Transcript
Speaker: Resilience is a term often associated with the middle market, the ability to bounce back from issues and challenges, particularly thinking about climate risk and natural disasters.
Speaker: In this episode of The Market That Moves America, we'll talk with an expert about the various aspects of climate risk, resilience, and how middle market companies should be thinking about these issues.
Speaker: Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market. The center is the leading source of knowledge, leadership and innovative research on the middle market economy. Throughout our podcast, we will feature middle market leaders and stakeholders to hear their real world perspectives on trends and emerging issues.
Speaker: Welcome to the Market That Moves America podcast. My name is Doug Farron, Managing Director of the National Center for the Middle Market, located at The Ohio State University Fisher College of Business.
Speaker: Resilience is a term that we often associate here at the center with middle market companies because over the years that we've been studying them, they've shown a strong ability to bounce back from different issues, setbacks, risks, and so forth.
Speaker: So in today's episode, we're going to talk with an expert on this subject from one of our NCMM sponsors, which is Chubb. So joining me today is Amelie Favaverde. She is the Senior Vice President of Risk and Resilience at CHUB.
Speaker: And as I mentioned, CHUB has been one of our partners for the last seven years. So Amelie, welcome to the podcast. Thank you, Doug. It's great to be here and looking forward to this conversation.
Speaker: As am I. At first, can you just start by telling us a little bit about your background, maybe your path of of how you've gotten to where you're at today and and specifically your role with Chubb and and where you focus?
Speaker: Absolutely. I mean, i think i'll I'll have to start off by saying that, you know, despite the fact that I do work for Chubb, an insurance company, i actually do not have an insurance background.
Speaker: um I have a pretty diverse and broad background. But I think, you know, I've always had a keen interest in the environment and sustainability more broadly.
Speaker: And my family often remind me that when I was a kid, apparently I wanted to be a meteorologist. And I always really showed a keen interest on, you know, extreme weather events and, you know, wanting to know what the weather was going to be predicted for the next day or or week.
Speaker: So I think it's fair to say that I've always followed that passion and those interests throughout my career path, but it's not been a a typical linear path. But there has always been common thread throughout, and that has really been a focus on infrastructure organizations, so really asset intensive organizations.
Speaker: as well as risk and resilience and sustainability. And what that's looked like is, you know, I started off working for a water utility company, like really getting to know the kind of operational ins and outs from an engineering perspective of how a utility ah company works.
Speaker: I've also managed large disaster programs in sub-Saharan Africa and worked with a number of asset intensive companies across different industries supporting them more broadly on their risk and investment planning strategies, as well as broader strategy on sustainability and and climate advisory.
Speaker: So that that's basically what has led me to my role here at CHUB. And CHUB, so i'm I'm Senior Vice President and I am the practice leader for our newly founded CHUB Resilient Services practice.
Speaker: And essentially my role here is to build and lead this practice where we provide climate risk and resilience services to our clients. And I'm doing that by bringing in this broader climate advisory expertise And really aligning it to that insurance lens to add value to our clients and really create a differentiated and marketing leading approach. So kind of a full circle moment back to working on extreme weather events, you could say. So it's meant to be.
Speaker: Yeah, absolutely. What an interesting background. So through our relationship with Chubb, we've looked at all types of risks over the years, but ah climate risk just seems to be so much more front and center. I mean, I think just in the last year here in the United States, you think about the various hurricanes and wildfires. And I mean, I'm sure you're you know much closer to all the different things that have been happening. But tell us a little bit why like this whole topic and your whole role is so important for companies to think about, why why they need to be
Speaker: more concerned with climate risk and then yeah the ability to build resilience around it. Yes. I mean, gosh, that is ah great starting question, but man, is it not easy to answer.
Speaker: ah It should be simple, but there's a lot of different nuances. And, you know, you've kind of hit on on some of the key points as you were kind of talking through, you know, the experiences that we're we're all going through recently. And I'll kind of break it down as you know simply as I can here. But Really, we're we're all being impacted by these weather events. And these are weather events that are not only increasing in frequency, but also an intensity. like You talked about wildfires, you know there's floods, hurricanes, hailstorms, that you name it, we're living it. And it's it's every day there's something new on the news or that you know we all have to to deal with.
Speaker: And that's essentially how I define the climate risk element, right? It's it's the facts of what we live and breathe every day. Now, the resilience piece is probably more important. I mean, it just as if not more important, but it's also the less tangible element of the climate risk and resilience portion.
Speaker: And it's essentially about how we proactively take action to mitigate against that risk. So they kind of both go hand in hand. And it's really important that we we do talk about climate risk ah and resilience to be able to better understand you know what we need to do about it.
