Global: CFOs may be held accountable for natural catastrophe losses
Source: Asia Insurance Review | Mar 2019
FM Global whitepaper ‘Master the Disaster: Why CFOs must initiate natural catastrophe preparedness in 2019 and beyond,’ turns to 10,000 filings and business-risk experts to explore financial consequences of extreme weather.
When a natural disaster catches a company under-prepared, the chief financial officer (CFO) is increasingly on the hot seat to break the bad financial news to shareholders and investors.
The whitepaper is based on an analysis of 10,000 filings of nearly 100 public companies, many of which suffered property damage and business disruption from hurricanes in 2017. Notable losses ranged from a few million to hundreds of millions of dollars.
“Were the CFOs to conduct a more systematic cost-benefit analysis of natural disaster risk preparedness, they would realise that allocating capital toward loss prevention provides significant long-term returns,” University of Pennsylvania, Wharton school professor Howard Kunreuther said in the whitepaper.
With institutional investors saying enhanced reporting of natural disaster risks has become a priority, FM Global executive vice president Kevin Ingram notes, “If the CFO doesn’t lead the charge to invest in reducing natural-hazards exposures, they will be the ones that stakeholders hold accountable for not properly addressing the risks.”
“Board members, shareholders, investors and analysts will increasingly want credible information on the company’s preparedness for the next big one. And that requires the CFO to ask tough questions and undertake thoughtful cost-benefit and return-on-investment analyses for capital allocation purposes.”
The whitepaper also includes the viewpoints of other business risk analysts who say the growing CFO responsibility is not going away in an era of increasing business concerns over climate change risk and disclosure. A