As the Insurance Industry Responds to Recent Catastrophic Losses, is Your Business Prepared to Weather the Perfect Storm? Tips for Managing Emerging Catastrophic Risks and Supply Chain Disruption

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2011: A Record Breaking Year for Property and Business Interruption Losses

Catastrophic events in 2011 caused an estimated $380 billion in global economic losses. These losses were nearly two-thirds higher than the $220 billion in losses incurred in 2005, the previous record set after Hurricane Katrina. Insurers currently estimate they suffered $116 billion in insured losses in 2012—the second highest figure on record. In addition to some of the worst U.S. tornadoes on record in Joplin, Missouri and Tuscaloosa, Alabama, natural disasters also struck in unlikely locations in 2011, including Hurricane Irene in New York, a 5.8 earthquake near Washington D.C., and tornados in Western Massachusetts. Far greater losses resulted from events abroad including earthquakes in New Zealand, floods in Thailand, and the Fukushima earthquake and tsunami in Japan — events which triggered catastrophic property losses and significant global supply chain disruptions. Man-made disasters such as plant explosions and political instability also caused billions of dollars in insured losses in 2011 throughout the world.

2012 is also shaping up to be a significant year for catastrophic losses. So far, businesses have dodged radiation from solar flares, earthquakes in Indonesia, Italy, and Mexico, tornadoes near downtown Dallas, and two named storms before the official start of the Atlantic Hurricane Season. To make matters worse, in March, an explosion at a German facility responsible for half of the world’s nylon-12 production—a critical component in automobile fuel and brake lines—is raising the prospect of significant contingent business interruption losses for global auto manufacturers. Given the globalization of supply chains and the inability to predict where catastrophes will strike next, businesses should assess whether they have adequate insurance coverage in the event of a catastrophic loss or supply chain disruption.

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