Speaker: And, you know, why why is it important? I mean, there are so many reasons for this. You know, there's there's the real, obviously, human impact, but there's also the financial impacts, which I think help to make this a lot more tangible.
Speaker: And, you know, just to put some figures around that, like in the U.S., in 2024, natural disasters resulted in billion And of that, only $99 billion were insured. So clearly there's you know a big gap there.
Speaker: And we've also seen in the last five years that we've had $23 billion dollar disaster events. And to me, that's mind-boggling. A billion-dollar event is ah you know a huge number, and 23 of those is is really, really mind-boggling.
Speaker: And we're we're not we're not going to see that trend improving. you know Even in 2025, we're forecasting... know that this summer is going to you know see ah a lot of extra heat you know above normal temperatures and above normal hurricane seasons as well.
Speaker: So there's a lot of reasons why this is important, but if we focus specifically on companies you know in middle market, it is really having a direct financial impact on the middle market companies out there.
Speaker: And we've seen that through the MMI survey results, right? you know we're We're seeing that one in five firms impacted by natural disasters in 2024. And more than half of those that were impacted it are reporting significant or moderate operational disruptions. So it's not just the direct physical impact, but also the longer term ramifications.
Speaker: So it's just the backdrop of the world that we live in today. And it's it's it's not going to get any better. And it's just really why talking about climate risk and resilience is important. and why Chubb is invested in climate risk and resilience.
Speaker: you know It will help ultimately businesses to survive and even thrive in this reality that we all live in today. as Yeah, I wanted to that's where I wanted to go next was thinking about this in terms of middle market companies. So we know here at the center that many of these companies operate with fairly lean resources, particularly when you compare them you know to large publicly traded, maybe multinational companies.
Speaker: ah What are the implications of climate risk and resilience for the middle market specifically? Yes, I mean, there's a huge complex array of of challenges that the middle market need to contend with.
Speaker: um And again, i'll you know i'll I'll bring the kind of Chubb perspective here to to try and and lay this out as effectively as possible. But we kind of consider, first of all, the direct impacts on our middle market clients. So those direct impacts are physical damage. That's, you know,
Speaker: What happens directly to your property in the event of a flood or a hurricane to your roof, you know, if there's if there's a wildfire. So that's really what you can see. um and and and And the first the first impact that people talk about.
Speaker: But there's also the other direct impacts, which include include you know increasing costs. as a result of these events. ah So, you know, thinking of ah increasing energy and utility costs, looking at increasing costs of, you know, finding replacement parts ah because, you know, there are supply chain issues, but also more importantly, you know, especially from the Chubb landscape is, you know, those increasing insurance costs that a lot of our clients are are contending with.
Speaker: um You know, I touched briefly on supply chain, you know, disruptions to operations. And you kind of mentioned workforce as well, right? You know, middle market companies have to make sure that they're looking after the well-being of their workforce.
Speaker: So that's the direct you know impacts and challenges that we're kind of seeing that our clients need to to focus on. But then if we look at the indirect impacts and challenges, this is you know more broad scale thinking about reputational impacts, right? you know are Are your customers vested in climate risk and resilience? Do they want to see you do more in this space or your investors potentially focusing in on climate risk and resilience?
Speaker: ah There's also, you know, the extra challenge of potentially regulatory pressures, right, of, you know, needing to contend with changing regulations and disclosure requirements um and, you know, wanting to perhaps move beyond the checkbox exercise and, you know, really taking taking a ah full approach to to looking at those regulatory issues.
Speaker: But I think when I think about this, one of the biggest challenges from a middle market perspective is actually more the the complexities that they have to contend with when internally navigating the complexities of climate risk and resilience.
Speaker: And so that's, you know, the kind of questions that we all have to ask ourselves. So, you know, where do I start and what do I do about it? And probably then most importantly, who do I need to involve in these conversations? Who owns climate risk and resilience?
Speaker: Is it the finance department? Is it the risk manager? Do you have a sustainability team? Do you need to create a, you know, an advisory group around this? So that's kind of, I think, one of the biggest challenges. And then the next one in parallel to that is,
Speaker: kind of aligned with these different stakeholders is how do you balance out those competing priorities within your organization? And I think that's what it boils down to. you know, for middle market companies, it's really about needing to be practical and coming up with cost-effective solutions that tie back to the business as a whole to make it a reality. So really entrenching it in the reality and making it practical. Mm-hmm.
Speaker: That first set of issues, the direct impacts as you describe them, to me feel like they're somewhat outside of the control of the company, right? They have to react to them.
