Hurricane season is here, and Aon is proactively working to ensure that clients are prepared for the impacts these storms could have on their businesses. This week’s host, Aon’s SVP for Health Solutions, Healthcare Industry Vertical, Sheena Singh, is joined by Managing Director of Aon's U.S. Property Risk Consulting Group, Jill Dalton, and Aon’s Global Practice Leader of Property Risk Control and Engineering, Michael Panfil, for a conversation about how they’re advising clients in the face of this year’s hurricane season and how their advice is changing with the effects of climate change.
Additional Resources:
Hurricane and Natural Catastrophe Planning and Response Site
2021 Weather, Climate and Catastrophe Insight Report
Tech Radio: Catastrophe analysis with Aon’s Steve Bowen
Global Catastrophe Recap: 1H 2022
Tweetables:
Voiceover:
Welcome to “On Aon,” a podcast featuring conversations between colleagues on, well, Aon. This week, we hear from Jill Dalton and Michael Panfil about how they’re helping clients during this year’s hurricane season. And now, this week’s host, Sheena Singh.
Sheena Singh:
Hi, everybody. My name is Sheena Singh and I've been a colleague at Aon for close to six years. I am a leader in our Health Solutions, healthcare industry vertical. So, joining me today, we have Jill Dalton and Mike Panfil, they're here to chat with us about this year's hurricane season and how we're advising our clients in the face of this extremely active season, and what they've done in the past to address this as well. Jill Dalton has been here at Aon for over nine years and currently serves as Managing Director of Aon's U.S. Property Risk Consulting Group, and Mike Panfil has been at Aon for over 30 years and currently serves as Global Practice Leader for the Property Risk Control and Engineering practice.
Sheena Singh:
Thanks for being here today, Jill and Mike, really excited to have you. Let's jump right into our topic for today. I'd love to hear a little bit more about what you're seeing in terms of this year's hurricane season so far. So, Jill, do you want to give us some perspective on this first?
Jill Dalton:
Sure. Well, the predictions are for a really active season, but so far here we are end of July, the activity has been quiet, but we know that that doesn't mean that's going to stay that way. A lot of years, the storms come late August, September, and in the Atlantic, there have only been three tropical depressions with hardly any impact in the U.S.
Jill Dalton:
So, other than hurricanes though, there's been a lot of activity with what we call severe convective storms, and those are events like tornadoes, storms that produce hail, derechos, storms with dangerous winds and lightning, and so far in 2022, there have been four of those events, each exceeding over a billion dollars, which is kind of unusual.
Sheena Singh:
Yeah. I mean, I think definitely something to keep an eye on, to your point, Jill, and I'm hoping my trip to Florida next week, we can avoid some of this hurricane season as well.
Jill Dalton:
Me too.
Sheena Singh:
So, Mike, I'd love to hear your thoughts on this too.
Michael Panfil:
Yeah, sure. I think Jill covered it very well. What I would add is there seems to be a trend where hurricanes, once they get inland, are dropping an inordinate amount of rain, and that seems to be increasing. In essence, some storms have turned out to be far more than coastal events from a flood standpoint. Last year's hurricane Ida is a great example, it made landfall in Louisiana and then tracked through the U.S., the interior of the U.S., and wound up causing severe flooding in New York and New Jersey. So, I would guess that's about a thousand miles away where that named storm was actually still wreaking havoc on us. Time will tell if this is a phenomenon that we need to recognize.
Michael Panfil:
We do know that intense rainfall, in general, is expected to increase with climate change. So, year to date, if we look at the natural hazards, losses, the weather-related, and what the causes have been and the economic loss, flood is number two. So, with our clients, we are doing our best to assess both river and flash flood exposures.
Sheena Singh:
Yeah. Thanks, Mike. I think we definitely have to think broadly of all of the impact to these different climate risks that are impacting the country so appreciate that. Let's talk a little bit more about sort of the biggest risk that the hurricane season poses to our clients. Mike, do you want to start with how we address that?
