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El Niño is here: What organisations and risk professionals need to know

El Niño has arrived and climate scientists are predicting that it could intensify and remain a significant weather risk factor throughout 2023 and into 2024.
Hurricane approaches. Tornado.

El Niño has arrived and climate scientists are predicting that it could intensify and remain a significant weather risk factor throughout 2023 and into 2024. This means that organisations and their risk professionals should be prepared for and be ready to respond to potential El Niño-driven weather challenges, such as extreme storms, extended periods of drought, and unusual meteorological events that could affect their operations and risk management strategies.

What is El Niño?

El Niño is a natural climate phenomenon characterised by the unusual warming of surface waters in the eastern Pacific Ocean. It affects ocean temperatures and weather patterns from North America, to South America, to Australia. It occurs every two to seven years and is the “warm phase” of the El Niño-Southern Oscillation (ENSO), with La Niña being its "cool phase."

Under normal conditions, strong trade winds push warm surface water westward across the tropical Pacific, resulting in an upwelling of cold water along the coasts of South America. However, during El Niño events, these trade winds weaken, allowing warm surface waters to move eastward, which disrupts the upwelling. This can lead to significant impacts on coastal ecosystems and fisheries, with potentially devastating economic consequences.

The risks El Niño poses to communities and organisations

El Niño’s effects on the global climate are far-reaching, creating teleconnections — large-scale, long-lasting, interrelated climate anomalies — that influence weather patterns worldwide. Strong El Niño events can cause increased precipitation in some regions and droughts in others, affecting water supplies, agriculture and farmers, mining, food processors, manufacturers, and retailers.

Such disruptions of global atmospheric circulation and water temperatures may lead to unusual winter weather in some regions and stronger tropical storms, cyclones, and tornadoes in others.

These extreme conditions can increase the risk and intensity of wildfires, providing drier and more easily ignited grass and brush material, and sparks and flames that spread more rapidly, as recently seen in the tragic Maui wildfire. And this can further raise the risk of flooding, as charred soil acts as a barrier to water absorption.

Events exacerbated by El Niño can cause extensive property and infrastructure damage. Inaccessible roads, extended power and water outages, material and labour shortages, and other factors can lead to major supply chain, transportation, logistics, and supplier and customer business disruptions, further complicating the road to recovery. Additionally, El Niño-driven natural hazards such as flooding and drought could contribute to the spread of disease within affected communities.

Notable El Niño events occurred in 1982-83 and 1997-98, creating significant climatic changes across the globe and resulting in US$4.1 trillion and US$5.7 trillion in global income losses, respectively, according to climate researchers

Six ways to mitigate El Niño’s risks

Business leaders and risk professionals should review and refresh their preparedness, response, and recovery plans in order to safeguard people, properties, and operations — and be ready to promptly report insurance claims in the event of losses. This includes:

  • Monitoring weather patterns: Keep an eye on weather patterns in your region and around the world. This can help you anticipate potential risks and take action to mitigate them.
  • Developing business continuity and contingency plans: Create business continuity and contingency plans for various scenarios – such as droughts, floods, and other extreme weather events – which could impact your business operations, suppliers, and customers globally, and be sure to test them regularly. Doing so can enable you to respond promptly and efficiently if a weather-related risk materialises.
  • Diversifying your supply chain: Assess your supply chain network in light of the potential risk of disruptions from extreme weather events and consider alternatives. This may entail sourcing materials and products from alternative regions and suppliers, including local ones.
  • Investing in infrastructure: Consider investing in infrastructure that can withstand extreme weather events, such as flood barriers and backup power systems. This can help you minimise the damage caused by extreme weather events and recover faster.
  • Educating and supporting employees: Inform your employees about the risks associated with El Niño, how your organisation will communicate with them about such events, and how your employees can help mitigate impacts on the business and themselves. This may involve providing training on emergency procedures and best response practices. Organisations also should be prepared to support their employees if directly impacted by an El Niño-driven weather event, including through: adjustments to leave policies; financial, housing, insurance claims filing, and similar assistance, as feasible; and medical, physical, and mental health resources. 
  • Updating your insurance program and claims processes: Review your property, natural catastrophe, business interruption, environmental, and related coverages to assess your insurance protection in the event your business is impacted by El Niño-driven events. This should include evaluating any changes in values, determining what should be self-insured, and identifying areas where parametrics could be advantageous. You should also discuss claims communications and preparations protocols with your insurers, adjusters, brokers, and specialist resources, which can help streamline your claims process if the worst happens.

As a risk management professional, it is crucial for you to understand the potential business disruption and other risks associated with the 2023-2024 El Niño phenomenon and implement strategies to mitigate them. While the impacts of this El Niño year remain uncertain, taking proactive steps now can help your organisation remain resilient and more effectively withstand any weather-related challenges that may arise.

This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. LCPA 23/525

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