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U.S. Companies are Rethinking Risk Management Strategy After the 2017 Hurricanes

01/29/2018 By

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For many large U.S.-based companies, last year’s hurricanes and the damage they brought have been a wake-up call.

A survey of senior financial executives at U.S.-based companies with revenues of more than $1 billion, commissioned by FM Global, revealed that the hurricanes have prompted 68% to adapt their risk management strategy for the future.

For 64% of the executives, the hurricanes had indeed affected their company operations. And among those who were affected, 62% said they were not completely prepared to deal with the hurricane’s aftermath.

Of course, it’s hard to predict just how much damage a particular hurricane, weather event or other risk would cause. Nor do the full consequences of a risk event become immediately apparent.

As risk expert Gary Lynch told Spend Matters in an interview last September, “it really takes weeks to figure out how much impact there is going to be to [different industries] … I suspect within the next month or two, you [will] really start to see the [effects] unfold.”

Readers may recall news headlines from around the time of Hurricane Harvey that less than 20% of homeowners in Houston had flood insurance.

As for businesses, most manufacturing companies have some form of supply chain insurance, but contingent business interruption insurance or non-physical supply chain insurance are less common. The 2017 hurricane season has prompted a quarter of the survey respondents to reassess their insurance coverage.

Forty percent of the surveyed executives said that they plan to invest more in risk management or reassess their companies’ supply chain risk management strategies. Fifty-seven percent reported that they will enhance their disaster recovery plans.

Viewing risk through a different lens may also be needed here. As Lynch put it, “if I’m going to make that investment [in risk management], I’m going to make it not only from a defensive standpoint, but I have to be able to use it also to go on offense.” Uncertainty and risk can be thus turned into an asset.

For help navigating the complex market of risk management and compliance solutions, read Spend Matters’ free and “refreshed” report: Supply Risk Management and Compliance Landscape Definition and Overview—2018 Update.