Michael Panfil:
Sure. Sure. The fact that they are wide area events, it's kind of obvious, right? But the impact is felt at work and at home and that's something that really, really makes things complicated. When you've got a workforce that is worrying about what's going on at home, it's difficult to run a business. The resilience of infrastructure plays a major role in all of that, not to mention the economic resilience of some areas is better than others. As we go along here today, Jill opened up talking about things we haven't had to deal with before, and we look at COVID, that there's been a persistent supply chain disruption since COVID-19. So, even prior to this supply chain crisis, essentials like roofing materials would have long lead times in high costs due to surge demand. This issue remains a factor in recovery periods and costs. Our Property Risk Control leadership team was recently discussing how we need to adjust loss estimates for any type of loss to account for these longer reconstruction periods
Sheena Singh:
And, Jill, anything to add from your perspective?
Jill Dalton:
Yeah, I think what's something that's got us a bit concerned lately is how quickly and differently storms are developing and intensifying than we've seen in the last few years. So, typically, when we see a storm brewing, we send out a lot of alerts to our clients and those alerts are intended to give them time to prepare, time for them to move perishable inventories, make sure roof ties are secured, tie down outside equipment, move valuable items to higher floors, things like that. But when they do intensify so quickly, clients might not have the time to do that, which means they can't mitigate their exposure and their losses could be more significant. So, that's something that we're concerned about.
Sheena Singh:
That's really helpful. So, a lot to keep in mind and make sure our clients are aware of. So, let's talk a little bit about... we've talked about the physical impacts of the hurricane season, what about non-physical risks? What are we anticipating are the impact to our clients there?
Jill Dalton:
So, the non-physical risks are those related to what's going on in the world, inflation, labor shortages, fears of recession, all make the potential impact of a hurricane more severe. Another factor, and it's not completely unrelated to the physical damage, it's hard to separate it, but the fact that our clients may have higher deductibles on their programs than they've had in the past... in the past, it might have been 2 percent applied against the values with the cap, but now it might be 5 percent against the values with no cap. And then also, not completely unrelated to the physical risk, but the impact to our clients is that they're taking on more of the risk themselves instead of being able to transfer it.
Jill Dalton:
And then one more non-physical impact, but again, related to the property damage is, Mike mentioned this before, but the prolonged length of recovery times because of the supply chain, because it takes longer to get things done. The challenges with getting business interrupted claims quantified and settled are big. The contingent BI claims that we've seen lately even more challenging because insurers need evidence of the property damage at a supplier site, they need to understand the length of interruption of that supply, and unfortunately, the suppliers are not always willing to share the information that's needed and those issues can draw out the claim. So, it's really the financial implications of these issues that are increasingly drawn out and hard to resolve.
Sheena Singh:
Great. And, Michael, I'd be interested to hear your thoughts on this as well.
Michael Panfil:
Yeah. Every day there are intangible risks that we may not have identified. I have a client that is simply one of the best prepared companies and her take on all this is that we have to use our imaginations. So, dreaming up the physical part can be the easier of the two intangible risks are hard to identify. So, what comes along with hurricanes that is non-physical, it's hard to say, but obviously, business interruption, as Jill was talking about, is the other half of the loss scenario. And it's often the tail that wags the dog. I would advise that recovery strategies must recognize that the lead times for replacement of machinery and equipment are going to be longer than usual, they are now without a major event. And if you're carrying more inventory due to supply chain problems and it gets damaged, again, your recovery periods could be stretched quite a bit. So, be prepared for this. Being prepared today is the best way to deal with this stuff when it happens tomorrow.
Sheena Singh:
Yeah. I appreciate that. And I think it's great that we have leaders like you really thinking about the potential risks holistically, both the physical and the intangible risks and losses that can come across. So, thank you for that. So, with all this in mind, how exactly are you helping to advise clients during the hurricane season this year, especially in the face of climate change? Jill, let's hear from you first.
Jill Dalton:
Sure. I'll address sort of the tactical things and let Mike talk about the climate change stuff. So, there are a lot of tactical and practical ways that we're advising clients. I did a webinar last month giving clients tips on what to do before a loss, after a loss, during a loss. My colleague from the Reinsurance team, Meteorologist Steve Bowen, did one simultaneously outlining the predictions of the hurricane season. And by the way, we need to thank Steve and the whole Impact Forecasting team for the great data they provide, some of which is what we're quoting here. They do a great job.
