Insurance levels on natural catastrophe risks a growing risk for firms

Many organisations are failing to validate the limits of liability they require for their natural catastrophe insurance programmes. This in turn could mean they could be buying more insurance protection than they actually need or be significantly under-insured, warns Marsh, a wholly-owned subsidiary of Marsh & McLennan Companies.

“Many firms do not have a clear grasp of the true nature of their natural catastrophe exposures,” commented Caroline Woolley, Leader of Marsh’s Property Practice in Europe, the Middle East and Africa (EMEA). “Subsequently, their insured limits are set too high or too low, and they’re buying too much insurance or do not have enough in place to adequately protect their assets.

“First-half losses in 2011 arising from natural catastrophes were estimated at $63 billion, compared to $36 billion for the whole of 2010. Insured damages from Hurricane Irene could top $3 billion, making 2011 one of the most devastating for the insurance market since Hurricane Katrina,” continued Ms Woolley.

Now is not the time for firms to enter into insurance negotiations ‘blind’. “Insurers are increasing their natural catastrophe rates and are reducing their limits and coverage options,” Ms Woolley added. “By preparing quality risk information, quantifying their exposures and the appropriate insurance limits required, firms can look to secure the protection they need at what could be a fairer and more competitive terms. Knowing their limits and exposures should be a crucial element of an organisation’s risk management strategy.”

In June, Marsh launched its NAT CAT Pack, a suite of services which includes a new portfolio assessment analyses of natural hazard exposures at clients’ own worldwide locations, as well as those of their suppliers.

Case study:

Marsh produced a report for a global facilities organisation identifying that its limits of liability for its property insurance programme in Japan were inadequate at $5 million. The organisation subsequently adjusted its limits to $15 million, before the earthquake struck. The organisation was properly protected and is now secure in the knowledge that it has adequate protection in place for future events.