Brokers can now present their clients with yet another business case for weather protection measures after new data linked hurricane damage to a drop in shareholder value.
Research commissioned by FM Global found dozens of large publicly traded companies that reported hurricane-related financial damage to the US Securities and Exchange Commission collectively lost 5% of their shareholder value over the year following the storms.
Furthermore, a separate data set found companies that followed all of FM Global’s engineering advice relating to storm protection collectively outperformed clients that hadn’t by 10%.
“The lessons are clear,” said Deborah Pretty, founding director of Pentland Analytics, the firm behind the research. “First, hurricanes damage shareholder value as well as property values. Second, property protection pays off.”
While the data sets focussed on US-based companies, Michael Stuckings (pictured) – operations chief engineer for FM Global ANZ – said the results would likely be mirrored in an analysis of local businesses.
“We would expect a similar outcome for Australia, particularly for companies with large assets in areas affected by cyclones, including northern Queensland, the Northern Territory and northern Western Australia,” he told Insurance Business.
“The study’s conclusion that cyclones damage shareholder value as well as property values, and that property protection pays off, would be just as applicable here as in the US,” he added.
Stuckings also said FM Global has observed many cyclone-related losses that have had a major impact on a company’s revenue – across both clients and non-clients.
“That includes losses that not only stemmed from a cyclone, but also damage from flooding and storm-surges associated with cyclones,” he said.
Despite the hard evidence proving the value of weather protection, Stuckings said many businesses still fail to appreciate the potential repercussions associated with a natural disaster.
“Unfortunately, many people still do not understand the impact that flooding or loss of roofing can have on a business – the time required to clean-up, remove mould contamination and rebuild can run into many weeks, particularly when resources such as building contractors can be scarce after an area-wide event,” he said. “The impact from a large-scale natural disaster, such as a cyclone, goes beyond the portion that is covered by an insurance policy.”
Stuckings also encouraged brokers to discuss the study’s findings with their clients, to help them truly understand their risk exposure to cyclones and take steps to minimise the damage.
“By having these discussions, clients become more informed about what they can do to prepare before a cyclone hits to minimise costs and potential downtime, and, if they’re publicly listed, impact to shareholder value,” he said.
Effective changes include enhancing a company’s disaster recovery and business continuity plans, investing more in property loss preventions, and reassessing their supply chain risk management strategy, said Stuckings.
“By acting on our advice and completing simple improvements to improve structural resilience, some of our clients have been able to resume business within days after a cyclone passes, rather than weeks,” he added.
