Substantial gap exists between catastrophe risks and readiness of middle market businesses: survey
- Published: Tuesday, 19 July 2016 07:59
Even as middle market businesses in all parts of the world view their exposures to natural catastrophes as increasing many fall short of managing these risks effectively, according to a new survey. Assurex Global polled senior executives at more than 80 leading independent insurance brokers from around the world whose commercial clients operate primarily within their own countries and found that many mid-sized firms lack adequate insurance, business continuity planning, risk management and civil infrastructure support to prepare for and recover from large-scale natural disasters.
In the survey, inland flooding was considered the most significant natural catastrophe risk for middle market businesses, cited by 70 percent of the brokers; followed by hurricanes, cyclones and windstorm (50 percent), and earthquakes and tsunami (38 percent). Understandably, responses varied somewhat by region, with hurricanes rated the top risk in the US and Canada; earthquakes/tsunami in Latin America and the Caribbean; and inland flooding in the Asia/Pacific and across Europe, the Middle East and Africa (EMEA).
“Although the types of natural catastrophe risks facing businesses vary somewhat in different areas of the world, there’s a common thread in terms of what must be in place for middle market businesses to manage them effectively,” said Jim Hackbarth, CEO, Assurex Global. “Certainly, having sufficient catastrophe insurance, effective business continuity management and a civil infrastructure that supports preparedness, response and recovery are all keys to managing these significant exposures. Further, senior leadership’s support of the company’s risk management measures is universally paramount to their implementation as well as to the company’s ultimate success and survival.”
Natural disaster risks on the rise
Worldwide, more than half the brokers indicated their clients believe that their exposure to natural catastrophe risks has increased in the past five years, including 78 percent of those in Latin America and the Caribbean and 67 percent of those located in the Asia/Pacific.
Many businesses unprepared
In the face of increased risks, nearly one-fourth of the brokers surveyed worldwide estimated that fewer than 20 percent of middle market businesses in their regions now feel they are adequately prepared and insured for natural catastrophes. These estimates varied sharply by region, with 44 percent of brokers in Latin America/Caribbean citing the same low level of preparedness; 33 percent in the Asia/Pacific, 28 percent in EMEA, and 11 percent of US and Canadian brokers.
Insurance and business continuity planning are key elements of catastrophe risk management
When asked to list steps taken by clients that feel adequately prepared for natural disasters, 90 percent of the brokers worldwide cited client purchases of catastrophic property insurance, 68 percent pointed to the establishment of business continuity plans, and 40 percent indicated their clients retrofitted their facilities to withstand a disaster. In addition, 30 percent indicated these clients had worked to strengthen supply chains and 27 percent noted client efforts to increase worker response training.
On the other hand, when brokers were asked to list reasons clients might offer for not being adequately prepared for natural disasters, lack of effective business continuity planning was the biggest factor, cited by 60 percent of the brokers. Meanwhile, 39 percent mentioned lack of affordable insurance coverage for catastrophe risks and 36 percent, lack of support from leadership for measures to manage catastrophe risks.
Lack of civil infrastructure and leadership issues undermine readiness
Although one-third of the brokers worldwide indicated their clients would tie inadequate readiness to the lack of available government/civil infrastructure to facilitate preparedness, response, recovery and protection of affected plant and equipment, the issue is especially pronounced for businesses in the Asia/Pacific, where it was cited by 67 percent of brokers. By contrast only 13 percent of brokers in the US and Canada expressed the same concerns. In addition, issues related to lack of leadership support also appear acute in the Asia/Pacific region, cited by 60 percent of the brokers.
Among the most significant factors flagged by brokers around the world in determining whether a client is adequately prepared for a natural catastrophe, 71 percent cited internal support from senior leadership; an equal percentage identified company size and resources, believing clients view these factors as correlated with better protection and preparedness. In addition, 45 percent of brokers cited the presence of a corporate risk manager or risk management function and 42 percent, the availability of a civil infrastructure (including emergency responders, evacuation routes, shelters, and related resources) to help facilitate preparedness and recovery.
According to the brokers surveyed, middle market clients would cite several elements of disaster risk management as needing improvement, with the responses varying markedly by region. For instance, although 25 percent of brokers worldwide cited the availability of adequate and affordable property catastrophe insurance, 56 percent of those in Latin America/Caribbean identified that issue, ranking it the region’s top factor for improvement. And while 25 percent of brokers around the world cited improvements in government infrastructure to facilitate preparedness and recovery, these needs were cited by nearly half those in the Asia/Pacific and 38 percent in EMEA, making it the biggest element to target for improvement in those two regions.
The survey was conducted in June and July 2016.