Jill Dalton:
We updated, sorry, our Be Prepared website that has all our checklists and documents that clients can access any time. We do tabletop exercises with clients to make sure that their emergency response plans are up to date. We work with them so that they have all the right people lined up. We've upgraded and updated our drone software and pre-loss imagery capabilities so that we can see the pre-loss conditions and then be ready to deploy the drone team with better visual tools after a loss.
Jill Dalton:
We also work with clients individually and we send out notices to them to remind them to review their policies. Policies change year over year often and we want them to make sure that they understand the supplements, the deductibles, the other terms and conditions that are going to apply, and that they communicate these to the stakeholders so that they're ready to deal with it. We also send out alerts when storms are on the horizon, I mentioned that before, and again, with more support from the Impact Forecasting team. And then our Loss Control team members, they're at client sites every day, and they're working with them directly on site to make sure that all the physical precautions that can be taken have been done.
Sheena Singh:
Great. And, Mike, anything to add from your perspective?
Michael Panfil:
Oh, certainly. Vulnerabilities are what we're talking about here and understanding your vulnerabilities to natural hazards, like a hurricane, it's absolutely crucial. And it's not just a level of hazard you face today, you need to look ahead. We're helping our clients understand the threats today and, in the future, using numerous static sources and some predictive models that are based on multiple emission scenarios. Besides relying on our own vast modeling capabilities, we have vendor partners and we're using public sources such as the Intergovernmental Panel on Climate Change, their interactive atlas, that delves into things like temperature increase by region of the planet, and we'll also delve into things like rainfall expectations.
Michael Panfil:
So, another source that we use is the National Oceanic and Atmospheric Administration Sea Level Rise Viewer, the Sea Level Rise Viewer is something we're using frequently. One of the aspects of climate change that will certainly impact hurricane damage is storm surge levels and coastal flooding, that's something we need to pay a lot of attention to of looking at what the flood exposures are now. But if we have sea level rise predicted for the future, now we've got a compounding effect of water levels, and we really need to be cognizant of that.
Michael Panfil:
When I say, "Know your vulnerabilities," we are advocating that you know the hazards that are created to your risks for your specific structures. What are your finished floor elevations? How will egress be impacted? You need to look at multiple sources of information and apply some engineering judgment. And obviously, you have to know your operations, including interdependencies and makeup capabilities within your enterprise. Likewise, we think it's a really good idea to analyze the threats to your suppliers' locations. Do you have suppliers in hurricane-prone areas or perhaps, and maybe even worse, are you and your suppliers going to be impacted by the same storm?
Sheena Singh:
Well, thank you so much, Jill and Mike, I really appreciate all of that insight you provided. It's really helpful to understand all of the things you have to think about when we talk about hurricane season and all the other factors that are impacting that. So, really appreciate all of that perspective. So, before we sign off, I'd love to just ask you another question to give our listeners some more information about you personally. So, Mike, I'm going to start with you, but the question will be the same for both. So, what's your favorite thing to do outside of work?
Michael Panfil:
Outside of work, it is all about family, it's about travel. I'm recently remarried to my high school sweetheart, and it's been a great reunion, and we love to travel together. We have seven grandkids between the two of us so it's awesome.
Sheena Singh:
That's lovely. And I wish you all the climate luck as you take those trips. And, Jill, how about you? What's your favorite thing to do when you're not working?
Jill Dalton:
Yeah, it's kind of related. It's really cooking and entertaining family and friends. I have recently been doing this online cooking class with different cookbooks and now my apartment is completely overrun with cookbooks, but so glad that now that we can go back to entertaining and having people over. So, I just love doing it, I love planning it. I love having everybody over and cooking with my family.
Voiceover:
This has been a conversation “On Aon” and how Aon is helping clients during this year’s hurricane season. Thank you for listening. If you enjoyed this week’s episode, tune in in two weeks for another new episode. To learn more about Aon, its colleagues, solutions and news, check out our show notes, and visit our website at Aon dot com.