Storm Ready

By | June 2, 2008

Forecasters predict that the 2008 Atlantic hurricane season will be an active one for hurricane and tropical storm formation. The National Oceanic and Atmospheric Administration’s most recent forecast sees 12 to 16 named storms between June 1 and November 30. NOAA is not alone — other forecasters also believe conditions are ripe for an active storm season.

Because the past two years have seen less hurricane landfall activity that predicted by the same forecasters, there is a danger of complacency. Yet all it takes is one storm to prove the folly of a lackadaisical approach.

“While predictions of hurricane activity are important, insurance and reinsurance buyers must remember that any storm can cause massive destruction, whether that storm occurs in a season of above-normal activity or below-normal activity,” said Steven Drews, lead meteorologist and associate vice president of Impact Forecasting LLC, a unit of Aon Re Global. “Hurricane Andrew in 1992 and hurricanes Dean and Felix in 2007 each caused massive destruction — during periods of relatively light activity.”

Property owners, employers, risk managers, insurance agents, insurance adjusters and emergency workers should all be prepared for the storm season ahead, with well-tested plans, procedures and equipment. “Organizations may become complacent in their loss-mitigation planning if they haven’t experienced a property loss in some time,” added Arnold Mascali, president of Aon Horizon and Aon Global Rapid Response. “Such complacency can leave them vulnerable to significant losses if catastrophes strike their facilities while they’re not adequately prepared.”

Preparations should include steps to mitigate any business interruption that might occur. “We advise our clients to focus on how best to protect their people, property and data, as well as the ability to communicate,” Al Tobin, managing director and leader of Aon’s property practice. “Also, we urge clients to procure generators, temporary employee housing and restoration services before or early in the hurricane season, as such services are often difficult to get after a storm hits.”

Preparedness is more than shelters, generators and evacuation routes — it also requires property owners and employers understand their insurance policies, knowing to what extent real property, business income and contents are insured and what, if any, wind deductibles they have. Proactive insureds and risk managers might touch base with their agents or brokers to review their coverages. In storm-prone communities, agents and brokers should provide insureds with the information they need before they are asked for it.

Insurers themselves must be prepared. A recent Aon Re study underscored the view that ceding risks through the reinsurance markets is one of the best methods insurance companies can use to manage their risks and drive shareholder value. The study of insurance company stock price reaction to 2005 hurricanes Katrina, Rita and Wilma found that insurance company stock prices were more sensitive to a single large loss (i.e. Hurricane Katrina alone) than to an aggregation of loss events (i.e. Katrina, Rita and Wilma combined).

The silver lining is that the low severity of property catastrophe losses since 2006 is driving what Aon Re Global expects will be favorable pricing for property catastrophe reinsurance programs for insurers’ mid-year renewals.

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Insurance Journal West June 2, 2008
June 2, 2008
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