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Tornado exposures not entirely predictable


Risk managers in tornado-prone areas can prepare for this unpredictable exposure with communication, education and identifying business exposures, observers say.

Tornadoes can strike with little or no warning. The National Weather Service says its average tornado warning precedes a twister by more than 11 minutes. The impact of an individual tornado can be glancing--knocking over a single tree--or it can devastate an entire town.

Collectively, 1,106 tornadoes and related weather events, such as hail, caused more than $8 billion in insured U.S. losses last year, according to Oldwick, N.J.-based A.M. Best Co. Inc.

Risk managers need to understand their buildings' structure and vulnerabilities. In fact, it is essential for risk managers to know what type of wind speed their locations can sustain, said Molly Nolan, New York-based senior vp of the global property practice group of Kansas City, Mo.-based Lockton Cos. Inc. Aside from the buildings, risk managers also should examine surrounding areas. Tornadoes, for example, can uproot large trees and blow them through a property, Ms. Nolan said.

It is also important to identify any type of rooftop equipment, such as an air conditioning unit. These objects "get blown off really easily and usually take part of the roof with them," Ms. Nolan said. She advised tying down these objects with extra strapping, using more than building codes require.

Risk managers should have a contingency plan if a tornado halts production, said Gerry Alonso, senior vp and manager of claims at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global. He advised risk managers to work with the company's property insurer, adjusters and loss prevention engineers to find potential bottlenecks and exposures in a business' production paths.

Backup plans essential

Companies should have contingency plans not only for being hit by a tornado but also for when severe weather puts their suppliers out of commission, Mr. Alonso said. A risk manager should line up backup suppliers. If several similar businesses in the area are hit by a tornado, these services may come at a premium. It's wise to have alternate contractors in place beforehand so a risk manager's business is first in line, rather than 20th, Mr. Alonso said.

But as vital as "what-if" plans are, so is the flexibility to react to unexpected situations, Mr. Alonso said. "You can have four different buildings hit by a tornado and four different reconstruction and repair paths," he said.

The relationship between a client and insurer can mean the difference between an efficient claims process and one fraught with surprises over what the policy actually covers, observers said.

"The first line of defense is to have an insurance policy on hand sufficient to pay for the loss incurred," said Donna Pearcy, risk manager for the University of Iowa in Iowa City, Iowa.

When a tornado battered Iowa City in April 2006, the school's insurer, FM Global, responded within 24 hours, Ms. Pearcy said. She credited much of the smooth claims process to the school's "good working relationship" with FM Global, which she called "a true partner after the loss."

A good insurer will help its clients find spare equipment and recommend consultants or contractors, Mr. Alonso said. The shared goal of recovering as quickly as possible is achievable only if both parties are willing to collaborate to make the necessary repairs and mitigate the loss. When there's clear communication between both parties, the settlement data should hold no surprises, he said.

In the public sector, some risk managers say education is their biggest hurdle. "There's not a lot you can do about what's going to happen to property," said Laura Peterson, state risk manager for the state of Nebraska in Lincoln and a board member of the Alexandria, Va.-based Public Risk Management Assn. "For me, the focus is people."

Tornado sirens are seemingly straightforward signals to warn those outside to seek shelter. But risk managers said the sirens' meanings can be confusing. People sometimes leave buildings, thinking the siren indicates that it is "all clear," said the University of Iowa's Ms. Pearcy. To help minimize miscommunication during a tornado, the school recently purchased a new alert system that would allow officials to use verbal warnings in addition to alarms.

Those who live in tornado-prone areas can grow complacent about the weather potential, said Ms. Peterson. When watches and warnings are frequent, "you get people who say, 'We've had this a million times before. I'm going to stay here in my office and work' instead of going into a basement," Ms. Peterson said. Radio and television stations in tornado-prone areas broadcast frequent tips and safety reminders at the tornado season's start.

"You can never have too much education," she said. "A tornado has an extraordinarily short warning. That preparation ingrained in people, so they don't have to take time to figure out what to do, is really important."