North American Companies More Prepared for Catastrophes than in Europe or Asia-Pacific

Although preparation for catastrophes—such as terrorism, pandemic outbreak or extreme weather events—is becoming an increasingly important aspect of risk management, levels of preparedness vary significantly from region to region, according to a new survey of 225 risk managers worldwide by the Economist Intelligence Unit. Overall, 67% of respondents said they had increased the amount of time and resources they dedicate to catastrophe risk management in the past three years, but US respondents were more likely than those from either Asia-Pacific or Europe to have considered specific threats such as terrorism, extreme weather events and avian flu.

Sixty-four percent of US respondents had considered avian flu as part of their risk management processes, compared with 62% in Asia-Pacific and 43% in Europe. For terrorism, the figures were 71% in the US, 62% in Asia-Pacific and 50% in Europe; and for extreme weather events, the results were 73% in the US, 49% in Asia-Pacific and 44% in Europe.

These results form part of Catastrophe Risk Management: Preparing for potential storms ahead, a newly-released Economist Intelligence Unit survey and report sponsored by ACE, IBM and KPMG. With companies around the world facing a variety of potentially devastating threats, the report examines current thinking around catastrophe risk management and explores levels of confidence and preparedness among executives from a range of industries and regions.

“Most of the executives we questioned recognise the need to prepare for catastrophe as part of their risk management processes,” says Rob Mitchell, editor of the report, “but North American companies appear to have the edge over those from both Asia-Pacific and Europe when it comes to considering specific threats.”

Other key findings of the report include:

Power outage seen as the most significant threat that companies face.When asked about how serious they consider a range of threats to be to their business, respondents to our survey cite power outage as the most significant, perhaps reflecting what they see as the relatively high probability of such an event occurring. Next on their list comes bird flu, which is cited by 43% of respondents as either significant or very significant, and then terrorism, which is seen as a significant or very significant threat by 35%. Respondents from North America are most likely to see extreme weather events as a significant threat, no doubt reflecting growing concerns about the intensity of storms along the eastern and southern coast of the US, while respondents from Asia-Pacific are most likely to consider the threat from avian flu as significant.

Respondents lack the time or resources to give catastrophe risk management their full attention. Eighty percent of respondents see preparing for catastrophe as important, but only 32% say they devote significant time or resources to the activity. In addition, 49% of respondents feel that by devoting time and resources to preparing for catastrophe, they risk losing sight of more immediate priorities.

Catastrophe risk management can be a source of competitive advantage. Although there are no immediate bottom-line benefits from adopting good catastrophe risk management, 81% of companies believe that putting in place robust plans can be a competitive advantage. With business networks becoming increasingly complex, and companies relying on a growing number of partners, suppliers and outsourcing providers, participants in these networks can benefit by demonstrating to other members that they have considered catastrophe risk management and have processes in place to ensure resilience in the face of a major event.

Smaller companies are particularly vulnerable. Seventeen percent of companies with annual revenue of $500m or less said that they had no catastrophe risk management plans in place at all, while a further 11% saw catastrophe risk management as a one-off exercise. By contrast, only 2% of companies with revenue in excess of $5bn said they had no plans in place. When survey respondents were asked how successfully their organisation conducted aspects of catastrophe risk management, such as risk assessment, impact analysis and communication with employees, smaller businesses gave themselves lower ratings than large companies in every single category.