How a Proactive Risk Control Strategy Reduces Losses

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Published September 2nd by Kyle Langan

HURRICANE IDA is commanding many of the current headlines and updates in the news. Preliminary loss estimates from the storm are approaching $25 billion in New Orleans, LA.[1] Why should catastrophic events matter to you? One important reason is controlling the risk your most cherished asset faces. For most people, this is their home, while for others, it may be a valuable commercial property. Homeowners and facilities managers alike must maintain high level awareness of their property in order to mitigate risk and prevent loss.

$14.5B Network

New Orleans employed a proactive risk mitigation investment strategy by constructing a $14.5 billion network of seawalls and levees that the Army Corps of Engineers built after Katrina.[2] New Orleans’ current infrastructure system features hundreds of levees positioned in a protective ring around the city, the longest storm surge barrier in the U.S., a floodgate at Lake Ponchartrain, and the world’s largest pumping station.[3] With this proper protection in place, the city was effectively able to avoid another Katrina. This infrastructure guarded the city well against Ida and sets a model for other at-risk cities to follow. Katrina was catastrophic because very high storm surges overtopped levee systems in New Orleans and St. Bernard Parish.[4]

New Orleans’ levee system functioned as designed, according to Kelli Chandler, regional director of the New Orleans Flood Protection Authority: in the metropolitan area, “there was no breaching or overtopping of the levee system,” she said.[5] Katrina and Ida were not identical; however, the city experienced success during a storm of similar intensity to Katrina. Ida was a category 4 hurricane, with 150 mph winds. Katrina was a category 3, with 125 mph winds, but moved faster and was larger in size than Ida.[6] The magnitude of losses that were prevented can be seen in the appendix below:

Results: New Orleans’ demonstration of effective, proactive risk control

 

Inadequate Risk Control (Katrina)
Proper Risk Control in place (Ida)
* $174.7 Billion in damages
$25 Billion in damages

* Adjusted for inflation [7]

Proactive risk control is similarly necessary to prevent structural issues for commercial properties. Buildings deteriorate gradually over time, so managing the risk of this deterioration before problems arise is key. A strategy with this in mind is how New Orleans reduced a hurricane’s damages by over $100 B. The estimated ROI from the $14.5B investment was roughly $150B in prevented damages.

As buildings age, they can lose structural integrity. If simple repairs are procrastinated, they can develop into greater issues with higher loss potential. This can cause significant damage that may increase danger and interrupt operations.[8] Structural engineering and building codes have evolved the safety of commercial properties. Still, additional loss prevention is necessary for longevity and success. Facilities managers must adequately protect commercial buildings and mitigate the risk they face. Proactive risk control helps to prevent losses. Further, risk transfer increases capacity to prepare for inherent losses.

Constant maintenance and inspections are vital to mitigate property risk. This, along with the loss prevention advice below, is your solution to commercial property risk mitigation. Risk solutions are our specialty at Conrey.

 

Loss Prevention for Commercial Properties:

 

  • How effective is your facilities manager? — Hire excellent facilities managers because they act as the first line of defense. They identify repairs that need to take place, which is a crucial role. Proactive assessment will save money and ensure buildings remain safe to occupy.[9]
  • Are you planning for repairs and maintenance? — In the long run, it is favorable to financially prepare for unexpected expenses to occur. Routine maintenance should be budgeted for in advance.[10] According to the University of Michigan School for Environment and Sustainability, 72% of commercial buildings in the United States are aged 20 years or older; it’s around this milestone that facilities managers should budget significant funds in advance for upgrades.[11]
  • When are building inspections conducted? Inspections should occur:
    • Annually;
    • After any significant event, such as wind storms, earthquakes or hurricanes;
    • Before and after any major addition or renovation.[12]
  • Who is performing inspections? — Ensure inspections are performed by qualified inspectors who have location-specific expertise. Inspectors must be familiar with indicators of damage. Structural engineers must assess the major structural components of the building to identify any necessary corrective actions. They should document inspections to allow for year-to-year comparisons of issues, with photos.[13]
  • Are local building codes known? —Building codes help maintain safety and sound structure in buildings. It’s essential to know and understand local building codes; this way, requirements are met. Regulations in harsher environments may have additional requirements.[14]
  • Are issues being dealt with swiftly? —When an issue arises, they must be acted upon as early as possible. Early action lowers costs versus allowing issues to mature and become more serious or perhaps dangerous. The safety of those who live or work in the building depends on structural issues being addressed and resolved.[15]  A failure in this loss prevention technique can result in a devastating event like the one New Orleans experienced in 2005 with Katrina.

For risk management guidance on par with New Orleans’ successful risk reduction infrastructure, consult with Conrey Insurance Brokers & Risk Managers. To speak with a member of the Conrey Team, call (714) 838-5835 or contact us and experience The Conrey Difference for yourself.

— Kyle Langan, Risk Manager at Conrey

 

[1] S&P Global.

[2] Editorial Board.

[3] Castillo, A.

[4] Levenson, E.

[5] Castillo, A.

[6] Levenson, E.

[7] Staff, U. S. I. C.

[8-15] Johnson Financial Group.

 

References

Castillo, A. (2021, August 31). Battered by Hurricane Ida, New orleans’ storm protection infrastructure holds fast. American City and County. https://www.americancityandcounty.com/2021/08/31/battered-by-hurricane-ida-new-orleans-storm-risk-reduction-infrastructure-holds-fast/.

Editorial Board. (2021, August 31). Opinion | Hurricane Ida shows the huge investments to protect New Orleans after Katrina paid Off. it’s a lesson for other cities. The Washington Post. https://www.washingtonpost.com/opinions/2021/08/31/hurricane-ida-shows-huge-investments-protect-new-orleans-after-katrina-paid-off-its-lesson-other-cities/.

Johnson Financial Group. (2020, January 24). Risk insights: Structural issues and aging buildings. Johnson Financial Group. https://www.johnsonfinancialgroup.com/resources/blogs/business-guidance/risk-insights-structural-issues-and-aging-buildings/.

Levenson, E. (2021, August 30). How hurricane Ida compares to Hurricane Katrina. CNN. https://www.cnn.com/2021/08/30/us/hurricane-ida-katrina-new-orleans/index.html.

S&P Global (2021, August 31). Hurricane Ida losses likely short of Katrina totals, could hit $25B. ProgramBusiness. https://www.programbusiness.com/news/hurricane-ida-losses-likely-short-katrina-totals-could-hit-25b?utm_campaign=dnf-2021-08-31&utm_source=dnf&utm_medium=email.

Soergel, A. (2015, August 28). From resilience to resurgence after katrina. U.S. News & World Report. https://www.usnews.com/news/articles/2015/08/28/new-orleans-economic-resurgence-after-hurricane-katrina.

Staff, U. S. I. C. (2021, August 11). Inflation calculator: Find US dollar’s value from 1913-2021. US Inflation Calculator |. https://www.usinflationcalculator.com/.