Following the exceptionally severe and prolific catastrophes experienced globally in 2011, organizations now have an opportunity to learn lessons from these events and reduce the adverse impact of future incidents on their balance sheets.
According to a paper published today by Marsh, the scale of the catastrophes experienced in 2011 exceeded previous loss-modeling predictions and has challenged established thinking on the nature of risk. The paper says that, post-2011, companies need to re-examine their risk management strategies and introduce new methodologies to strengthen their operational and financial resilience.
In its paper, “Lessons Learned from the Catastrophes of 2011,” Marsh identifies five major risk and insurance topics arising from events of 2011, namely denial of access; strike, riot, civil commotion or terrorism; the differences between flood and storm damage; contingent business interruption; and 72-hour insurance notification clauses.
According to Marsh, the catastrophe events of 2011 events have raised concerns around the suitability of standard denial of access cover, which is typically only for short-term incidents.
Marsh also highlights the growing importance to businesses of contingent business interruption (CBI) insurance, especially in the wake of supply chain failures following the Japanese earthquake/tsunami and Thailand floods.
“While the risks associated with the events of 2011 were largely understood, their sheer scale and complexity, combined with the devastation they caused, were unprecedented,” said David Pigot, chairman of Marsh’s Global Claims Practice. “These events not only exposed weaknesses in the risk strategies of many organizations worldwide, they also challenged the insurance industry to develop policy wordings that are more responsive to this rapidly evolving risk landscape.”
Pigot said organizations need to explore “every necessary measure” to protect their people, physical assets and balance sheets. “By learning the lessons from past events, companies can reduce the likelihood and impact of future losses and minimize their insurance claims,” he said.
He said that while not all damage and economic losses are insured, there has still been a significant insurance and risk management response to the events of 2011 and in general, he believes the insurance industry has “demonstrated its value and played its role in the process of regeneration for affected clients and communities.”
The report was released today, opening day of the annual Risk and Insurance Management Society (RIMS) meeting, which is being held in Philadelphia.
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