Natural hazards are one of the top causes of loss for professional services companies. Working with insurance providers can help mitigate these risks.
By Stan Bernard, Head of Financial Institutions and Professional Services, U.S. Middle Market, Zurich North America
Hurricanes and tornadoes are among the most destructive natural hazards, bringing winds that can level a building and rainfall amounts that can flood an entire community. But when it comes to severe weather and its impact on property damage, nothing beats hailstorms.
According to Zurich North America claims data from January 2016 to 2021, weather-related events represent the largest driver of property losses for professional services companies. Hail, hurricanes and tornadoes are the top three property loss drivers, accounting for more than half of total incurred losses. And hail is, by far, the costliest of the three.
Hail can occur during any strong thunderstorm, so the risk is ubiquitous. It can shred roof coverings on offices and other commercial buildings and lead to water damage to ceilings, walls, floors, furniture and equipment. Some hailstorms result in millions—and sometimes billions—of dollars in damages to commercial roofs, siding, and outdoor and roof-mounted equipment.
Roof-mounted heating ventilation and air-conditioning (HVAC) equipment can be severely damaged by hail, leading to energy loss and potential business downtime. The damage from a hailstorm can cost a business more than the cost of protecting the equipment in the first place. And in some facilities, the cost of downtime and lost productivity can be more devastating than the repairs or replacement of the equipment.
While hail is a property loss leader for professional services firms, it’s not the only severe weather concern.
For instance, 2020 was one of the busiest and costliest years for hurricanes and tropical storms ever. The 2020 Atlantic hurricane season was the most active and the fifth costliest Atlantic hurricane season on record. There were 30 named storms last year, 13 of which developed into hurricanes. Twelve of the named storms made landfall in the United States, breaking the record of nine set in 1916.
Last year also saw record-breaking megafires burn more than 8.2 million acres of land, destroy over 10,000 buildings and kill at least 37 people.
And earlier this year, in February, Texas experienced an historic cold spell that caused widespread power outages, leaving more than 4.5 million homes and businesses without power for days. Damages from the blackouts are estimated at $195 billion, making it the costliest disaster in Texas history.
The World Economic Forum’s Global Risks Report 2021 identified “extreme weather conditions” and “climate action failure” as the top two risks facing the world today.
Let’s look at some of the biggest natural hazard risks and how businesses can mitigate these risks.
Hurricanes are one of the costliest natural disasters
Seven of the top 10 costliest natural disasters in the United States have been hurricanes. And three of the top five costliest natural disasters occurred in 2017: hurricanes Harvey, Irma and Maria, which cost a combined $278 billion in property losses.
Business owners in a region prone to destructive hurricanes should plan early to protect themselves, their employees, their property and their business from the risk of hurricanes and tropical storms. A hurricane emergency response plan should be reviewed and updated each year before hurricane season begins. The plan should address needed actions to be taken at the beginning of hurricane season and when a tropical storm or hurricane watch is issued; when the warnings for an impending storm are issued; any actions during the storm; and actions immediately after the passing of the storm.
Property owners should adopt standards to help protect against hurricane-strength winds. The Insurance Institute for Business & Home Safety (IBHS) has developed standards for new construction to reduce damage to commercial structures and help businesses reopen more quickly following a severe weather event. Information about the IBHS FORTIFIED Commercial™ standards are online.
A loss of power, which is often associated with windstorms, can also lead to a business loss. A reliable source of emergency power will be required to maintain essential electric loads and support any needed clean-up or restoration efforts.
Wildfires are occurring more frequently
Wildfires are occurring more frequently and burning for much longer than they used to, fueled in part by climate change. Despite the growing risk, business owners can take some steps to help mitigate their risk and protect their employees.
Any mitigation efforts should start with a clear and well-practiced plan. Business owners should work closely with local fire officials and implement physical improvements to prevent wildfires from reaching or igniting your properties.
Wildfires spread by following a continuous path of combustibles. Wind-borne embers also present a threat. So, the key to preventing a wildfire from reaching or igniting your property is removing combustibles on and around the property. Business owners should consider investing in exterior building surfaces that are either noncombustible or considered resistant to ignition by embers.
Wildfires can also produce plumes of smoke that spread far in advance of the fire itself, causing damage to a building even if flames never reach it. Smoke and soot damage from wildfires have resulted in multi-million-dollar losses, often by being sucked into a building when HVAC systems are operating or reactivated after a fire.
Tornadoes, lightning and hail result from convective storms
Thunderstorms, lightning, hail and tornadoes all result from what are known as convective storms. Severe convective storms are among the most common and most damaging natural catastrophes in the United States, according to the Insurance Information Institute.
Convective storms often arise without much warning, so local weather forecasters may provide warnings of severe thunderstorms in the next few hours, but that hardly gives business owners enough time to prepare.
Tornadoes can cause widespread destruction, especially when they form around populated areas. Most hailstorms are harmless, but severe hailstorms with “golf ball-sized” pieces of ice and larger can be among the costliest of severe weather events. Auto dealers are particularly vulnerable, as hail can damage an entire fleet of new cars on the lot. But offices and other commercial buildings can also suffer from significant losses.
A change in climate
Climate change is making natural hazards worse. The steady rise in global surface temperatures is having a significant impact on the number, frequency and duration of natural hazards. The number of climate-related disasters has tripled in the last 30 years, according to Oxfam.
Government, community and business leaders are working together to slow or stop global warming. But professional services companies may need to face the reality that severe weather is here to stay. The good news is that insurance providers can help business owners mitigate the risks.
Explore Zurich’s Severe Weather Resource Hubs for helpful insights before, during and after the storm: