Willis Report Warns of Growing Risks from Natural Catastrophe Exposures

“The growing threat of natural catastrophes is raising serious challenges for corporate risk managers and the insurance industry,” according to the second issue of Resilience magazine, the risk management publication from Willis Group Holdings.

Rowan Douglas, Chairman of the Willis Research Network (WRN) explained that the “breadth and impact of natural disasters in recent years, coupled with growing concern about the emerging effects of climate change on assets and business operations, have driven resilience to natural hazards high up the corporate risk agenda.”

The release of the findings coincides with the Risk and Insurance Management Society (RIMS) annual conference in California, which, Willis points out, “sits on the San Andreas fault, where the earth’s Pacific and North American plates meet. The Working Group on California Earthquake Probabilities currently puts the state’s chance of a magnitude 6.7 or larger earthquake during the next 30 years at 99.7 percent.”

Charles Scawthorn, author of the Earthquake Engineering Handbook and a member of the WRN, estimated that a repeat of the horrific 1906 San Francisco earthquake today could lead to total direct losses worth $69 billion. “That is the best estimate,” he said. “Under adverse meteorological and other conditions, the loss could be much higher due to fire following the earthquake, as it was in 1906.”

Elsewhere in Resilience, James Daniell, founder of the CATDAT Damaging Earthquake Database and research fellow at the WRN, claimed the number of “damaging earthquakes” is rising in countries with very high levels of life expectancy, education and income. The last three years saw the greatest number of damaging earthquakes in countries with a very high human development index (HDI). Yet, insurance for related losses remains low, with insurance only covering about 7.5 percent of all earthquake losses in 2012.”

Douglas explained that “a changing climate, an imperfect understanding of seismic hazards, new vulnerabilities and shifting patterns of exposure provide plenty of challenges for those trying to manage and underwrite extreme events. Uncertainties persist but the science and tools we build upon them are providing a fundamental platform for our understanding. The final lesson remains the same: be prepared, flexible and adaptable for the unexpected.”

Phil Ellis, CEO of Willis Global Solutions Consulting Group, also writing in Resilience, said: “Major catastrophes – so called ‘black swans’ – are not the rare risks they once seemed. Population density, urbanization, globalization and climate change make the world increasingly interconnected. A catastrophe in a far-off locale is no longer a remote risk; it could have an immediate impact on a company’s operations. Risk modeling can help companies understand, quantify and articulate threats to the bottom line, which in turn helps them plan and prepare for these scenarios.”

Willis publishes Resilience twice a year. It is available online. Each issue will explore how different risks affect multinational organizations and suggest strategies to overcome these issues.

As well as insights from Willis’ leading thinkers, the magazine includes perspectives from professional risk managers and other third party sources.

A sample of articles from this issue of Resilience includes:
1. Risk management renaissance: Corporate scandals have raised the profile of risk management in the boardroom, according to an interview with John Phelps, President of the Risk and Insurance Management Society (RIMS). Economic uncertainty, increased regulation, political unrest and technological risks are some of the biggest challenges facing corporate risk managers at this time, he said.

2. Executive risks: Insider trading is at the top of the US Securities and Exchange Commission’s (SEC) enforcement priorities list. “With stepped up enforcement and new rules of play, organizations must review policies,” says Ann Longmore, Executive Vice President in Willis’ Financial and Executive Risks Practice (FINEX).

3. An unhealthy obsession: Healthcare costs are rising around the world because of sedentary, unhealthy lifestyles, longevity and the challenge of sustaining aging populations. “Self-insurance is gaining traction as one way for organizations to get a firmer grip on healthcare costs,” said Holger Hjortlund, CEO of Willis International’s Human Capital Practice.

4. Hitting the wall: The current tough economic climate is hitting construction companies hard. “Mothballed sites and slowed construction present risk management challenges,” said Mark Theriault, Senior Vice President and Practice Leader for New York Construction at Willis. “The ability to adapt to this ever changing building environment is critical.”

Source: Willis Group Holdings plc

Topics Catastrophe Risk Management