Despite some leaks to the media, the NSW government is yet to release its flood inquiry report looking into the devastating floods across the state during February and March. The investigation by independent experts was handed to the government more than a week ago. According to its terms of reference it will include recommendations about changing land use planning, management and building standards in flood prone locations.
Regardless of the report’s findings, the changing climate is already impacting commercial property planning in NSW, Australia and the world.
Mike Hunneyball (pictured above), from FM Global, said more and more businesses are considering climate impacts when expanding their operations by purchasing or renting new buildings.
“Climate risks tend to be well understood in developed countries,” said Hunneyball, who is operations chief engineer for the multinational commercial property insurer.
However, the difficulty for insurers, he said, is assessing those risks in less developed countries and also keeping up with companies as they expand, merge and change.
“With the expansion of global supply chains, the challenge for insurance companies is in areas around the world that haven’t been mapped to understand climate risk,” he said. “As clients build new properties, go through mergers and acquisitions and expand into areas where risks are less well understood, insurance companies need to keep up.”
Hunneyball said, in these cases, determining climate property risks is best done with hands-on engineering and on-site risk assessments rather than historically based, actuarial calculations.
“The best way to accurately assess the risk is with an on-the-ground risk assessment to quantify the risk of flood, bushfire or cyclones and determine how they would impact the property,” he said.
Hunneyball said this helps ensure policy terms, conditions, premiums and deductibles are accurately reflecting climate risks.
FM Global’s operations chief engineer explained some steps businesses and their insurance brokers should take, and the questions they should be asking, to build a better understanding of these risks and make the right risk management decisions.
“Are they currently in a flood zone, a high wind speed area, or bushfire zone? Could they be in the future?” he said. “This is particularly important for new buildings where you can choose to avoid high-risk zones.”
The next step, he said, is to find out how long it would take to restore a property to the same condition in the event of damage from a risk like a flood.
“You can then consider appropriate solutions to mitigate the risk,” said Hunneyball. “As well as your assets, consider how climate risk to the supply chain could hurt business.”
A final major consideration, he said, is building resilience into any new property by following best practice advice and building to prevent extreme events.
“We recommend businesses build 0.6 metres over the more extreme 500-year flood level, not just the usual 100-year flood level,” said Hunneyball, “FM Global’s engineering standards are designed primarily to protect properties from commercial losses, whereas local codes may only focus on life safety.”
Hunneyball recommended going beyond any minimum required property standards relating to climate risks.
“Locations in a known high-risk zone should be treated not as an ‘if’ but a ‘when’,” he said. “We’re seeing extreme events occurring on a frequent basis,”
FM Global’s Worldwide Flood Map can be a useful tool for brokers. The free to use map covers most of the globe and shows the frequency of 100-year and 500-year floods.
Another free tool, FM Global’s Resilience Index, ranks 130 countries against 15 economic, risk quality and supply chain factors and allocates each a score according to their resilience.
“Assess and address your known climate risks as early as the planning phase and you’ll sleep a little easier next time you hear a severe weather warning,” said Hunneyball. “Even in the face of growing climate risk levels, our philosophy is that the majority of property loss is preventable with a rigorous approach to climate resilience.”
A recent report suggested that insurance companies have some catching up to do.
The World Property and Casualty Insurance Report 2022 found that while most insurers acknowledge climate change impact, many have yet to develop a substantial climate resilience strategy. The report was released by two Paris headquartered firms: Capgemini, a global consultancy, and Efma, a global non-profit research group founded by European insurers and banks.
Their report found that less than 10% of insurers are “resilience champions”. This term refers to firms that are actively taking a combination of climate risk and resilience initiatives, including accessing new data sources for climate information, embedding ESG indicators into their underwriting and restricting coverage to unsustainable companies.