Climate Change

Due to shifts in the global climate, we are facing weather changes that have resulted in volatile storm patterns and increased severity and frequency of catastrophic events. From a loss prevention perspective, understanding these atmospheric changes and how we can best guard against them will help us to plan for preventative measures, risk mitigation actions, and post-event remedies.

In Volume 1 of Falvey Foresight, we detailed our previous wind risk assessment project in which we compared historical wind risk data with the geographical locations of all of the facilities with location coverage in the Falvey books. We then identified both a wind risk score and which facilities had up-to-date COPE (Construction, Occupancy, Protection, and Exposures) information. As a part of that project, we also developed some best practice guidelines on planning for, responding to, and cleaning up after weather-related incidents. Using the same basic approach, we would like to look into the effects that climate change could have on potential marine cargo insurance claims and plan ahead to best mitigate against potential future risk.   

Preparedness general guidelines

• Identify all facilities that may be in danger of increased exposure to natural disasters.
• Understand the risk facing each facility based on its location, condition, and operations. 
• Establish a comprehensive emergency response preparedness plan for any possible event.
• Practice running preparedness drills to familiarize staff and ensure effectiveness. 
• Update your procedures often based on practice results feedback and new or changing information.

There are many overarching risks that climate change could present for shipping, supply chain operations, and marine insurance. The most immediate and easy to predict is in looking at the recent “new normal” of extreme weather phenomena.

We should all be prepared as the NOAA predicts a 60% chance of another above-average Atlantic hurricane season this year, and just 2 weeks ago (at the time of writing) Tropical Storm Elsa was upgraded to a Category I hurricane so early in the season causing property damage up the eastern seaboard as well as at least 4 deaths. Experts are forecasting a likely range of 13 to 20 named storms which could lead to 6 to 10 hurricanes in 2021. 

Major hurricanes can be some of the world’s most costly natural weather disasters in rare cases causing well over $100 billion in damage. Because of the effects of climate change, we are seeing these storms intensify. Warmer oceans fuel storms because as the temperature of the water is higher, there is more evaporation from the sea into the air. This means that as the winds move across the water, they pick up not only speed from the heat, but also additional water vapor which translates to the volume of rain. 

Due to rising ocean levels, the storm surges from these events are far beyond normal. The water levels rise to all-time highs, and the storm with the additional heat, speed, and precipitation push water inland leading to large flooding events. An example of how disastrous this can be is Hurricane Katrina. It was the storm surge which, with a confluence of other factors, lead the levees to fail and destroyed much of the city of New Orleans. Unfortunately, the sea level has been rising consistently over the last 100 years, and we could continue to see flooding events because of this trend.  

Flooding both from storm surge and other causes is the number one catastrophic risk peril for Canada and many other countries according to information from IUMI. The problem is not only from increased precipitation events that deposit the water, but also from an altered natural landscape that does not allow the proper drainage. Natural environments such as wetlands have been paved over or turned into agricultural farmland, and as infrastructure ages, it crumbles to the increased precipitation. 

While the Northeast, Mid-West, and Southern regions, in that order, have seen dramatic rises in precipitation events, the west coast of the country has seen much less of an increase. In many regions, they are also dealing with the problems of altered natural habitats, but leading to too little moisture instead of too much. The build-up of vegetation and extremely dry conditions have led to massive wildfires seen in California and throughout the West Coast. This has become a yearly concern for all in the region. 

Understanding the hazards that we face and how they are amplified by climate change is imperative to effective risk management strategies. We have to know what we are up against so we can take effective countermeasures. 

A first step would be to actively participate in organizations, programs, and technologies that will reduce the impact of businesses on the climate. The earth is a sensitive natural ecosystem that looks to maintain balance. Every change will have ripple effects that cannot be easily foreseen. Prevention is the best policy. 

And the next step would be to look at internal preparedness. Establish a comprehensive emergency response preparedness plan for any possible event, and practice running through the procedures until they are very familiar with all involved. All components of your operations need to be accounted for in the stages of before, during, and after the event. Steps like elevating inventory and equipment off the floor level, having emergency contacts and backup power, and having a formalized inspection plan would all be examples of measures to take to ensure the safety of goods.

Although climate change and its effects can be hard to predict for in a marine insurance context, proper planning and due diligence will always lead to an effective risk mitigation strategy. 

Understanding the risk from climate change to cargo insurers (iumi.com)

Is your supply chain ready for the 2021 hurricane season? (falveycargounderwriting.com)

Hurricane Elsa - Wikipedia

NOAA predicts another active Atlantic hurricane season | National Oceanic and Atmospheric Administration

List of costliest Atlantic hurricanes - Wikipedia

How climate change makes hurricanes more destructive | Environmental Defense Fund (edf.org)

Global Warming and Hurricanes – Geophysical Fluid Dynamics Laboratory (noaa.gov)