In the eye of the storm

How much can hurricanes and windstorms cost and what can businesses do to mitigate their losses?

From hurricanes in the North Atlantic Ocean, to typhoons in the Northwest Pacific Ocean, to cyclones in the Southwest Pacific Ocean and Indian Ocean, to winter storms in Europe, windstorms can have a devastating effect on businesses. 

Based on AGCS analysis of more than 470,000 insurance industry claims from over 200 countries around the world over the past five years, windstorm activity ranks as the fourth top cause of loss for businesses overall behind fire/explosion incidents, plane crashes and faulty workmanship/maintenance issues. It is the only natural catastrophe event to appear in the top 10 causes of financial losses for businesses (see graphic) the analysis shows.

Furthermore, storm activity is the second more frequent cause of business interruption loss (again behind fire and explosion incidents), accounting for one in five business interruption claims. Indeed, the business interruption costs arising from a storm can often significantly outweigh the costs of any property damage.  AGCS insurance industry claims analysis shows that even the average BI loss from a windstorm event for businesses costs €3.8mn ($4.4mn) compared to around €2mn ($2.26mn) for the average direct property loss.

With the advent of just-in-time management philosophies and lean inventories, losses caused by windstorms can cripple an organization. Property damage and business interruption may be covered by the insurance policy, but the loss of market share and a damaged reputation cannot be easily recovered.

Based on AGCS’ experience over the past 20 years, windstorms appear to be increasing in frequency and intensity. Certainly the population growth and expansion of industries, particularly in the developing world, will ensure that losses from windstorms will continue to increase in the future. Obviously, windstorms cannot be prevented from occurring. However, loss can be greatly minimized by adequate preparation before the storm arrives, including the development and implementation of a comprehensive written windstorm emergency plan.

Four of the five most expensive hurricanes have occurred in the past seven years.

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Event Date Overall losses (US$) Number of
fatalities
Hurricane Katrina, storm surge August 25-30, 2005 $125bn 1,720
Hurricane Harvey, storm surge, flood August 25-1 September, 2017 $95bn 88
Hurricane Maria, flood September 19-22, 2017 $68.6bn 3,019
Hurricane Sandy, storm surge October 23-31, 2012 $68.4bn 207
Hurricane Irma September 6-14, 2017 $60.6bn 128
Source: Munich Re NatCatSERVICE. Ordered by nominal overall losses, 1980 – 2018.

If natural catastrophe risk management procedures are not in place, or have not been reviewed, the magnitude of such losses can increase significantly:

  1. Test and update emergency preparedness plans
  2. Determine what events to prepare for e.g. flood, wind, storm surge and the exposures
  3. Review and update business continuity plans
  4. Understand the insurance policy – find any coverage gaps and plug them
  5. Improve the site ahead of time to minimize the impact of the event.
Image: United States Naval Research Laboratory (NRL)
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