Speaker: The indirect ones are really more internally focused and maybe things that they do have a little bit more ability to control and and think about. So if that's the case, what should middle market companies be doing?
Speaker: Yeah, I mean, I kind of disagree slightly with your first point of not being able to do anything on on the direct impacts of client of of events.
Speaker: I think there are definitely things that that we can we can and should all be doing in this space. And I think the one thing that I do want to really make clear here is that doing nothing is not an option. it just doesn't make sense for a number of reasons.
Speaker: But essentially, I think from a financial perspective, the key here is, you know, really to be proactive when you think about both the climate risk, you know, the direct physical impact and and the indirect side.
Speaker: And investing in resilience today is only going to help you in the long run. There's like a number of stats out there, you know, to kind of make this a reality, but it's all dependent on your your particular organization.
Speaker: um But, you know, in terms of what should they do, one of the biggest hurdles that, you know, we do see aligned with those indirect challenges is, you know, well where do I start? and I think honestly, the best place to start is you know just sit down internally with your key stakeholders, you know whether it's your CFO, your finance department, your sustainability team, risk managers, even procurement, legal, whoever is impacted by you know physical climate risk and resilience and align on those objectives, like make it clear that you know this is your strategy and you know come up with ah with a clear plan to help mitigate against those risks.
Speaker: with the ultimate goal of benefiting your business. And it's It's more about making risk and resilience a reality today.
Speaker: It's not always easy to think about the future. Yes, we do need to consider future risk. But from a business perspective, thinking 20, 50 years in the future doesn't really help you. right You need to make this a reality today.
Speaker: And you need to do that by really creating those clear financial benefits for the business. And that's core to our approach here at Chubb.
Speaker: It's really on focusing in on initially, at least the property aspect to make risk and resilience really tangible for companies. And that helps to remove any of the ambiguity around, you know, who owns what, or even around sometimes the term climate change, right?
Speaker: So I think that's kind of one of the the the first recommendations i I would provide, right? Being proactive and collectively and internally sitting down to a align on your core objectives.
Speaker: And then obviously I do have to say as well, you know, you can also reach out to us and and other service providers who are here to help you um in in in that climate risk and resilience journey and help you get started. And there's like a number of services that we provide and and others provide in this space to to help with that starting point. And that can range from risk screening and prioritization to the climate scenario modeling assessments, on-site engineering assessments, resilience and investment planning. And I think really importantly here, it's
Speaker: the risk and benefit quantification. so Sure. yeah and Hearing you kind of lay all that out and just the urgency around how important this is for middle market companies, what would be some of the other benefits that you see them um you know getting from being a little bit more proactive around this topic? And maybe if you if you can, break that out into maybe like some shorter term benefits and some longer term benefits for the companies.
Speaker: Yes. I mean, it's all about the benefits. and And I mean, I'm going to be a little bit blunt there, but I'm also going to say, you know, if you've been impacted by a climate event already, you know what the benefit is and why this is not called.
Speaker: there There is a very real financial and human impact out there. um But talking, you know, more more broadly about the benefits, you know, when you when you're investing proactively in climate risk and resilience,
Speaker: You're ultimately giving yourself the data and insights to get a better view of your current and future risk. What does that mean for your properties or your portfolio or even your business? Right. So you're you're creating the data and insights to help and better inform your strategic business.
Speaker: and operational decision-making. And that ultimately helps to improve your business continuity, productivity. And I think there's also broader benefits of you know supporting regulatory requirements. And I've already touched on the the reputational elements as well.
Speaker: But I think you know bottom line in the short term, it boils down to cost savings. right you know If you're investing proactively in resilience, you'll be seeing fewer disruption. You'll be avoiding losses.
Speaker: And you'll even be you know benefiting from you know potentially benefits to your insurance premium. And that is certainly core to our approach here at CHUB when we think about climate risk and resilience. you know If we are working with clients and they are proactively ah you know working on on resilience mitigation effort efforts, we want to see that translated to their insurance period premium. So it's really kind of helping in that short-term view of these are the potential cost savings you can see.
Speaker: And in the long term, I mean, you're essentially just creating a sustainable business that's just going to remain resilient in the event that the worst happens. And many of us might think that the worst might happen in 5, 10, 20 years or might never happen at all. But that is no longer the reality today. The worst can happen today. It can happen tomorrow as well as in 20 years time. So definitely, I see a lot of benefits to this.
Speaker: And we we know that a lot of middle market companies can learn from the experiences of their peers. And, you know, they they oftentimes love to see examples of you know what other middle market companies have done. Do you have any real world examples or stories that you could share with us of where you know climate risk and resilience has come into play?
