Is Your Risk Management Keeping Pace With Increasing Catastrophic Liabilities?

MAY 2, 2023

Last year, Hurricane Ian caused $114 billion in damage when it made landfall in Southwest Florida. We also saw catastrophic flooding in eastern Kentucky, tornadoes in the South and Midwest, and a crippling winter storm impacting 42 states and Canada. The U.S. endured 18 separate disasters in 2022, where damages exceeded $1 billion each.

Organizations today must adjust their risk management strategies to keep up with this increasing threat landscape. The insurance industry is responding with reduced capacity as well as increased premiums and retentions. What should your organization do to navigate these threats and protect itself against damage, disruption and changing property market conditions?

2 Key Strategies

First, catastrophe risk modeling can help you adequately assess risk and determine proper insurance coverage, limits, retention, and pricing. Secondly, your emergency response planning must reflect today’s increasing threats. Pre-event tactics and post-event mitigation can help strengthen your organization’s resiliency.

Catastrophe risk modeling

Insurance companies use catastrophe risk modeling to examine an insured’s exposures to natural disasters, develop loss estimates, and determine capacity and pricing. USI helps clients take a more thoughtful approach to insurance coverage by using the same modeling that insurance companies use for major cost-driving events, such as hurricanes, floods, wildfires, severe weather, and earthquakes — but we take a closer look to identify which locations may be driving most of the estimated loss.

USI then gathers specific information on those properties, including building design and resiliency measures, and runs it through modeling again. This second look often generates a lower loss estimate, especially where clients have undertaken proactive risk mitigation, such as installing storm shutters and other weatherproofing. Using this data, USI negotiates with carriers. This can result in more favorable insurance pricing and terms and conditions.

For example, USI reviewed the property program for a new client and determined the client had purchased $100 million in earthquake coverage. From a catastrophe risk analysis, USI identified five locations that were driving 80% of the loss estimate. USI ran the analysis again, inputting additional information related to the buildings’ earthquake designs, and was able to lower the loss estimate for these properties. The client was able to reduce the limit by $50 million, resulting in a $50,000 savings on their premium.

Emergency response planning

High demand for contractors and supplies following a natural disaster can cause significant delays in rebuilding and recovery. Businesses are encouraged to plan ahead in order to avoid delays and ensure a faster recovery following a catastrophic event. USI assists clients with taking these and other necessary steps to prepare for a natural disaster:

  • Set up an agreeable claims service team — If possible, work with your insurance carrier to establish a designated account adjuster who is familiar with your operations and can help streamline insurance processes following a disaster.
  • Partner with an emergency response contractor (ERC) prior to a loss — This will ensure that you receive a priority response following an event when resources are scarce. The partnership also allows the ERC to develop a recovery plan specific to your operations and exposures before a loss occurs.
  • Develop an emergency response team and action plan — The plan should be specific to your operations and exposures, and should designate an emergency response team to carry out action tasks before, during, and after a catastrophic event.

Developing an effective emergency response plan can get your business up and running more quickly and potentially save thousands of dollars in damages and lost profits.