Protect Your Organization From Natural Disasters

MAY 3, 2022

For natural disasters in the U.S., hurricanes receive tremendous attention because of the widespread damage and costs that can exceed $1 billion per event. In 2021, there were 20 weather-related disasters in the U.S. with losses exceeding $1 billion each. Hurricane Ida was the costliest, with overall losses of $65 billion (insured losses of $36 billion).¹  

Other events can be just as devastating. In February 2021, a cold wave brought record low temperatures to the southern U.S., with a temperature of 17°F recorded in Houston. Although Texas experiences a major freeze event about once a decade, the state’s energy, infrastructure and buildings were inadequately prepared for such conditions. Millions of people were left without electricity. Overall, with losses of $30 billion (half of which were insured), the event was the year’s third-costliest natural disaster.¹

As the frequency and severity of billion-dollar events continues to increase, the insurance industry will respond with reduced capacity and increased premium and retentions. And recovery efforts following natural disaster events will be complicated for the foreseeable future due to the continued strain on the supply chain. Businesses should act now and prepare for catastrophic events before the next disaster occurs. Is your business prepared?

How USI Can Help

USI Insurance Services works with clients to prepare for natural disasters in two crucial ways:

• Using catastrophe risk modeling to adequately assess risk and determine proper coverage, limits, retention and pricing; and
• Developing emergency response planning to build business resiliency through pre-event preparation and post-event mitigation.

Catastrophe Risk Modeling

Insurance companies use catastrophe risk modeling to examine insureds’ exposures to natural disaster events, 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 events and earthquakes, but we take a closer look to identify which locations may be driving most of the estimated loss.

We then gather specific information on those properties, including building design and resiliency measures, and run it through modeling again. This second look often generates a lower loss estimate, especially when clients have undertaken proactive risk mitigation, and can result in more favorable insurance pricing and terms and conditions.

As an example, USI had reviewed the property insurance program for a new client and determined the client had purchased $100 million in earthquake coverage. From a catastrophe risk analysis, we identified five locations that were driving 80% of the loss estimate. We ran the analysis again, inputting additional information related to the buildings’ earthquake design, and we were 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 premium.

Emergency Response Planning

High demand for contractors and supplies following a natural disaster can cause significant delays in rebuilding and recovery. In addition, supply chain disruptions have dramatically increased the cost of the raw materials needed for repairs.

The price of steel increased 168% from 2020 to 2021, and prices are once again on the rise. Lumber prices have begun to climb after falling back sharply from a record high in May of last year. They are about 22% lower than that peak, but still about three times their average pre-pandemic price.²

To avoid delays and ensure a faster recovery following a catastrophic event, businesses are encouraged to plan ahead. USI assists clients with taking these and other necessary steps to prepare for a natural disaster:

• Establish an agreeable claims service team — If possible, work with your insurer 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 prior to a loss — Following any catastrophic event, businesses can expect higher demand for contractors and materials, which can significantly delay recovery efforts and increase costs. Partnering with an emergency response contractor (ERC) prior to a loss will ensure you receive a priority response following an event when resources are scarce. This 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 emergency action plan — Prevent and reduce damages and loss from natural disasters by planning ahead. Develop an emergency action plan specific to your operations and exposures, and designate an emergency response team to carry out emergency action tasks before, during and after a catastrophic event.

USI has also developed resources to assist with natural disaster preparation and recovery. Visit our Natural Disaster Planning page to learn more and access our preparedness and catastrophic claims reporting guidebooks.

Don’t wait until disaster is imminent. Take proactive steps now to prepare before the next hurricane, flood, earthquake, wildfire or severe storm to protect your business and keep yourself and your employees safe. Contact your USI consultant or email pcinquiries@usi.com for assistance.

¹ National Centers for Environmental Information
² The National Association of Home Builders