Introduction

The growing frequency and ferocity of major weather events and natural disasters have pushed the climate change discussion to the forefront of governments and businesses. Droughts, floods, wildfires, earthquakes, and volcanic eruptions, among other weather-related and natural disasters, can damage buildings, bridges, roads, and dams. Tropical cyclones can disrupt fossil fuel drilling in the Gulf of Mexico, while the reliability of renewable energy sources, such as solar and wind, are both completely dependent on weather conditions to function but can also be adversely affected by extreme weather events. An unprecedented storm or disaster event can shut down airports, trains, and electrical power grids, and put national security and economic stability at risk.

Governments are responding with tougher climate disclosure laws and mandating other mitigation steps. For their part, companies are taking action to protect their assets from climate-related damage and litigation. Insurance companies are amending their policies and pulling out of some regions that are hard hit with losses to protect their bottom line but are also using new technology to obtain more accurate data and streamline the claims process.

Global Risks for Business

1. Construction developments are factoring in resiliency
   Owners and developers are becoming more attuned to the location, design factors, and building materials used to secure structures. They also are reviewing mitigation strategies. For example, the state of California recently approved the construction of new hospitals with a three-day water tank and their own energy generators to keep the sites fully running in the event of a major disaster. Construction firms are increasingly taking into account the root causes of climate change, as well as its impacts – for example, considering emissions controls, use of solar panels and stormwater management. They are also reviewing their policies, procedures, or strategies in anticipation of changes to the regulatory environment.
2. New laws and regulations in the climate change arena
   In the US, the Inflation Reduction Act will provide nearly USD 400 billion over the coming decade to cut carbon emissions and lower the cost of clean energy technologies, but it also includes trade protectionism aspects that may spur a backlash from European nations. Additionally, the US Securities and Exchange Commission has proposed rules that increase climate-related reporting requirements of companies. On the state level, California has passed two groundbreaking climate-related bills. One requires companies with annual revenues greater than USD 1 billion that operate in the state to report annually on their emissions. The second requires US companies that do business in California and with annual revenues greater than USD 500 million to disclose climate-related financial risks and what they are doing to mitigate those.
   
   Europe and the UK have already passed strong climate disclosure rules. British regulations require company disclosures to explain how climate change is addressed in corporate governance; its impacts on corporate strategy; how climate-related risks and opportunities are handled; and the performance measures and targets.
   
   While some of the regulations and climate change accords may be beneficial for highly developed countries, they could hold back some emerging economies.
3. Catastrophic devastation and losses will lead to more disputes and litigation

Following a catastrophic weather or natural disaster event, resolving the potential disputes over property damage, causation, and quantification of impact costs and other insurance claims will lead to lawsuits, liability, and costs in defending positions.

Global Opportunities for Business

1. Major companies are rethinking their insurance profiles
   Some large companies are, in effect, self-insured. Their incentive is to keep operations going and quickly get their own facilities back online, rather than submit an insurance claim. These companies have become motivated to develop technologies that would address climate risks and have built highly resilient supply chains.
2. Green design
   Many structures now have to incorporate “green designs” that have a minimal impact on the surrounding environment. In India, for example, hospitals are required to have their own micro-grids to sustain power and operations in the event of a storm or natural disaster that cuts off the facility from the main power grids. That technology has started to be adopted in the US.
3. Retrofitting of existing facilities
   More companies are reviewing their structures to see if they should retrofit them to withstand extreme weather conditions and natural disasters or build entirely new facilities. This is especially important for companies that are disaster providers, i.e. that deliver goods in emergency situations and cannot afford to have any ‘down’ time. It is also necessary for smaller companies that need to build facilities in one region, in case there is a disaster in another area.
4. Retaining weather experts

There is a trend of companies hiring forensic meteorologists to mitigate climate-related disasters and gain a competitive advantage, especially when collecting information for an insurance claim or litigation. Storm reports may not contain information that is accurate to the specific project location. Professional meteorologists who recognize the inherent problem with reporting procedures can aggregate and interpret storm data for applicability and accuracy.

5. Technology is transforming the insurance claims process
   Businesses are using pre-loss and post-loss technologies to limit the cost of the insurance claims process. One example of the former is monitoring via early warning systems. Post-loss technology can include ground penetrating radar, drones, satellite imagery, and even underwater remote-controlled vehicles to see the extent of damage following an extreme weather event or natural disaster.
   
   Insurers are using automated claims processing to quickly review and assess claims and reduce the time it takes to settle them. Insurance firms are also using mobile reporting which allows customers to report claims and submit photos and videos of the damage for faster processing.

Comparing the Impact of Disasters 1980 to 1999 vs. 2000 to 2019

(Source: UNDRR report: The Human Cost of Disasters: an overview of the last 20 years (2000-2019) / The Centre for Research on the Epidemiology of Disasters (CRED)’s Emergency Events Database (EMDAT))

Global Economic Losses by Decade

(Source: World Meteorological Organization’s Atlas of Mortality and Economic Losses from Weather, Climate and Water-Related Hazards)

Breakdown of Recorded Economic Losses by Continent - 2000 to 2019

(Source: UNDRR report: The Human Cost of Disasters: an overview of the last 20 years (2000-2019) / The Centre for Research on the Epidemiology of Disasters (CRED)’s Emergency Events Database (EMDAT))

Top Takeaways

1. Aging infrastructure leaves society more vulnerable to the growing severity and occurrences of extreme weather events in the US, as well as in many other developed and developing countries.

2. As the number of major weather events increases and brings catastrophic damage, insurance companies are amending their policies by introducing higher premiums, deductibles, and other charges, while redefining contractual terms.

3. Insurance companies are also placing the onus on the insured to prepare for extreme weather events, while using more technology, such as satellite imagery, to speed up the claims process.