Hurricane season extends through November, and despite a downgraded forecast for devastating storms, experts still expect the 2007 season to be more active than last year. Are your insurance policies up to date to protect your assets from hurricane damage? Is your business prepared?

It’s pretty clear that even one natural disaster in a single day can wipe out businesses for days, even weeks and beyond. Recalling Hurricane Katrina and its devastating aftermath, you might remember that not all damage was reimbursed if damage was cause by wind rather than by flood. To prevent such a drag on redevelopment, a bill, if enacted, would create a new program in the National Flood Insurance Program (NFIP) to enable the purchase of wind and flood risk in one policy.

Essentially, H.R. 920, the Multiple Peril Insurance Act, requires premiums for the new optional coverage to be risk-based and actuarially sound, so that the program would be required to collect enough in premiums to pay claims. Multiple peril policies would be available where local governments agree to adopt and enforce building codes and standards designed to minimize wind damage, in addition to the existing flood program requirements for flood plain management, according to the National Association of Insurance Commissioners (NAIC).

Moreover, nonresidential properties could be covered to $1,000,000 for structure and $750,000 for contents and business interruption. Rep. Gene Taylor (D-MS), who proposed the bill, anticipates that once the program is enacted, a private market should quickly develop for additional coverage above the NFIP limits.

“The NAIC believes this approach would help resolve potential conflicts between consumers and insurers regarding the cause of damage … during a hurricane: i.e., wind from the hurricane and/or water damage from a subsequent flood. However, Rep. Taylor’s solution would move the line of contention to other perils, such as fire or earthquake damage,” according to NAIC’s Web site.

(For more on H.R. 920, visit “Rep. Gene Taylor’s answers to Frequently Asked Questions about the Multiple Peril Insurance Act” at Sun Herald.com.)

In mid-July, NAIC testified before Congress. Manufacturers in “hurricane alley” might want to consider this proposed legislation strongly.

Though the 2007 hurricane season is off to a slow start, William Gray, professor emeritus in the Department of Atmospheric Science at Colorado State University and a research fellow at the Independent Institute, and his colleague Phil Klotzbach will be updating their seasonal Atlantic Basin Hurricane Activity Forecast on Aug 3.

Earlier this year, the team forecast estimated 17 named storms forming in the Atlantic basin between June 1 and Nov. 30. Nine of the 17 storms were predicted to become hurricanes, and of those nine, five are expected to develop into “intense or major hurricanes” with sustained winds of 111 mph or greater.

This week, however, Reuters reported the following:

The 2007 hurricane season may be less severe than forecast due to cooler-than-expected water temperatures in the tropical Atlantic, private forecaster WSI Corp said on Tuesday. The season will bring 14 named storms, of which six will become hurricanes and three will become major hurricanes, WSI said in its revised outlook. WSI had previously expected 15 named storms of which eight would become hurricanes and four would become major hurricanes.

“Because the ocean temperatures have not yet rebounded from the significant drop in late spring, we have decided to reduce our forecast numbers slightly,” said Todd Crawford, a WSI seasonal forecaster.

No hurricanes made landfall along the U.S. coastline in 2006. The 2006 season witnessed a total of 10 named storms, 5 hurricanes and two major hurricanes. The 2005 season, considered unusual by the Colorado State forecast team, witnessed 27 named storms, 15 hurricanes and seven intense hurricanes. Long-term averages are 9.6 named storms, 5.9 hurricanes and 2.3 intense hurricanes per year.

Despite the downgraded forecast, experts, including WSI, still expect the 2007 season to be more active than last year, and added that storm-weary parts of the Gulf Coast could still be hit.

“We still anticipate another active season — an above-average number of major hurricanes with maximum sustained winds in excess of 110 mph,” professor Gray writes at The Wall Street Journal.

For a mature hurricane, the amount of kinetic energy generated is equal to that being dissipated due to friction. The dissipation rate per unit area is air density times the drag coefficient times the wind speed cubed,” explains the National Oceanic & Atmospheric Administration (NOAA):

One could either integrate a typical wind profile over a range of radii from the hurricane’s center to the outer radius encompassing the storm, or assume an average wind speed for the inner core of the hurricane. Doing the latter and using 40 m/s (90 mph) winds on a scale of radius 60 km (40 nautical miles), one gets a wind dissipation rate (wind generation rate) of 1.3 x 1017 Joules/day or 1.5 x 1012 Watts.

This is equivalent to about half the worldwide electrical generating capacity — also an amazing amount of energy being produced.

Of course, as Manufacturing.Net noted last year, supply chain security is addressed for a multitude of reasons:

While there have been some highly publicized supply chain disruptions recently – terrorist acts and Hurricane Katrina, for example – the breakdowns can come in many forms: strikes at ports, product contamination, border closings, and supply shortages, to name a few. Completely avoiding the impact of these kinds of major disruptions on the supply chain won’t always be the outcome, but minimizing the disruption can be, and indeed becomes even more important as global trade expands.

Yet when it comes to an Act of God, preparation is the first step.

To learn more about emergency preparedness for business, visit NIOSH.

David R. Butcher contributed to this post.

Resources

Subject: G1) When is hurricane season?
National Oceanic & Atmospheric Administration

The Multiple Peril Insurance Act of 2007 (H.R. 920)
National Association of Insurance Commissioners

Very Active 2007 Hurricane Season Predicted
Science Daily, April 3, 2007

Forecaster cuts 2007 hurricane outlook
Reuters, July 24, 2007

Subject: D7) How much energy does a hurricane release?
by Chris Landsea
National Oceanic & Atmospheric Administration

Hurricanes and Hot Air
by William M. Gray
Wall Street Journal, July 26, 2007

Rep. Gene Taylor’s answers to Frequently Asked Questions about the Multiple Peril Insurance Act
SunHerald.com, July 18, 2007

Found Money: Supply-Chain Security Pays Off In More Ways Than One
by Tom Granahan
Manufacturing.Net, Aug. 4, 2006