Steps global businesses can take to manage risks of severe weather
December 18, 2017
Building resilience to hurricanes, floods, winter storms and other severe weather can double as business development for international companies large and small.
Remember when weather was just small talk among patrons sipping coffee at the local diner? Now, the impacts of hurricanes and other natural disasters have blown into the boardrooms of global companies, carrying bottom-line implications.
One stat sums up why: In less than 10 months in 2017, 15 weather and climate disaster events caused losses exceeding $1 billion each across the United States alone, according to the National Centers for Environmental Information. By comparison, between 1980 and 2016 the U.S. average of billion-dollar-plus* events was 5.5. The annual average for the most recent five years (2012–2016) was 10.6 events.1
The severe storm events that occurred in 2017 illustrate the breadth of weather-related risks affecting global businesses and the economy:
- Devastation caused by hurricanes Harvey and Irma have led to estimates as high as $290B in economic costs2
- Hurricane Maria may have caused as much as $95B in damage to Puerto Rico3
- Earthquakes in Mexico may end up costing as much as $4B4
- The November earthquake on the Iran-Iraq border may cost more than $100M5
- Reconstruction costs in the aftermath of flooding in Peru could be as high as $9B6
- 8.4 million acres and hundreds of homes burned by the western U.S. wildfires (estimated costs of $2B)
- Damage to field crops from extreme drought in North Dakota, South Dakota and Montana, causing a shortage of feed for cattle (estimated costs of $2.5B)
- Extensive property and infrastructure damage from the flooding in California (estimated costs of 1.5B)
- Severe freezing in southeastern U.S. states, causing over $1B estimated damage to fruit crops7
Volatile weather, which many scientists attribute to broader climate change, is challenging businesses to build resilience. While solutions are not easy, many businesses and organizations are working to adapt. It starts with recognizing the trends.
Rising sea levels and flooding: A growing problem
While many of us associate severe weather with warm-weather events such as hurricanes Harvey, Irma and Maria, or the wildfires in California, winter’s cold temperatures don’t put the risks in hibernation.
Flooding has become an extremely costly, all-season, worldwide issue. Flood hazards are projected to increase in more than half the world’s regions, according to the World Bank8, in part because of rising sea levels, compounded by rapid coastal development.
Florida’s 120-mile coastal corridor, for example, from Homestead north to Jupiter, including Fort Lauderdale, is growing at around 8% annually, roughly twice the U.S. average per U.S. Census Bureau 2016 data.9 Development and greater population density replace vegetation with concrete, which doesn’t absorb excess water.
Sea level rise is occurring throughout the world, but not necessarily at the same rate in all locations. According to the National Oceanic and Atmospheric Administration, the population, location and topography of Miami-Dade County in Florida makes it particularly vulnerable to sea level rise;10 causing flooding conditions, soaking parking garages, closing malls and stranding cars and residents, even on fair-weather days.
That has implications for valuable real estate developments and for infrastructure built for lower sea levels but designed to last for 50 or 75 years.
Collaborating for resilience
But business owners, public officials and activists have collaborated on many notable resilience improvements.
In 2014, the city of Miami Beach invested millions of dollars replacing some of the gravity-based drainage system with a pump-based system, which resulted in reduced flooding events in the city, according to a study in Ocean & Coastal Management.11
Many new roads, buildings, seawalls and electrical boxes are being raised higher or are adding flood barriers.
The Brickell City Centre shopping complex in downtown Miami was built with flood gates for the underground car park. A tunnel that runs from the Port of Miami to I-395 was equipped with a gate that drops to seal it at both ends in the event of a hurricane. A wastewater treatment plant on Virginia Key, off of Miami Beach, is placing critical parts of the plant – those that keep raw sewage from flowing into the streets in a flood —17 to 20 feet above sea level, versus the previous 10-15 feet. In some locations, tidal valves, which allow stormwater but not saltwater to pass through, are being installed.8
Less predictable precipitation
Elsewhere, severe weather has created more variability in precipitation and snowmelt flows, meaning more extreme cycles of flooding and drought in regions of the southwest United States, Southern Europe, Australia, Africa and the Middle East.
This can strain water-table resources, increasing saline content. When that water is used for irrigation, crop yields can be negatively affected.
Both floods and droughts can result in water scarcity, a risk multiplier that is greatly underestimated, according to Zurich’s Risk Report on Water Scarcity. For business, water-intensive sectors such as food and beverages, pharmaceuticals, IT equipment and mining can be greatly affected by water quality and quantity issues.
