Discover the proactive steps that we encourage businesses to take.
By DR LOUIS GRITZO, VICE PRESIDENT OF RESEARCH AT FM GLOBAL
Following the tragic earthquake in Mexico in September 2017, The United Nations Office for Disaster Risk Reduction highlighted that, whilst earthquakes themselves can cause significant damage, the extent of this damage can often be magnified significantly due to a lack of adherence to strict, internationally recognised building codes.
Unfortunately, many countries lack the resources to enforce these types of building codes, or to re-design codes to ensure that buildings can better withstand the damage that earthquakes can cause. This lack of resources means that when an earthquake or other natural disaster strikes, both individuals and businesses can suffer.
Businesses can take a number of proactive steps to mitigate the damage that earthquakes can cause. These steps include physical changes to facilities to reduce the damage caused by earthquakes, re-location of vital facilities outside of earthquake zones, careful audits of supply-chains, as well as partnering with an insurer that can help to ensure that measures that will build resilience to earthquakes are implemented.
Why do unsuitable building codes result in more damage when an earthquake occurs?
When an earthquake strikes, it is often adherence to building codes which recognise both shake and secondary earthquake hazards such as fire following and liquid leakage that determines whether a structure is heavily damaged or not. Where local codes do not cover these hazards or they are poorly enforced buildings may not survive and the occupants may not be safe.
Buildings hit by earthquakes will likely be damaged. Unreinforced masonry will shatter, foundations will shift, and structures can even topple or collapse however, FM Global’s experience shows that industrial buildings that are adequately designed to withstand earthquakes rarely collapse, remain habitable and are back in service very quickly after an earthquake strikes.
As noted, buildings can also suffer significantly from secondary risks in an earthquake event – fires resulting from ruptured fuel lines, leakage from poorly braced pipework, and damage caused by falling equipment. In particular, fires resulting from earthquakes can be more devastating than they otherwise would be, as emergency services might be unable to respond adequately and fire protection systems such as sprinkler could themselves be compromised, allowing any fire to spread unimpeded – significantly increasing the damage that a building suffers.
Why is mitigating the damage caused by earthquakes vital for businesses?
When a business suffers damage from an earthquake, the losses suffered can go well beyond the physical damage to property.
When a business’ key or primary operations suffer damage from an earthquake, the immediate concern will always focus on ensuring the safety of all employees and persons present at the damaged facility. Following this though, all efforts should be focussed on ensuring that the business can return to normal operations as soon as possible. A long delay could risk a significant reputational hazard through failure to deliver to customers and an associated revenue decline, endangering long-term market share and profitability.
Ensuring that key facilities are earthquake resilient will minimise this business risk and whilst some retrospective improvements may be costly, that cost may well be justified if the impact of such damage is unacceptable from a business perspective. A company’s risk appetite will answer this question.
Of equal importance to a business is mitigating the damage caused when a supplier is struck by an earthquake. If a key supplier is suddenly unable to produce a vital product, the effects can be felt globally. One only needs to study the aftermath of the 2011 Japanese earthquake and the effect this had on the global automotive industry, to see how devastating an earthquake can be to global supply chains. Similar to when a primary operation is damaged, if a vital supplier or, ‘pinch-point’ is struck by an earthquake, an inability to operate normally can lead to a loss of revenue and market share as customers look to competitors to deliver their products.
What physical steps can a business take to mitigate the damage caused by earthquakes?
There are a variety of steps that businesses can take to mitigate the damage caused by earthquakes. Firstly, where possible, businesses should seek to re-locate vital operations away from areas prone to earthquakes or dual source them. Whilst this might be expensive, in the long-term this can often be of significant benefit, as businesses no longer have to deal with the disruption an earthquake may cause.
When relocation is not possible, businesses should look to improve the resilience of earthquake exposed facilities, including but not limited to:
- Ensuring that all buildings are reinforced, where practical, to, reduce the physical damage caused by shaking.
- Adequately restraining vital or heavy equipment, thereby minimising the damage to the equipment, as well as the damage it could cause when falling or moving laterally.
- Installing automatic earthquake safety shut-off valves for gas and ignitable liquid distribution systems.
- Bracing automatic sprinkler systems, helping to ensure that they remain intact are still operational if a fire does start.
- Ensuring that piping is flexible enough to cope with the movement of buildings and structures.
- Moving heavier items to lower shelves, to minimise the damage caused by falling.
For safeguarding supply chains, organisations should try and ensure that alternative suppliers are in place in separate geographies that aren’t vulnerable to the same event. This will ensure that if a supplier can no longer operate, businesses can quickly switch to the alternative, ensuring that any interruption to their customers is minimised. This can also result in a competitive advantage, if competitors are unable to switch suppliers as effectively.
How can a partnership with an insurer ensure that businesses can mitigate the damage caused by an earthquake?
Finally, businesses should always partner with an insurer that can help them bounce back as quickly as possible during a disaster. Whether this be through a speedy claims process, providing much needed short-term funding, or by getting boots on the ground quickly to assist with the recovery during a loss, having an insurer that reacts rapidly is crucial.
It’s also important to partner with an insurer that takes steps to help business’ avoid losses in the first place. At FM Global we believe that the majority of loss is preventable, and our goal is to help our clients to build resilient properties that can withstand major events like earthquakes. Our belief is that through this process, their businesses will be more stable and successful in the long-term.