value of their spending. To be truly effective, a cybersecurity program must carefully balance technology capabilities with redesigned processes and staff training skills.”

Employee training and awareness continues to be a critical, but often neglected component of cybersecurity, PwC said. Only half (50 percent) of survey respondents said they conduct periodic security awareness and training programs, and the same number offer security training for new employees.

Some 76 percent of respondents to the survey said they are more concerned about cybersecurity threats this year than in the previous 12 months, up from 59 percent the year before.

As PwC noted, in today’s cybercrime environment, the issue is not whether a business will be compromised, but rather how successful an attack will be.

Check out Insurance Information Institute (I.I.I.) facts and statistics on cybercrime here.

As many parts of the United States enter another day of high heat and humidity, we’re reading about the first ever heatwave warning guidelines issued by the United Nations earlier this month.

The guidelines are intended to alert the general public, health services and government agencies via the development of so-called heatwave early warning systems that should ultimately lead to actions that reduce the effects of hot weather extremes on health.

As the foreword to the publication states:

Heatwaves are a dangerous natural hazard, and one that requires increased attention. They lack the spectacular and sudden violence of other hazards, such as tropical cyclones or flash floods, but the consequences can be severe.”

In their joint guidance, the World Health Organization (WHO) and the World Meteorological Organization (WMO) note that heatwaves are becoming more frequent and more intense as a result of climate change.

According to the Intergovernmental Panel on Climate Change, the length, frequency and intensity of heatwaves will likely increase over most land areas during this century.

Recent world heatwave events come to mind:

Both India and Pakistan were hit by deadly heatwaves in the first half of 2015, leading to 3,600 fatalities, according to Munich Re. Temperatures were exceptional, climbing as high as 47°C and accompanied by high humidity which compounded the effect.

European heatwaves in the summer of 2003 led to the deaths of tens of thousands of people, as did the Russian heatwaves, forest fires and associated air pollution in 2010. In fact, the Russian heatwave of 2010 still ranks among the top 10 deadliest world catastrophes 1970-2014.

The UN guidance makes the case that one way to manage the risk of heat-related health effects is through the development of a Heat Health Warning System (HHWS) as part of a broader Heat Health Action Plan (HHAP).

Of primary concern in an HHWS, it notes, is how to assess the level of heat stress associated with the meteorological or climate forecast, translate this into an estimate of a likely health outcome and identify a critical heat-stress threshold for a graded plan of action.

Typically, HHWSs are composed of a number of elements, including:

  • Weather forecasts of high temperatures that may also include humidity;
  • A method for assessing how future weather patterns may evolve in terms of a range of health outcomes;
  • The determination of heat-stress thresholds for action;
  • A system of graded alerts/actions for communication to the general population or specific target groups about an impending period of heat and its intensity and to government agencies about the possible severity of health impacts.

A number of cities and countries around the world have developed these early warning systems, including Canada, England, France, Germany, Italy, the United States and Australia.

The first HHWS was actually implemented in the city of Philadelphia in the United States in 1995. In this system, local city staff work with the National Weather Service (NWS) to determine when a heatwave is imminent.

After an alert is issued, the Philadelphia Health Department contacts news organizations with tips on how vulnerable individuals can protect themselves. People without air conditioning are advised to seek relief from the heat in shopping malls, senior centers and other cool spaces.

Friends, relatives, neighbors and other volunteers are also encouraged to make daily visits to elderly people during the hot weather, ensuring the most susceptible individuals have sufficient fluids, proper ventilation and other amenities to cope with the weather.

After the success of Philadelphia, similar tailor-made systems are being implemented for the 50-60 cities in the U.S. with a population of more than 500,000 and a local meteorological office, the guidance notes.

The NWS reports that heat is typically the leading cause of weather-related fatalities each year.


Check out Insurance Information Institute (I.I.I.) facts and statistics on drought and heatwaves here.

By now you’ll have read the latest forecasts calling for a below-average Atlantic hurricane season.

NOAA, Colorado State University’s Tropical Meteorology Project, North Carolina State University, WSI and London-based consortium Tropical Storm Risk all seem to concur in their respective outlooks that the 2015 hurricane season which officially begins June 1 will be well below-norm.

TSR, for example, predicts Atlantic hurricane activity in 2015 will be about 65 percent below the long-term average. Should this forecast verify, TSR noted that it would imply that the active phase for Atlantic hurricane activity which began in 1995 has likely ended.

Still it’s important to note that the forecasts come with the caveat that all predictions are just that, and the likelihood of issuing a precise forecast in late May is at best moderate. In other words, uncertainties remain.

These are wise words.

A recent report by Karen Clark & Co pointed to the rising vulnerability of the U.S. to hurricanes and other coastal hazards because of increasing concentrations of property values along the coast.

