FM Global: Companies Exposed but Underprepared for Natural Disasters

Most of the largest corporations in North America are exposed to natural disasters, but many are not well-prepared for such catastrophes and are not overly concerned about the potential business impact, according to a new study released by business property insurer FM Global.

The 2008 Natural Disaster Business Risk Study is based on the responses of 100 financial executives from corporations located in the U.S. and Canada with at least US$1 billion in annual revenue.

According to the study, 96 percent of financial executives said their companies have operations exposed to natural catastrophes, such as hurricanes, floods and earthquakes. However, less than 20 percent indicated that their firms were “very concerned” about such natural disasters negatively affecting their bottom line.

“The findings reveal a surprising and concerning gap between the levels of natural catastrophe exposure among North America’s largest companies and their level of preparedness,” FM Global Executive Vice President Ruud Bosman said in the company’s announcement. He said it was especially curious “given that, in the first half of 2008, there were about 400 natural catastrophes worldwide with overall losses expected to top US$50 billion.

Gap Spans Multiple Natural Catastrophes

The study findings indicate a consistent disconnect across three of the most common and costly types of natural disasters: hurricanes, floods and earthquakes.

Hurricanes:
–While 80 percent of companies have North America operations located in regions exposed to hurricanes, nearly 50 percent reported they are not well-prepared for a hurricane.
–Nearly 80 percent of financial executives from those companies are not overly concerned that a hurricane/typhoon or tropical cyclone could negatively impact their company’s bottom line.

Floods:
–While 90 percent of companies have North America operations located in regions exposed to floods, more than 60 percent indicated they are not well-prepared for a flood.
–Almost 90 percent of financial executives from those companies are not overly concerned that a flood could negatively impact their company’s bottom line.

Earthquakes:
–While more than 80 percent of companies have North America operations located in regions exposed to earthquakes, more than 70 percent revealed they are not well-prepared for an earthquake.
–Eighty-five percent of financial executives from those companies are not overly concerned that an earthquake could negatively impact their company’s bottom line.

Bosman said companies should consider the implications a natural disaster could have on maintaining competitiveness, market share and corporate reputation, should they be caught off guard.

“Companies can’t stop hurricanes, floods and earthquakes from happening, but by understanding their business risk and taking preventive actions, FM Global has seen companies reduce their natural catastrophe losses by 85 percent or more, often at minimal cost,” said Bosman. “Such actions can mean the difference between a natural catastrophe being disastrous or being a mere distraction.”

The 2008 Natural Disaster Business Risk Study was commissioned by FM Global (www.fmglobal.com) and conducted May 2008 to June 2008 by Opinion Research Corporation (www.opinionresearch.com).

Source: FM Global