2017 Atlantic Hurricane Season Outlook

With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

willis re severe convective storms

2015 Extreme Weather Events in Review

From hurricanes to hail to droughts to tornadoes, 2015 was a busy year for extreme weather events. Drought in California continued to worsen, increasing the risk of wildfires. While record rainfall in Texas and Oklahoma alleviated drought, it caused severe flash flooding in Texas. There have been 25 Category 4-5 northern hemisphere tropical cyclones—the most on record to date, breaking the old record of 18 set in 1997 and 2004.

The Insurance Information Institute reported that insured losses from natural disasters in the United States in just the first half of 2015 totaled $12.6 billion—well above the $11.2 billion average in the first halves of 2000 to 2014.

Interstate Restoration provides a look at 2015 weather events:

storms_2015_infographic2

Risk Management and Business Continuity: Improving Business Resiliency

Preparing for and responding to negative events, from the mundane to the catastrophic, from the predictable to the unforeseen, has become a fact of life for businesses and governments around the world. We don’t have to look any further than the seemingly daily reports of cyberattacks on governments, corporations and individuals to comprehend the severity of the problem.

Tackling these risks requires an integrated and holistic framework with the capability to identify, evaluate and adequately define responses to the circumstances. For more and more organizations, this means adapting an enterprise risk management (ERM) model. ERM seeks to identify all threats—including financial, strategic, personnel, market, technology, legal, compliance, geopolitical and environmental—that would adversely affect an organization. This holistic approach gives organizations a better framework for mitigating risk while advancing their goals and opportunities in the face of business threats. But in order to implement and continuously manage this enterprise-wide model there is a critical need for closer integration of two typically distinct roles within the organization—business continuity management (BCM) and risk management. Together, these two vital elements make up a robust ERM plan and have a tremendous impact on an organization’s ability to contend with interruptions to the execution of organizational activities.

Put in the simplest terms, risk management is concerned with minimizing the probability of and destruction caused by negative events. Operational risk management, as the name implies, must cope with interruptions at the operational level. Recognizing that there are inherent imperfections in systems, people, facilities and general operational functions, the essence of operational risk management is to negate or reduce the probability of an incident occurring. Focusing upon incident-specific, site-specific analysis of potential causes of interruptions, risk managers seek to preclude incidents from occurring. If elimination of the risk is not possible, the focus moves to minimizing the results of the negative event.

For example, suppression systems reduce the risk of operational disruption caused by fire damage. Redundant equipment decreases the possibility of operational interruption resulting from machine breakdown and redundant communications help maintain connectivity. By analyzing past events and examining known hazards (defined flood plains, hurricane-prone areas, construction sites, earthquake areas and terrorism-prone areas) operational risk management seeks to avoid the occurrence of negative destructive events.

But creating strategies to minimize the probability that an event will impact an organization certainly will not prevent the incident from taking place. No degree of preparation can stop a tornado, tsunami or other massively destructive event. So understanding that every incident is not preventable, our other line of defense is to minimize the impact. That’s where BCM comes in. BCM is concerned with minimizing the impact upon the entity after an event occurs and restoring the organization to its normal operations and delivery of products and services as quickly and safely as possible. In short, BCM helps maintain the viability of an entity under duress.

Because it is event-neutral, BCM is able to categorize effects into four distinct categories:

  • Effects on facilities, making them inaccessible or unusable
  • Effects on operational capability, such as supply chain interruptions, processing errors or staff unavailability
  • Effects on technology
  • Effects on the organization itself, ranging from financial problems to intellectual property rights.

When an event inevitably does occur, the optimal goal is to make any business interruptions imperceptible to those outside the affected organization. Here’s an example of how risk management and business continuity management, working together, enabled an organization to achieve that goal:

One of the world’s most important foreign exchange dealers realized that, as an occupant of a high rise building, it could not control the consequences of all incidents that might impact its ability to service its customers, which were some of the largest financial institutions in the world. A review by the company’s risk manager determined that there was a likelihood of an interruption in service as a result of construction work in the surrounding area. To reduce the risk, it was recommended that they install redundant lines and route them through alternative conduits into the building. So they undertook building redundancy in their telecom network. In addition, the risk of server failure was similarly high and so mirroring was implemented to duplicate all transactions and ensure that no data would be lost in the event of a failure of the building’s infrastructure.

Despite all the precautions to reduce risk, what risk management couldn’t control was an East Coast blackout that terminated power to its operation. Recognizing the impact that a loss of power could have, including the loss of use of the facility, the business continuity professional determined that a robust contingency plan was required.

The business continuity plan included a strategy that automatically forwarded incoming calls to another facility outside the U.S. and also provided connectivity to its back-up technology center. When the blackout hit, the business continuity plan worked exactly as tested. Phones were switched, systems were accessible and, best of all, customers never knew the difference. The company was actually more prepared than many of its customers who failed to provide similar capabilities and had to cease trading.

The combination of risk management and business continuity provides the level of resiliency that most organizations must achieve in light of the uncertainty that exists today. The blend will reduce uncertainty and promote a more stable operating environment.

New Year, New Natural Disaster Emergency Plans

Along with January renewals and analyzing whether existing policies offer sufficient coverage, the new year is a perfect reminder to review company-wide emergency plans. While 2013 may have been a relatively light year for catastrophe losses, there’s no reason to assume 2014 will be, too.

Check out this infographic from Boston University’s Masters in Specialty Management program for a jump-start on identifying the risks of natural disaster and updating plans for how to handle any emergency:

Survive a Natural Disaster