Of the $90 trillion in total U.S. property exposure, over $16 trillion is in the first tier of Gulf and Atlantic coastal counties, an increase from $14.5 trillion in 2012, KCC said.

KCC then superimposed 100 year U.S. hurricane events on the 2014 property values in its database. The result was that three regions—Texas, Florida and the Northeast—emerge as the most likely for mega-catastrophes.

In all of these regions, the largest losses from the 100 year hurricanes making landfall near Galveston-Houston, Miami and Western Long Island, are much larger than the 100 year PMLs (Probable Maximum Losses).

As insurance industry execs know, it only takes one hurricane to make landfall for a below-average season to become active and record losses to ensue. Here’s a visual of what the 1992 season—the year of Hurricane Andrew—looked like, courtesy of Weather Underground:


Hurricane facts and statistics are available from the I.I.I. here.

While certain parts of the country hold tornado drills and others test tornado preparedness systems, weather experts are pondering the slow start to tornado season.

Capital Weather Gang cites a weather.com report that not a single tornado has been reported to the National Weather Service in March, typically the first month of severe weather season in the Plains and Southeast.

The only other year since 1950 that there have been zero tornado reports in the first half of March was 1969, according to the Weather Channel’s severe weather expert Dr. Greg Forbes.

Per Dr. Forbes’ report from January 1 to March 12, only 27 tornadoes had been documented across the nation – the slowest start to the year since the 21 tornadoes recorded through March 12, 2003.

Sure enough a glance at the latest U.S. tornado statistics recorded by NOAA’s Storm Prediction Center shows 28 preliminary tornado reports so far in 2015 – 26 in January and 2 in February and 0 in March (to March 13).

Here they are:


As insurers know, a slow start to any catastrophe season is not something to hang your hat on.

In an average year, about 1,000 tornadoes are reported nationwide and tornadoes are among the largest causes of insured losses in any given year, accounting for 37.2 percent of insured catastrophe losses from 1994 to 2013, according to I.I.I. facts and statistics on tornadoes and thunderstorms.

Meanwhile, Climate Central reports that an experimental forecast team has put together the first seasonal outlook for tornadoes in the U.S. That forecast suggests the highest chances are for an average tornado season.

The researchers from Columbia University looked into how cyclical climate patterns known as El Niño and La Niña influence the larger atmospheric environment that sets the stage for tornado activity.

In a new study published in the journal Nature Geoscience they show that while El Niño tends to dampen tornado activity, La Niña can give it a boost.

Because the El Niño declared by forecasters earlier this month is a very weak one, the Columbia team is limited in what they can say about this year’s season, Climate Central says.

But based on their findings, the team gives a 60 percent chance that the 2015 tornado season will see normal levels of activity, a 30 percent chance that it will be below normal and a 10 percent chance it will be above normal.

Most actuaries know about projections that go awry, so we have quite a bit of sympathy for the weather forecasters who missed the mark early this week, says I.I.I.’s Jim Lynch:

Weather forecasts have improved dramatically in the past generation, but this storm was odd. Usually a blizzard is huge. On a weather map, it looks like a big bear lurching toward a city.

This storm was relatively small but intense where it struck. On a map, it looked like a balloon, and the forecasters’ job was to figure out where the balloon would pop. They were 75 miles off. It turned out they over-relied on a model – the European model, which had served them well forecasting superstorm Sandy, according to this NorthJersey.com post mortem.

There are lessons for the insurance industry from the errant forecast and the (as it turns out) needless shutdown of New York City in the face of the blizzard that wasn’t:

  • • Models aren’t perfect. Actuaries, like weather forecasters, have multiple forecasting models. Like forecasters, actuaries have to know the pros and cons of each model and how much to rely on each one given the circumstances. Actuaries and forecasters both bake their own experience into their final predictions.
    Property catastrophe models are considerably cruder than the typical weather forecasting model. By crude I mean less accurate. Cat models project extreme events, where data are sparse and everything that happens has an oversize influence on everything else that is happening. Woe to the insurer that over-relies on cat models, something cat modelers themselves say regularly.
  • • It’s hard to pick up the flag once you have planted it. Forecasters suspected late Monday that New York City would be spared the brunt of the storm, but acknowledge now they were reluctant to make too big a change because it could hurt their credibility, particularly if the new forecast had proved too mild. This is a human failing both by the forecaster and its recipient, both of whom worry about crying wolf.
    The tendency also helps explain why it is hard to project market turns, whether they are from growth to recession or from rising insurance rates to falling.
  • • Policymakers have egg on their faces today, but they appear to have been following sound risk management principles. It’s not unusual to prepare for disasters that don’t happen, something to think about next time you unbuckle a seatbelt or unlock a door. The scale this week was much larger, but the principle was the same. Needlessly closing a subway is better than stranding hundreds on it, and the occasional forecaster’s error is certainly better than the crude prognostication that gave us the Galveston hurricane or the Schoolchildren’s Blizzard.

