Business Management Executive Q&A
Aug 11, 2008
The largest corporations in North America, thereby the companies with the most to lose, are ill prepared for the potential damages to properties from natural catastrophes, according to a report from FM Global. Commissioned by the Johnston, R.I.-based business property insurer, the 2008 Natural Disaster Business Risk Study involved companies with a minimum $1 billion in annual revenue. One of the report's most striking conclusions is the fact that 96 percent of respondents noted that their companies have operations in geographic areas that are vulnerable to hurricanes, floods or earthquakes, but only approximately 20 percent of that group responded that their companies are "very concerned" about natural disasters having a negative impact on their bottom line. Steven Zenofsky, FM Global assistant vice president & manager for public relations, spoke with CPN contributing editor Barbra Murray about the study's results, as well as actions companies can take to protect their properties from these potentially devastating acts of nature.
CPN: As a business insurer, were the conclusions of the study what you expected?
Zenofsky: We were surprised at the results. And we saw the same patterns in responses between companies that have operations in North America and companies with both North American and international operations. They were surprisingly comparable in terms of exposure, level of preparedness and the bottom line impact.
CPN: To what do you attribute the participating companies' apathy?
Zenofsky: It could be because they felt there's no reason to be prepared. For example, if you're storing office paper in an earthquake zone, there may not be a need, but the question becomes how critical the facility is in one's business plans. Also, the results speak to whether they truly understand whether or not their facilities are exposed, and whether or not they truly understand the bottom line impact of natural disasters.
CPN: Isn't basic property insurance enough?
Zenofsky: Insurance alone is not enough to make your organization whole again. There are certain things you can never insure--loss of competitiveness, loss of market share and a damaged reputation because the company didn't do everything it could to assure it was protected. You have to ask, 'what preventive measures can I take to make sure my facilities are protected,' so insurance becomes the last line of resort.
CPN: Beyond insurance, what can a business do to make sure that its properties are protected?
Zenofsky: For example, as the issue relates to properties located in regions that are exposed to hurricanes, you look down at your facility, look up, look above and look out. A hurricane brings with it a lot of water and potentially flooding, so keep the most valuable equipment out of the basement and above ground. Then look up. Hurricanes also bring wind; Mother Nature likes to throw around a lot of debris so when boarding up windows with plywood use two sheets rather than one--and buy the plywood now. Also, make sure you don't have critical equipment on the other side of a vulnerable door. Look above. In a hurricane, Mother Nature loves to pull off roofs, especially flat roofs. The most vulnerable part of roofs tend to be the corners, so by keeping the roof intact, you keep rain out. Often times, it's as simple as installing a pocketful of roofing screws to reinforce the corner of roof. Then look out. You don't have any facilities in a hurricane-prone area, buy you may have suppliers in those areas, so look out at your supply chain. The question becomes are your suppliers committed to risk management and what they're doing.
CPN: What is the success rate for these prevention measures?
Zenofsky: In Hurricane Katrina, we looked at 500 facilities that FM Global insured. Those clients that followed FM Global's recommendations and suffered losses, their losses were 85 percent less than those who still had recommendations to complete. The average cost to complete those recommendations was $7,400 to cover millions of dollars in property damage to a facility. The majority of property damage is preventable and not inevitable. The most resilient companies take control of their destiny by preventing property damage and business interruption, rather than having to recover from it.
The largest corporations in North America, thereby the companies with the most to lose, are ill prepared for the potential damages to properties from natural catastrophes, according to a report from FM Global. Commissioned by the Johnston, R.I.-based business property insurer, the 2008 Natural Disaster Business Risk Study involved companies with a minimum $1 billion in annual revenue. One of the report's most striking conclusions is the fact that 96 percent of respondents noted that their companies have operations in geographic areas that are vulnerable to hurricanes, floods or earthquakes, but only approximately 20 percent of that group responded that their companies are "very concerned" about natural disasters having a negative impact on their bottom line. Steven Zenofsky, FM Global assistant vice president & manager for public relations, spoke with CPN contributing editor Barbra Murray about the study's results, as well as actions companies can take to protect their properties from these potentially devastating acts of nature.
CPN: As a business insurer, were the conclusions of the study what you expected?
Zenofsky: We were surprised at the results. And we saw the same patterns in responses between companies that have operations in North America and companies with both North American and international operations. They were surprisingly comparable in terms of exposure, level of preparedness and the bottom line impact.
CPN: To what do you attribute the participating companies' apathy?
Zenofsky: It could be because they felt there's no reason to be prepared. For example, if you're storing office paper in an earthquake zone, there may not be a need, but the question becomes how critical the facility is in one's business plans. Also, the results speak to whether they truly understand whether or not their facilities are exposed, and whether or not they truly understand the bottom line impact of natural disasters.
CPN: Isn't basic property insurance enough?
Zenofsky: Insurance alone is not enough to make your organization whole again. There are certain things you can never insure--loss of competitiveness, loss of market share and a damaged reputation because the company didn't do everything it could to assure it was protected. You have to ask, 'what preventive measures can I take to make sure my facilities are protected,' so insurance becomes the last line of resort.
CPN: Beyond insurance, what can a business do to make sure that its properties are protected?
Zenofsky: For example, as the issue relates to properties located in regions that are exposed to hurricanes, you look down at your facility, look up, look above and look out. A hurricane brings with it a lot of water and potentially flooding, so keep the most valuable equipment out of the basement and above ground. Then look up. Hurricanes also bring wind; Mother Nature likes to throw around a lot of debris so when boarding up windows with plywood use two sheets rather than one--and buy the plywood now. Also, make sure you don't have critical equipment on the other side of a vulnerable door. Look above. In a hurricane, Mother Nature loves to pull off roofs, especially flat roofs. The most vulnerable part of roofs tend to be the corners, so by keeping the roof intact, you keep rain out. Often times, it's as simple as installing a pocketful of roofing screws to reinforce the corner of roof. Then look out. You don't have any facilities in a hurricane-prone area, buy you may have suppliers in those areas, so look out at your supply chain. The question becomes are your suppliers committed to risk management and what they're doing.
CPN: What is the success rate for these prevention measures?
Zenofsky: In Hurricane Katrina, we looked at 500 facilities that FM Global insured. Those clients that followed FM Global's recommendations and suffered losses, their losses were 85 percent less than those who still had recommendations to complete. The average cost to complete those recommendations was $7,400 to cover millions of dollars in property damage to a facility. The majority of property damage is preventable and not inevitable. The most resilient companies take control of their destiny by preventing property damage and business interruption, rather than having to recover from it.
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