How Businesses Use Data to Outsmart Nature's Wrath

  • Dr. Louis Gritzo Vice President of Research, FM Global, Scientific American, June 13, 2017

The majority of disaster-related losses are actually preventable, if you have the right information

Floods, typhoons and earthquakes are part of life on this planet. Yet it's frequently a shock when your community, business or nation is struck. More often than not, the destructive aftermath of a disaster is attributed to fate or inevitability.

But the majority of these losses are actually preventable. You could have better fortified your property. If you had the option, you might have selected a less risky location. And if it was your business that was affected, you could have more deeply explored the risk you were inheriting from all of your locations, suppliers and customers.

This thinking is at the center of my company's ongoing effort to quantify natural hazard risk around the world. As a commercial property insurer, we do this to help businesses decide where to site new offices, warehouses, or plants or for companies to assess and prioritize their existing risk profile. It's important for businesses to be resilient—physically, economically and operationally—so they can stay in business and succeed relative to their competition, and supply economic well-being to their communities.

Fortunately, there is an expanding world full of data that we've analyzed to help these companies, by ranking countries according to their natural hazard risk.

Here's how the analysis came together and what it showed.

Natural hazard exposure population centers
First, we use our global hazard maps, including our newly released global flood map to assess the fraction of each country exposed to natural hazards. Since certain areas may be exposed to natural hazards that are not inhabited, analysts next determine how much of a country or region's population is in harm's way. They examine satellite photographs taken at night to identify a country or region's most populous areas by the densities of their lights. Population signifies economic activity. Analysts then calculate the percentage of the country's area devoted to economic activities that is exposed to at least one natural hazard peril (earthquake, wind, or coastal or riverine flood).

Furthermore, in their day to-day work, our 1,800 property engineers perform more than 100,000 location-based risk assessments annually around the world. Part of the assessment includes determining the extent and type of natural hazard exposures that are present. We combine this data with the fractions of populated areas exposed to hazards to produce a refined ranking of exposure to natural hazards. This ranking is available here.

This analysis forms the basis of natural hazard exposure rankings we've developed for 130 countries and territories. Exposed areas are determined based on potential losses from wind gusts greater than 100 mph (161 kph), water flowing from rivers in 100-year flood zones, or more-frequent-than-500-year earthquake motions that can cause damage to weak systems.

Two countries, the United States and China, are each divided into three regions to account for different dominant natural hazard exposures within these countries. In the United States, for example, the leading natural hazard on the West Coast is earthquake, and on the East Coast it's wind.

Next we ask the question: What can make a natural hazard worse, all things being equal?

Urbanization rate
Urbanization, though associated with economic growth and opportunity, can be risky. When urbanization is rapid and unplanned, it poses acute risks to a country's critical infrastructure and social stability. Rapid urbanization can mean high stress on water supplies, power grids and other infrastructure.

In such instances, many cities are expanding faster than core infrastructure, utilities and drainage systems can be planned, developed and managed. This stress would make the infrastructure a weak spot if the region were struck by natural disasters such as windstorms, flood and earthquakes. Flood events, especially, are prone to be more severe since extensive urbanization hardens landscapes, potentially increasing flood runoffs.

Urbanization rate is defined as the average annual rate of change in the extent to which a country's population is living in an urban area. Our ranking of countries based on urbanization rate is available here. Our source for this data is the United Nations.

(Since urbanization rate can be an economic risk as much as a property risk to a business, we consider it separately from natural hazard exposure. Both drivers—urbanization rate and natural hazard exposure—contribute along with 10 other drivers to an overall composite enterprise resilience ranking. Enterprise resilience combines the vulnerability to operational disruption with the ability to recover from such disruption).

Some vulnerable countries
Next, we looked at economically prominent countries with both significant natural hazard exposure and high urbanization rates. These major global manufacturing hubs were among the vulnerable: Bangladesh (apparel and textiles), Thailand (electronics, automotive components and related equipment), Vietnam (electronics), China (raw materials, electronics and related equipment) and India (automotive and related equipment). The combination of high natural hazard exposure and a high urbanization rate heightens the potential for severe disruption across business operations and global supply chains with operations or partners in these regions.

Sweden (vehicles and machinery, including computers) is an example of a country showing a low natural hazard exposure and low urbanization rate. Singapore (refined petroleum, integrated circuits and computers) is an example of a country with high natural hazard exposure yet low urbanization rate. South Africa (iron, steel, motor vehicles, metals) is the opposite, with a low natural hazard exposure and high urbanization rate.

Urbanization rate and natural hazard exposure are just two of 12 drivers of overall resilience in our 2017 FM Global Resilience Index. Though designed with business decision makers in mind, anyone can visit the index and sort 130 countries and regions by any driver (such as natural hazard exposure or urbanization rate) or by a country's composite ranking indicating their relative overall enterprise resilience to disruptive events.

If, after looking at all of these rankings, you find yourself or your business in operating in a vulnerable region, it may be unlikely you can pack up move away. But you still have a chance to make your operations more resilient by fortifying it against those hazards to which it is exposed. And if you haven't committed yourself to a geography—and can settle somewhere that's less vulnerable—the Resilience Index is worth a look.

When it comes to the consequences of natural disasters, your fate is largely in your own hands.

Louis Gritzo, Ph.D, is vice president of research at FM Global, one of the world's largest commercial property insurers. He serves on the governing board of the Global Earthquake Model, as chairman of the board of directors of the Industrial Research Institute, and on advisory committees for several universities.

As originally published in Scientific American magazine.

Louis Gritzo, Ph.D, is vice president of research at FM Global, one of the world's largest commercial property insurers. He serves on the governing board of the Global Earthquake Model, as chairman of the board of directors of the Industrial Research Institute, and on advisory committees for several universities.