Major US companies admit that they were inadequately prepared for 2017’s hurricanes
- Published: Thursday, 18 January 2018 10:22
For senior financial executives at large US-based companies with operations in Texas, Florida or Puerto Rico, last year’s hurricane season brought not only catastrophe to their communities, but a risk management wake-up call for 2018 and beyond.
In a survey of these executives at companies with more than US$1 billion in revenue, commissioned by FM Global:
- Nearly two-thirds (64 percent) of the respondents said 2017’s hurricane season had an adverse impact on their operations.
- Of those impacted, 62 percent admitted they were ‘not completely prepared’ to deal with the effects of the hurricanes.
- Meanwhile, nearly 7 in 10 (68 percent) of all respondents said they will make changes to their risk management strategy going forward.
“These candid admissions drive home a fundamental truth about catastrophe,” said Dr. Louis Gritzo, vice president, manager of research at FM Global. “People routinely fail to understand or acknowledge the magnitude of risk until they’ve experienced a fateful event.”
As a result of hurricanes Harvey, Irma and Maria:
- 57 percent of all survey respondents said they will put in place or enhance their business continuity or disaster recovery plans.
- 40 percent will invest more in risk management, property loss prevention, and/or reassess their supply chain risk management strategy.
- 25 percent will reassess their insurance coverages or their insurers.
Reasons for insufficient preparation
One reason for insufficient natural-hazard preparation is imprecise terminology, according to Dr. Gritzo. For example, being in a ‘100-year flood’ zone does not mean you have 99 years to plan. Rather, there’s a 1 percent chance of such a flood every year. Another reason for insufficient preparation is over-reliance on insurance, which cannot restore market share, brand equity and shareholder value lost to competitors. A third reason is denial of risk.
FM Global commissioned market research firm ORC International to conduct the study. ORC surveyed 101 senior financial executives at Fortune 1000 size organizations by phone in October through November 2017.