I.I.I. has Facts and Statistics about U.S. catastrophes in general and winter storms in particular.

Check out this timelapse video of the blizzard hitting Boston:

Why are some countries more resistant to supply chain disruption or better able to bounce back?

According to Margareta Wahlström, United Nations Special Representative of the Secretary-General (SRSG) for Disaster Risk Reduction, this is a puzzle that world leaders are perpetually trying to solve.

Hence the inherent value in a new online interactive tool from FM Global that ranks countries by supply chain resilience.

The 2014 FM Global Resilience Index ranks the business resilience of 130 countries around the world.

Nine key drivers of supply chain risk are grouped into three categories: economic, risk quality and supply chain factors. These combine to form the composite index. Scores are bound on a scale of 0 to 100, with 0 representing the lowest resilience and 100 the highest resilience.

Jonathan Hall, executive vice president, FM Global, explains:

Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation. As supply chains become more global, complex and interdependent, it is essential for decision makers to have concrete facts and intelligence about where their facilities and their suppliers’ facilities are located.”

So which countries rank at the top of the index?

According to FM Global, Norway (score: 100), Switzerland (score: 98.9) and Canada (score: 93.2) are the top three countries most resilient to supply chain disruption.

At the other end of the scale, the index finds Kyrgyzstan (score: 6), Venezuela (score: 2.5) and the Dominican Republic (score: 0) as the countries least resilient to supply chain disruption.

Where did the United States fall?

Because of its geographic spread and disparate exposures to natural hazards, the U.S. is divided into three separate regions. All three rank in the top 25.

You might also be interested to know that China (also divided into three separate regions) ranks in the top 75. China’s weakest region includes Shanghai and ranks particularly low as a result of poor risk quality due to acute natural hazards.

Another key takeaway is the biggest riser: Bosnia and Herzegovina. The country climbed 19 places from last year, due to improvements in its political risk and in the quality of local suppliers.

And one of the top fallers in the 2014 Index is Bangladesh, with FM Global citing declining quality of both natural hazard risk management and fire risk management.

FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings. The index allows you to browse country rankings and scores from 2011 to 2014.

With two months to go to the one-year anniversary of Hurricane Sandy, a federal task force created after the storm has issued a report that’s getting a lot of media coverage.

The plan includes 69 policy initiatives, of which a major recommendation is to build stronger buildings to better withstand future extreme storms amid a changing climate.

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, and chair of the task force, notes:

Last year alone, there were 11 different weather and climate disaster events across the United States with estimated losses exceeding $1 billion each. We know that every dollar we spend today on hazard mitigation saves us at least $4 in avoided costs if a disaster strikes again. By building more resilient regions, we can save billions in taxpayer dollars.”

The report makes clear that rebuilding to outdated standards is no longer an option given the impact of climate change and rising sea levels:

No single solution or set of actions can anticipate every threat, but decision makers at all levels must recognize that climate change and the resulting increase in risks from extreme weather have eliminated the option of simply building back to outdated standards and expecting better outcomes after the next extreme event. There is clear evidence at the national level that investments made to mitigate risk have achieved significant benefits.”

One section of the plan focuses on addressing insurance challenges, understanding and affordability.

Specifically, the taskforce recommends: streamlining payouts to policyholders in the wake of disaster; improving policyholder awareness of factors that affect flood risk and insurance rating decisions; and studying affordability challenges of flood insurance as the National Flood Insurance Program (NFIP) transitions toward full risk rates.

PC360 has more on this story.

Check out I.I.I. facts and statistics on flood insurance here.

Oceanic and atmospheric conditions in the Atlantic basin are expected to produce more and stronger hurricanes during the 2013 Atlantic hurricane season which starts this Saturday June 1 and lasts until November 30, according to the National Oceanic and Atmospheric Administration (NOAA).

In its 2013 Atlantic hurricane season outlook, NOAA’s Climate Prediction Center is forecasting an active or extremely active season this year.

This means there is a 70 percent chance of 13 to 20 named storms (winds of 39 mph or higher), of which 7 to 11 could become hurricanes (winds of 74 mph or higher), including three to six major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

These ranges are well above the seasonal average of 12 named storms, six hurricanes and three major hurricanes, NOAA says.

Dr. Kathryn Sullivan, NOAA acting administrator reminds us:

As we saw first-hand with Sandy, it’s important to remember that tropical storm and hurricane impacts are not limited to the coastline. Strong winds, torrential rain, flooding and tornadoes often threaten inland areas far from where the storm first makes landfall.”

There’s no better time than National Hurricane Preparedness Week for residents to take steps to prepare their home, family, and business against hurricanes and other
severe weather.

Also check out disaster preparedness information from the I.I.I. to make sure you are prepared and organized before a storm hits.

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