In my January blog I highlighted urban resilience efforts as a key component to natural catastrophe recovery. Cities across the globe are focused on resilience efforts. Many of the largest cities worldwide are now participating in the 100 Resilient Cities initiative, of which Swiss Re is a leading supporter. One such city is Los Angeles, California which faces serious challenges.
Los Angeles ranks in the top ten cities worldwide for disaster risk due to its history of earthquakes and proximity to the San Andreas fault, as well as flooding, drought and more.
As home to almost 18 million people, Los Angeles is the single most densely populated region in the United States. It is also home to the largest seaport in the western hemisphere and one of the most important manufacturing centers in the US. It is therefore critical to ensure the preparedness of the Los Angeles County municipalities and commercial entities in the event of a natural disaster, which can be done in a few ways.
For municipalities and commercial entities it is important to consider how their insurance programs are structured, and with whom. A buyer can get nat cat insurance from a wide range of insurers with an equally broad spectrum of financial ratings and balance sheet strength. However, when a mega event happens, losses can stress insurer balance sheets and the quality of an insurer's financial strength becomes paramount in helping an insured recover. After a mega event, some insurance carriers will absorb losses and recover; some will be damaged, and some will fail.
Using a combination of both traditional insurance instruments and "new" or non-traditional structures provides commercial insurance buyers with a great amount of coverage flexibility. These new or non-traditional structures can only be adequately created by the best-capitalized carriers to benefit an insured. Non-traditional structures are effective risk-transfer contracts for specific nat cat risks, offering high capacity and more predictable insurance premiums in a multi-year structure.
I recently participated with a team of underwriters in the structuring of a multi-year, single-layer nat cat carve out for a major manufacturing operation. This structure gives the client increased capacity for specific, named nat cat risks. It also helps to provide balance sheet stability against mid-term exposures and predictable year-over-year pricing. A structure such as this is particularly advantageous for municipalities – and commercial entities in numerous industries – which operate in known high-exposure cat zones, like Los Angeles.
A second way to help cities like Los Angeles prepare for natural disaster is through catastrophe modeling. Swiss Re has developed CatNet, a powerful and proprietary natural hazard information and mapping system, which provides an overview and assessment of natural hazard exposure for any location worldwide. We use catastrophe models, such as CatNet, to help clients visualize and prepare for natural disasters in ways we haven’t been able to before.
Read more about catastrophe modeling and Swiss Re’s “Risky Cities” profiles here. What are other important considerations for Los Angeles and other cities at risk?
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Category: Climate/natural disasters: Climate change, Disaster risk, Drought, Earthquakes, Resilience