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Risk-managing Nat Cat

By Michael F. Rellosa

IN earlier columns, we talked about how risks are managed, and given the continuing hard reinsurance market, evidenced by shrinking capacity and the increased cost of reinsurance protection, it may be a good idea to take stock of what the insuring public can do to help themselves.

There are five generally accepted risk-handling methods, and let us review them and see what method we can use to help us face natural catastrophe risks (Nat Cat) such as typhoons, earthquakes and floods.

1. Risk transfer. For those who can afford to insure themselves and their property, this would be by far the easiest. You merely buy a policy that would cover you against these Nat Cat events, pay the premiums, and rest easy knowing that in case you suffer a loss or damage due to these events, you will get indemnified. But this method is getting more expensive and scarcer, given that the risks themselves are increasing both in number and intensity due to numerous factors, including climate change.

2. Risk avoidance. This method is for those just starting out to build their homes and assets. For example, before you purchase land to build your houses on, check the flooding history of the area as well as the proximity of your chosen plot of land to a fault line or shore. This way, you can avoid flooding, earthquake damage and storm surges. Obviously, this would not be very useful for someone who already lives in historically flooded areas, near a fault line or along the shore.

3. Retention. There are risks that we sometimes have no choice but to live with. As in the example above, if you already live in a house that gets periodically flooded or live near the shore, you will have to live with the fact that these vents could and will happen. In such instances, one can adopt other risk-handling methods to help mitigate the losses that could occur.

4. Spreading. It is possible to spread the risk of loss to property and people, but this is only possible for those who own property in multiple locations. For instance, a business owner can split his risk by spreading his moveable assets among his various properties or duplicating records and documents and then storing the duplicate copies in the different locations. A small fire in a single location can destroy the entire inventory of goods or records of a company's operations.

5. Loss prevention and reduction. For me, this is the most interesting, as there are numerous ingenious as well as inexpensive ways in which one can try to mitigate a loss with varying degrees of success. Sadly, none are totally effective, but taken in combination, they do add a significant amount of protection. Let me give you an example I used in my own home. I live along the coast, and historically, it has probably flooded only a handful of times in my lifetime. These floods, though, breached the ground level of my residence, and luckily there was ample warning for us to move important items to the second floor. Tired of this, I purchased sand used for construction and bagged it into 25-kilogram sacks for ease of carriage. Every time Pagasa issues an orange rainfall warning or above or issues a flood warning, the SOP at home would be to deploy these sandbags across all entrances and drains where water may enter. This, combined with a sump pump, has saved us on more than one occasion. There are more sophisticated flood barriers now available on the market made by countries where fighting floods is a way of life, such as the Netherlands and parts of the US; all you have to do is surf the internet to see what is available. There are also ways to protect the car in the garage. We resorted to purchasing several heavy-duty jacks, and before the flood arrived, we jacked up the car above the flood line. This has proven effective for us, but I am still searching for a better way. If you remember post-Ondoy, there were plastic bags in which you could drive your vehicles and seal. I never used them as I was afraid they could add to the buoyancy and float the vehicle, making it susceptible to bumps and scrapes. Even entire houses can now be made to float to follow the water level. However, the best way is traditional Philippine architecture, where we build on stilts, leaving the silong," or ground level, free. I suppose our ancestors knew best, and it would be wise of us to follow their example.

In any event, stay safe and use your inherent ingenuity to come up with mitigating solutions to these Nat Cat events that will not be going away any time soon.


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