Hurricanes Katrina and Rita and the Asian tsunami have raised awareness of the scale of loss of life, property damage and business interruption associated with natural catastrophes. In the UK, severe flooding in the recent past has made it clear that this country is not immune from natural hazards.

With insurance rates on the rise, organisations are re-examining their approach to risk management. Risk evaluation can help organisations assess their particular exposures and possible damage to their infrastructure, and a range of risk reduction measures such as building upgrades can be deployed. A complementary exercise is to model a natural catastrophe in order to gauge the probability and severity of an event and allow managers to make better decisions about risk retention and risk transfer.

Critical questions you need to consider

• Are you aware of worst-case scenarios and extreme events? A one-in-100 year loss could happen this year.
• Have you re-evaluated your information relating to the location and value of your property in exposed areas?
• What measures do you have in place to mitigate catastrophic events?
• Is there a danger that you are either over or under-insured for these risks?
• Are you aware of recent advances in catastrophe modelling for UK perils?