Extreme Weather and Your Business

Extreme weather and shifting weather patterns impact many of the risks businesses face, making it essential for businesses to have access to data and tools to understand their exposure to climate perils, to develop risk mitigation strategies and unlock capital. Evolving regulatory requirements adds to the complexity, while workforce health and safety remains a primary directive when faced with severe weather conditions.

According to Paul Dickson of Aon South Africa, enhanced data and analytics, climate modelling and industry collaboration are some of the ways organisations are protecting their employees, closing the protection gap and accelerating solutions to achieve net zero.

Weather Trends

Four of the top ten global risks[1] identified in Aon’s latest Global Risk Management Survey — business interruption, regulatory and legislative changes, supply chain and distribution failure and damage to brand or reputation — are impacted by weather and climate risk. To address these evolving risks, businesses need to:

1. Assess medium to long-term event impacts through climate modelling. This informs how conditions like droughts, extreme rainfall, extreme heat and wildfires may change, using today’s exposure to climate as a benchmark. Examining these risks from a property damage and workforce safety and well-being perspective is important.
2. Be aware of — and responsive to — climate obligations to regulators as well as address increased public and shareholder scrutiny of Environmental, Social and Governance (ESG) practices.

In Aon’s latest Catastrophe report, it was found that only 31 percent of the $380 billion in global economic losses from natural disasters were covered by insurance[2]. Climate modelling can help businesses to understand and assess their most significant exposures;  how to mitigate their impact and the appropriate coverage to have in place. .

Read Article: Weather Catastrophes Highlight Perils of Underinsurance

• Chronic perils are driven by slowly evolving changes in temperature and rainfall patterns such as heatwaves, drought and rising sea levels. The physical risk and impact accumulate over time and can be projected using standard climate modelling approaches.
• Acute perils are infrequent, short-acting events like severe thunderstorms, hurricanes and floods — perils traditionally analysed and covered by the insurance industry. While these can often be more extreme, they are also less common and more challenging to project.

“Climate insights help us to understand where mitigation may be necessary so increases in hazard do not lead to increases in risk. Having a clear understanding of vulnerability through the lens of potential catastrophe events provides a more holistic view of risk and can guide businesses on planning around it,” says Paul.

“The global regulatory landscape for climate risk is also evolving, particularly for multinational companies. Being aware of these changes and complying with legislation and requirements adds a new level of complexity to the mix. This is also true for complying with local standards such as the Task Force on Climate-related Financial Disclosures (TCFD) which began as voluntary recommendations for companies to make their climate disclosures consistent and comparable and has since been adopted in many jurisdictions, including South Africa,” explains Paul.

Impacting the Workforce

Weather and climate are playing an increasingly significant role in workforce strategy. Companies are first and foremost responsible for the safety and wellbeing of their employees. . This impacts strategic decisions such as the  location of a new facility or processes to reskill and upskill the workforce to meet the demands of green technology. .

Business continuity preparedness is pivotal to navigating the impact of severe weather. It starts with unpacking what a potential business interruption event looks like for a business to gain an understanding of how to address the event. The potential material damage as well as the period the business would be affected needs to be considered as this  provides insight into how the people component of the business plays out in these scenarios,” says Paul.

How Your Business Can Prepare

Natural catastrophe and climate analytics can help companies shape decision-making around the issue of weather and climate risk, enabling them to develop strategies to close the protection gap, be kinder to the environment and support employees in both these aspects.

“It is essential to examine your business portfolios in detail to determine which risks should be retained or transferred, identify exposures driven by natural catastrophes and other perils and drive down the cost of risk by optimising the value of insurance in your risk management programs,” says Paul.

The impact of climate change will require a new approach to risk management; one that considers a broad range of exposures and potential outcomes. At this junction, it is critical to consult with seasoned risk advisors and your broker to find a solution that will protect your business assets, keep employees safe, and allow for business continuity in a crisis event,” Paul concludes.

[1] July 2023: https://www.aon.com/en/insights/reports/global-risk-management-survey

[2] 2024: https://www.aon.com/en/insights/reports/climate-and-catastrophe-report

Related Articles: