The report confirms that as cities have grown, especially in developing countries, and people migrate to urban areas, those areas have become more vulnerable to natural disasters. Cities have continued to develop and build on adaption strategies, however, to make their cities more resilient. The report found that SMEs, on the other hand, are far less prepared to deal with the effects of climate change and natural disasters. SMEs feel vulnerable, especially those in emerging markets where communities have been most affected.

Related: Insured losses in Mexico from Hurricane Patricia estimated at less than $200 million

(Photo: Thinkstock)

Highlights of the study

Penn Schoen Berland conducted 1,104 online interviews from July 30 to Sept. 9 this year with senior decision makers at SMEs in 11 key markets that were grouped as either “developed” or “emerging.” The developed markets were Belgium, France, Italy, the UK and the U.S. Emerging markets were Brazil, China, India, Indonesia, Mexico and Thailand. The SME decision-makers are defined as those with decision-making authority for their entire organization or for multiple departments or divisions within it, in companies with 10 to 250 employees.

Here are some key SME statistics that emerged from the study:

• 59% have been affected by climate change, 66% in emerging markets.
• 27% are well prepared for the consequences of climate change.
• 27% are focusing on adapting their businesses to be more resilient.
• 53% believe climate change represents an opportunity for their business.
• 26% currently have a resilience plan in place. In the UK and U.S., more than 40% have no plans to develop one at any point in the future.
• 74% believe that large corporations are ahead of their business in adapting to climate change.
• 19% currently interact with government on the issue of climate change.
• 79% think insurance companies should be doing more to help businesses adapt to the consequences of climate change.

According to the report, the most significant impact climate change has had on SMEs has been on costs and the price of inputs (cited by 37% of those surveyed). This is even more prevalent in emerging markets and is of highest concern to those operating in manufacturing sectors. SMEs in developed markets give equal weight to the impact on costs and input prices as to the cost of insurance and protection against risk.

Workers unload sandbags to build a barrier from floodwaters at a factory at Amata Nakorn industrial estate in Chonburi province, eastern Thailand Oct. 9, 2013. (Photo: Apichart Weerawong/AP)

SMEs focused on mitigation, not adaption

Across markets, the report found that SMEs’ climate change-related activities are predominantly focused on mitigation rather than on adaptation measure to protect their businesses. Only 25% of SMEs in developed markets and 28% in emerging markets have paid for insurance to cover climate-related risks and fewer than 25% currently undertake regular risk assessments or planning for natural disasters.

Surprisingly, the most prepared market is China, where 41% of SMEs say they have a plan in place, followed by Thailand, where 38% have developed a plan, the report found. The least prepared markets are the UK and the U.S., where more than 40% of SMEs currently have no intention of developing a plan at any point in the future.

Currently, climate change is not in the perceived “top tier” threats to the SMEs’ businesses, which include financial instability, data privacy and work-related diseases. In addition, the SMEs surveyed reported that they lack the capacity, knowledge and necessary support to plan and adapt to the consequences of climate change.

(Photo: Shutterstock)

Insurance industry’s role

Overall, 59% of SMEs say that insurance companies are already helping their businesses adapt to the consequences of climate change, but 74% in developed markets and 84% in emerging markets say that insurance companies should be doing more to support businesses and communities. SMEs currently believe that insurance companies should prioritize investment in new green technology and provide incentives for companies to reduce carbon emissions and increase energy efficiency — even though these are lower priorities from the SME perspective.

Only 12% of those in developed markets and 16% of those in emerging markets are currently taking climate change into account when choosing their level of insurance coverage. The majority of SMEs do expect climate change to affect their choice of insurance at some future date. Only SMEs in the UK and the U.S. are more likely to say that their choice won’t be affected. As might be expected, SMEs that had firsthand experience of the impact of climate change had a different view of their insurance needs.

The insurance industry, recognized as a leader in risk assessment, the report says, has “a major opportunity” to step forward to advise SMEs on how to assess climate risks and support them in the development of resilience plans. Sixty-two percent of SMEs believe that insurance companies are a credible source of information on climate change, and 74% believe that insurance companies can help reduce climate-related risks.

No matter what insurance agents, brokers and carrier representatives personally believe about climate change, this report presents a perfect opportunity to begin a conversation with clients about business continuity planning and supply chain resilience.

For a copy of the “Business Unusual” report, click here.