The likelihood of catastrophes--tornadoes, hurricanes and earthquakes, as well as flooding from busted levees and record rainfall--means risk managers have a lot of potential disasters to plan for, yet many are unprepared, a recent study warns.

What's more, most companies are not very concerned about the potential impact of a disaster, according to a survey of financial executives representing the largest corporations in North America, commissioned by FM Global.

The findings of the "2008 Natural Disaster Business Risk Study" are based on the responses of 100 financial executives from U.S.- and Canada-based corporations with at least $1 billion in annual revenue.

While 96 percent of executives surveyed said their companies have operations exposed to natural catastrophes, less than 20 percent indicated their firms were "very concerned" about natural disasters negatively affecting their bottom line.

"The findings reveal a surprising and concerning gap between the levels of natural catastrophe exposure among North America's largest companies and their level of preparedness," Ruud Bosman, executive vice president of FM Global, said in a statement. He added this was especially disturbing "given that in the first half of 2008, there were about 400 natural catastrophes worldwide, with overall losses expected to top $50 billion."

FM Global found that the "preparation gap" spans multiple natural catastrophes and there is a consistent disconnect across three of the most common and costly types of natural disasters--hurricanes, floods and earthquakes.

o Hurricanes: While 80 percent of companies have North American operations located in regions exposed to hurricanes, nearly 50 percent reported they are not well prepared for such an event, the study found. Nearly 80 percent of financial executives from those companies are not overly concerned that a hurricane/typhoon or tropical cyclone could negatively impact their company's bottom line.

o Floods: Ninety percent of companies have North American operations located in regions exposed to floods, but more than 60 percent indicated they are not well prepared for such an event. What's more, almost 90 percent of financial executives from those companies are not overly concerned that a flood could negatively impact their company's bottom line.

o Earthquakes: More than 80 percent of companies have North American operations in regions exposed to quakes, yet more than 70 percent revealed they are not well prepared. Eighty-five percent are not overly concerned that a quake could negatively impact their bottom line.

Louis Gritzo, vice president and manager of research at FM Global's 1,600-acre research facility in Johnston, R.I., told National Underwriter that the company works closely with risk managers to secure their businesses from disaster.

He pointed out the importance of thorough risk management. "Following Hurricane Katrina, companies that completed [loss mitigation] recommendations saw their losses drop by 85 percent," he said, adding that the average cost to complete those steps was less than $5,000.

The improvements, he noted, covered the spectrum, from "very simple to comprehensive. Every facility has unique features--no one size fits all."

He noted that FM Global takes a "bottom up-and-out" approach to making sure businesses are protected against catastrophe losses, involving five steps:

o Looking down at flood threats in the basement.

o Looking up at windows and doors.

o Looking above at the roof and roof-top equipment.

o Looking around the building for wind-blown projectiles.

o Looking out to ensure the global supply chain has the same dedication to hurricane protection.

Mr. Gritzo said FM Global's research has found that risk managers looking to put protective measures in place often overlook equipment on rooftops.

"In the past, we've placed a heavy emphasis on ensuring the outside of the building was protected to keep the water out, and that is still very important," he said. "The main threat is water getting inside, but the next potential loss mechanism is having roof-mounted equipment, or equipment like cooling towers, fail due to wind loads."

He said FM Global has developed new standards "to adequately, cost-effectively brace that equipment to avoid damage during hurricanes" and other windstorms.

Mr. Gritzo said the company uses its loss experience to revise and improve operating standards, as well as for FM-approved products. "If you use a fastener, bracket or bolt to fasten a piece of equipment to a roof, it needs to be one that's going to withstand the loads," he explained. "So while the operating standards may call for fastening equipment, the approval standards specify the kinds of fasteners to be used."

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