By Alex Zank, Advisen
In an age where natural catastrophes have become increasingly common and can lead to huge losses, prudent businesses should develop continuity plans for extreme winter weather, according to an insurance industry expert who deals with controlling risk.
“The reality today is business leaders find themselves facing and navigating a host of complex risks and issues,” said Steve Hernandez, senior vice president of risk control with Chicago-based CNA Financial. “It doesn’t take long to talk about the pandemic, supply chain, logistics, (and) workforce shortages. But then, you add on top of those business disruptions extreme weather events – and in this case, winter weather – I think it underscores the value of establishing and maintaining a holistic risk-management program really anchored in preparedness.”
Resiliency plans have become a factor by which underwriters gauge how companies manage risk. A resilient business, Hernandez said, has a crisis management plan, a set of response protocols, and will apply technological advancements to aid in responsiveness.
“That’s all critical to the underwriting process,” he said.
Winter storms in the first half of 2021 alone caused a record $15.1 billion in insured losses, according to a report from broker Aon. That far surpassed the $1.1 billion in insured losses in 2020, and $2 billion in losses in 2019.
Hernandez mentioned three key goals that businesses should keep in mind when measuring their resiliency against winter weather. Companies should analyze how a winter weather event would disrupt business and lay out the workarounds needed to continue operations. For instance, a business that relies on automation and robotics may want a gameplan for when those systems fail and some tasks need to be done manually.
Power is another major talking point: Businesses should review the reliability of their energy supply. Businesses that have time- and temperature-sensitive environments should work with utility providers to understand how their buildings receive power and to estimate restoration time periods. Many operations don’t have secondary sources of power, and may want to work out alternative arrangements in instances of power failure.
Lastly, policyholders also must consider how winter weather can affects different regions of the U.S. Hernandez said two inches of snowfall hits the U.S. Southeast much differently than the Northeast. Infrastructure networks and building codes vary by region based on climate conditions. This can have a detrimental effect on buildings when unexpected weather occurs. This was seen in Texas during last year’s winter storm. Many homes and commercial buildings were not built to withstand severe winter weather and thus sustained major damages.
To assist policyholders, CNA has connected with a sensor technology provider to help insureds detect water leaks and monitor temperature and power usage, Hernandez said. The devices can monitor disruptions from winter weather and help prevent losses. System alerts mean companies can respond quicker in instances where minutes may make all the difference.
He cited one recent example of an insured who was alerted of a temperature drop in their building’s air handling system. It turned out to be a faulty heating coil and was a simple fix, but if it had gone unnoticed could have resulted in a six-figure claim.
Even experiencing a loss event can inform and refine an organization’s approach to resilience.
“Every opportunity, whether it’s a threat or disruption, is an opportunity to learn and improve the preparedness and response capability,” said Hernandez. “The other thing we’re actually talking with accounts about is after-action reviews. You go through every exercise and every activation of a winter weather event to really look at what are the lessons learned and how you build that in … you want to learn from these events, and recognize that there’s work to do.”
Hernandez said CNA encourages policyholders to perform things like tabletop walkthroughs and brainstorming exercises so that they consider all possibilities and come up with strategies.
Brokers have a role to play in this process, Hernandez noted, because they know their clients well and can help underwriters understand all aspects of a policyholder’s operation.
“Working with a broker helps us ensure that we get the right resources engaged from the account perspective, and then working with them in a total service capacity to make sure the needs of the account they’re representing are taken care of,” he said.
Journalist Alex Zank can be reached at [email protected].