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Companies have ways to mitigate climate risks: Panelists

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Jennifer Pack, Michael Lubben and Karin Landry

SAN FRANCISO — Business recovery plans and enterprise risk management programs are among the strategies that can help risk managers tackle climate risks, experts said during a session at the Risk & Insurance Management Society Inc.’s Riskworld conference.

Retreating from climate risk isn’t an option because “people are always going to vacation where the earth moves and wind blows,” said Jennifer Pack, director of risk management at Hyatt Hotels Corp., which has a portfolio of more than 1,100 hotels and resorts in 70 countries.

Hyatt’s risk management focus is on making sure its hotels are protected properly and that they have a sound business recovery plan in place to ensure they can recover and get back into operation quickly, Ms. Pack said.

It sends engineers out on a regular basis to test the construction of hotel properties to make sure they can withstand hurricanes and floods, she said. “We don’t want guests worrying about the roof or walls flying off,” she said.

Ahead of hurricane season it also reaches out to its hotels to make sure they are ready and are testing their emergency preparedness plans and conducting drills.

Businesses can mitigate the impacts of wildfires by building defensible space around properties and having sound business continuity plans, said Michael Lubben, director, global risk management, at Henry Crown and Co./CCI.

For example, designing a golf course around a high-end resort helped mitigate the impact of the Thomas wildfire in 2018 on one of the company’s properties in California. As a result, there was no direct fire loss to the resort, though it did suffer losses due to soot and heat, Mr. Lubben said.

It can be hard to get operations to buy into business continuity plans, but it “pays dividends for us,” he said. In addition to having buffers, it’s important to ensure that facilities have a plan if the fire spreads, such as proper storage of combustible and flammable materials, he said.

Climate change risk management is increasingly becoming part of organizations’ enterprise risk management programs, Mr. Lubben said. Listing climate change on its risk register has brought visibility to the risk to Henry Crown’s board and senior management, he said.

“When they’re making strategic decisions about acquisitions, for instance … we can start to think about where a target company is located and how climate change will affect those facilities we are purchasing,” he said.

When it comes to insurance, retaining a larger portion of the risk through self-insured retentions and using a captive insurer may help mitigate the impact of climate risks, the risk managers said.

In Hurricane Maria the retentions in Hyatt’s property insurance program were so high that there was no insurable loss to the program for its Florida properties, Ms. Pack said.

“If you work with underwriters that don’t really like the risk the first thing is to take a higher retention,” Mr. Lubben said. “Sometimes that helps.”

Henry Crown also uses its captive insurer to access the reinsurance market for its property program and to provide coverage for certain exposures, he said.

It could be that climate change will be the cyber of the future, said Karin Landry, managing partner at Spring Consulting Group LLC.

Looking around RIMS Riskworld, many clients are seeing 300% increases in their cyber renewals, Ms. Landry said. “We’re beginning to see similar impact from climate change,” she said.