Preparing for the unprecedented and the unexpected

Following the Sirm 2024 Geneva Rendez-Vous, BELFOR’s Elvir Kolak highlights the need to prepare for the unexpected, especially when it comes to extreme weather.

How do you adequately prepare for natural catastrophes when supposedly ‘once-in-a-century events’ happen on an almost annual basis?

This is the problem facing many companies and their risk managers when it comes to natural catastrophes and extreme weather events, with implications for commercial properties.

In Switzerland, these events have become increasingly common. For example, in June the Swiss canton of Vaud was hit by the ‘flood of the century’. As much as a month’s rain fell within an hour, causing major flooding in the town of Morges, which stands on the banks of Lake Geneva.

The trend is not limited to Switzerland. In the last five years, insured losses from natural catastrophes have resumed a long-term growth rate of 5% to 7% annually, following a benign phase of lower annual losses in the 2012 to 2016 period.

In the Allianz Risk Barometer 2024, cyber was cited as the top business risk globally at 36% but was closely followed by business interruption (31%). Interestingly, traditional physical risks such as natural catastrophes and fires and explosions are of increasing concern, and cited by 26% and 19% of risk managers taking part in the barometer.

In fact, natural catastrophe has risen three places up the Allianz risk radar on the back of a tempestuous year. Total losses from natural catastrophes last year are estimated to be more than $260bn, according to Swiss Re Institute.

The institute’s latest Sigma study shows that more than half of the insured losses for all natural catastrophes – $64bn – came from severe connectivity storms (SCSs), the umbrella term used for a range of frequently-observed hazards including tornados and hail storms.

While most of these took place in the US, they are growing fastest in Europe. Losses grew above trend for the third consecutive year in 2023, thanks in part to a number of extreme hail storms, and are set to double over the course of the next decade.

The severity of the losses came as a shock to the insurance industry due to the limited availability of granular exposure data and accurate SCS/hail risk models. According to Swiss Re, the data suggests that “it is time to adjust associated risk assessment”.

Meanwhile, the Allianz Barometer has noted that the increasing influence of changing climate conditions boosted the development of certain events in 2023, and natural catastrophe is now the cause of business interruption that companies fear the most – 44% of responses – after cyber incidents.

At the same time, risk managers have also had to deal with a hardening insurance market and all that brings – a rise in premiums and exclusions, and a reduction in capacity and coverage. One area where the lack of capacity is conspicuous is in business interruption.

Not only has coverage declined but the likelihood of long business interruptions has increased. For example, the cost and waiting times for replacing machinery have both increased; the availability of spare parts has declined, as has the number of skilled mechanics and mechanics in general. And the lack of insurance will itself make recovery from business interruption much more difficult.

It is also difficult for companies that suffer extensive business interruption from a natural catastrophe. The lack of restoration companies, insurers and other service providers was exposed for all to see by the extreme weather events of 2024, contributing to the commercial trauma experienced by so many small and medium enterprises.

Recovery plans

These catastrophic events also showed why risk managers must try to get ahead of the crisis and how a solution like BELFOR’s RED ALERT is of critical importance in today’s market.

As one senior risk manager said: “It seems that we are always struggling, always in firefighting mode, always trying not to drown, always in the middle of the storm. We need to get ahead of the wave. We need to prepare for foreseeable challenges and risks before they happen. Only reporting risks is not enough.”

BELFOR’s RED ALERT service is structured to work alongside companies’ response plans and emergency procedures so that recovery can be more rapid and effective, and that any gaps in business continuity plans can be minimised. It also secures access to critical resources during a company’s hour of need.

• BELFOR covers entire supply chains across all continents.
• RED ALERT® clients receive exclusive access to a dedicated hotline.
• RED ALERT® clients enjoy priority status. In the event of a national disaster and increased demand, RED ALERT® clients skip the line and get served first.
• No two businesses or even industries are alike. This is why BELFOR experts’ bring in specialist knowledge and experience of all businesses, being able to customise their services before, during and after a business interruption.
• By their nature, emergencies create uncertainty. RED ALERT® supports companies in defining their appropriate level of service, which corresponds to their prevention planning, making their business more resilient.
• The first hours following a disaster are crucial. Step-by-step protocols tailored to the client’s needs reduce the impact of any business interruption. That way, companies are ideally prepared for both minor incidents and worst-case scenarios.