There are socioeconomic impacts too. The World Bank suggested in 2016 that regions of Africa and the Middle East could see growth rates decline by up to six percent of GDP by 2050 due to water scarcity.12
For individual businesses, various forms of insurance, not just property but also political risk, trade credit, as well as business continuity can mitigate risks related to severe weather.
Strengthening the supply chain
According to FEMA, almost 40% of small businesses that close after a natural disaster never reopen.13 Disruptions in the supply of critical parts and an inability to distribute goods can quickly weaken customer relationships and drain financial reserves.
Businesses are beginning to see how severe weather can exacerbate their supply chain risks. Despite globalization, certain types of production remain concentrated in industrial cities in Asia.
When monsoon-related floodwaters swamped parts of Thailand in 2011, the world’s supply of “sliders,” an integral part of hard-disk drives, was squeezed. Major automakers in the region also were forced to slow production. 14
Closer to home, drought a few years ago in Texas and elsewhere caused commodity prices to climb, not only affecting food and beverage companies but also apparel companies paying more for cotton.
Zurich worked with the Business Continuity Institute on the 2016 Supply Chain Resilience Report of business interruptions stemming from supplier disruptions. Over 75% of companies have reported having supplier disruptions, with over half of those experiencing more than one break per year. But in a positive sign, 74% of organizations in the most recent study reported asking their key suppliers about their business continuity arrangements – a considerable increase from the previous year’s 63%.15
Investment and action
Businesses of any size can take simpler steps to mitigate risks from extreme weather.
FEMA estimates that every $1 invested in disaster mitigation saves $4 in future disaster costs.16 Relatively economical mitigation strategies for any company include upgrading existing infrastructure so that it is storm-resistant. Using ring-shank nails on many types of roofing can help shingles stay put in high winds. Planting vegetation can help with energy efficiency, water absorption and aesthetics. (See how that comes into play at Zurich’s headquarters with the LEED Platinum® Certification fact sheet.)
Companies can also take action in training and education on preparing for severe weather events. Zurich has provided support, including a $3 million grant, to New Orleans-based SBP so that it can expand its disaster-resilience training nationally.
Clearly, there is work to do. But proactive measures, large and small, are showing a break in the clouds.
*Damage totals adjusted for inflation
1 NOAA National Centers for Environmental Information (NCEI). U.S. Billion-Dollar Weather and Climate Disasters (2017). Accessed 20 November 2017. www.ncdc.noaa.gov
2 Soergel, Andrew. “Forecast Predicts Heavy Economic Damage From Harvey, Irma.” 11 September 2017. www.usnews.com
3 Disis, Jill. “Hurricane Maria could be a $95 billion storm for Puerto Rico.” CNN Money. 28 September 2017. money.cnn.com
4 Bennett, Johanna. “Mexico: Earthquakes Could Cost $2B to $4B.” Barrons. 27 September 2017. www.barrons.com
5 Brueck, Hilary. “Photos reveal extreme damage after a magnitude 7.3 earthquake hit Iraq and Iran.” Business Insider. 13 November 2017. www.businessinsider.com
6 Galvin, Gaby. “10 of the Deadliest Natural Disasters of 2017.” U.S. News & World Report. 20 September 2017. www.usnews.com
7 NOAA/NCEI. U.S. Billion-Dollar Weather and Climate Disasters.
8 “Flooding.” World Bank Blogs, blogs.worldbank.org/category/tags/flooding.
9 Ruggeri, Amanda. “Miami’s Fight Against Rising Seas.” BBC.com. 4 April 2017. www.bbc.com
10 National Oceanic and Atmospheric Administration. “Stories from the Field: Adapting To Sea Level Rise In Miami-Dade County, Florida.” Accessed 20 November 2017. coast.noaa.gov
11 Wdowinski, Shimon, et al. “Increasing Flooding Hazard in Coastal Communities Due to Rising Sea Level: Case Study of Miami Beach, Florida.” Ocean & Coastal Management, Vol. 126, no. 2016, ser. 1-8.
12 World Bank. Press release: “Climate-Driven Water Scarcity Could Hit Economic Growth by Up to 6 Percent in Some Regions, Says World Bank.” 3 May 2016. www.worldbank.org
13 Federal Emergency Management Agency. “Protecting Your Businesses.”24 June 2016. www.fema.gov
14 Fuller, Thomas. “Thailand Flooding Cripples Hard-Drive Suppliers.” The New York Times. 6 November 2011. www.nytimes.com
15 Business Continuity Institute. “Supply Chain Resilience Report 2016.” 6 September 2016.
16 Federal Emergency Management Agency. “Protecting Yourself Through Mitigation.” 01 August 2017. www.fema.gov