Business losses due to natural and manmade disasters are on the rise worldwide. In fact, insured losses from 2017’s catastrophes are estimated to be among the worst on record, topping $100B.1
Why are the losses so high? Simply put, too many businesses are using a poor catastrophe management solution, estimating their risk based solely on their own knowledge of their properties and the surrounding environment.
Conventional wisdom may not be so wise
How well do you know the risks in your area? Consider:
- Everyone knows earthquakes are a threat in California. But numerous other regions — such as Arkansas, Illinois, Ohio, Washington, Oregon, Alaska and central and west-coast Canada — are also at risk of events up to 8.0 in magnitude.2
- You can’t necessarily rely solely on government agencies for up-to-date threat information. During Hurricane Harvey, for example, 40%–50% of flooded homes lay outside officially identified high-risk flood zones.3
- Wildfires don’t just threaten forests. In the U.S., a third of all residential buildings and hundreds of thousands of businesses lie within the wildland-urban interface — where developed and undeveloped land overlap — putting them at direct risk of fire damage. And in Canada, wildfire caused more than $5B in insured losses in 2016 alone.4
- Terrorism may seem like a remote risk for those outside major urban centers, but there are currently 41,000 potential targets — including corporate headquarters, stadiums, prominent buildings and hotels — being tracked in the U.S. alone.5
Other factors6 complicate the estimation of risk as well. For example:
- Climate change has the potential to increase the frequency and severity of natural disasters
- Damage to one part of an interconnected digital, business or supply network can create catastrophic losses across many locations, industries and lines of business
- Following a major disaster, demand for repair services often surges, leading to labor and material shortages, delays and increased costs to fix damaged properties
So where do you turn for the information you need to quantify and manage your risk due to natural and manmade disasters for the best catastrophe management solution?
The case for catastrophe modeling
Increasingly, catastrophe modeling is becoming a key risk management tool for insurers, the financial industry, governments and NGOs in their respective catastrophe management solution.
Teams of highly credentialed experts — including meteorologists, climate scientists, seismologists, geophysicists, hydrologists, structural engineers, statisticians and actuaries — contribute to the creation of these models. They provide the most current scientific data and findings available, which are then rigorously validated before becoming the basis of sophisticated computer simulations capable of predicting where disasters will most likely occur, their probable intensity, and the resulting physical and economic damage.
In short, catastrophe modeling can help you predict and prepare for the financial impact of extreme events — before they happen. It can inform your entire risk decision chain, including:
- Comprehensive insurance coverage
- Safety and preparedness programs
- Mitigation and resilience strategies
How does catastrophe modeling work?
With the expert guidance of a HUB risk management specialist, you can easily produce a catastrophe model for an individual property or an entire portfolio, simulating the effects of a variety of natural and manmade disasters. The process includes:
- Event generation
Catalogs of tens of thousands of simulated events represent any plausible catastrophe.
- Intensity calculation
Based on geographic, historic and other data, the likely intensity of the catastrophe is calculated for each simulated event.
- Exposure information
Data about the property and its value and physical characteristics is incorporated.
- Damage estimation
Physical damage is calculated based on research, lab testing, onsite surveys and claims data.
- Policy conditions
The limit, deductible and exclusions of the policy covering the property are factored in.
- Loss calculation
Based on all the inputs above, estimates of physical damage are translated into projections of monetary loss.
Protect what matters most
HUB experts can help you seamlessly integrate catastrophe modeling into your risk management processes, and use it to generate short and long-term savings. Make sure your properties and bottom line are covered — no matter what life throws your way.
Contact a HUB real estate risk management expert today.
4 http://www.air-worldwide.com/Publications/AIR-Currents/2018/Is-Your-Wildfire-Risk-Management-Going-Up-in-Smoke-/; http://www.air-worldwide.com/Blog/Improving-Wildfire-and-Flood-Risk-Mitigation-in-Canada/