Speaker: Yeah, I love how you've said stories there. i think I think the stories is what really makes it real. And the stories are all specific to individual organizations and individuals. So I think that that was a great way of putting it. But I mean, absolutely, yes, we are talking to our clients actively and and already helping them on their journey here.
Speaker: um I can you know just highlight maybe two stories ah to help bring this to life um and you know make it a little bit more tangible. um So the first story is working with a solar developer who was you know very simply looking to expand its its portfolio.
Speaker: And their core challenge was identifying and mitigating against flood risks and enhancing their resilience to flood events. right So the the core of the challenge is You know, a pretty pretty straightforward challenge to to to combat.
Speaker: But they also wanted, ultimately, a better way to inform their investment decision making and also support their insurance insurance discussions. So it was actually more about being proactive in this space, not just about the immediate risk and resilience assessment.
Speaker: So we helped to carry out a a detailed flood risk evaluation of one of their potential sites. And that included a desktop review of the flood risks and vulnerabilities, obviously a historical event review as well, ah looked at a current risk assessment and the future scenario planning perspective, right, to kind of show how that risk is going to evolve over the the timeline that was relevant for for this client. So I think it was a five-year period.
Speaker: And what we found is that through our desktop review, a large percentage of that site was going to be at high risk of flooding, both today as well as as in the future.
Speaker: And that therefore, we we provided them with specific engineering recommendations for the project design to be able to protect their equipment from from exposure.
Speaker: But, you know, more broadly than that as well, what we were able to provide them was this advisory document that they could take to their insurance partners to be able to help them and enhance their their project loss prevention program and ultimately help underpin their decision making process.
Speaker: So I think that's one you know example, one story of how you know you can start by you know thinking you know smaller, but you know with still the proactive message behind it to move to more informed, better informed decision making.
Speaker: And if I think of a second story to to bring to life a little bit, um we we worked with a you know a commercial building in Philadelphia. And this was a building that but that was in development.
Speaker: And the building itself was facing risks from hurricanes and floods, as well as um and extreme heat and and and prolonged heat waves.
Speaker: So they already knew that that these were some of the the climate risks that they were ah they were contending with. But the challenge that they had was that they knew that these would have deep financial implications, ah not just the damage to the property, you know, the direct impacts, but also the longer term impacts on their on their business continuity and on their operations.
Speaker: So we carried out a comprehensive climate risk and resilience assessment of the entire building. And again, that did look at the historical, the current state, the kind of desk-based studies that mentioned in the first story.
Speaker: But what we also added here was the comprehensive on-site property survey. And this really helped to bring to life the vulnerabilities within the building itself.
Speaker: ah specifics of you know what corner of the building, what floors, you know what where what what how the um how the specific hazards would impact ah the the building.
Speaker: And that helped us to provide some really tactical, practical engineering recommendations to mitigate against the risk. right So taking also into account the how they plan to use the building.
Speaker: And some of those recommendations included increasing building design elevations for the lower floors and the critical systems that were the most at risk of flooding and hardening the building envelopes.
Speaker: to be able to withstand higher peak wind speeds, but also looking at the HVAC system and how they can make improvements there to address future heat and even potentially wildfire um ah exposure.
Speaker: So ultimately by being proactive and including resilience upfront in the development piece, this property has ended up you know not only being safeguarded you know from a from a climate risk perspective, but they've also enhanced their business continuity and sustainability overall.
Speaker: So those hopefully two different stories that kind of help to highlight the proactive element. I will also just say, you know, you you can also do this with existing buildings. You know, you can you can retrofit buildings. There are ways to be resilient.
Speaker: You know, if you already have an existing portfolio or an existing building, the important thing is to think about, you know, what sad and what do I need to consider from a climate risk and resilience perspective?
Speaker: Yeah, those are really great examples and reinforce the idea that putting in the time and being proactive will certainly help save longer term issues down the road. So appreciate you sharing those stories. So Amelie, as we conclude our discussion today, really just have a final question for you, which is what should middle market companies be asking themselves as they contemplate where they stand in their journey with climate risk and building their own you know path toward being a more resilient organization.
Speaker: What would you suggest that they, you know as a leadership team or even you know just an owner or CEO, like what should they be asking? Yeah, I think this is a great question to end on. um it's It's all about prioritizing risk and focusing on the benefits of resilience.
Speaker: Right. So that's I think at the bottom line, those are the kind of questions that you need to be asking yourself. And what does that look like? Right. So that can look like, do you have a good understanding of your current exposure?
Speaker: What is the biggest climate risk that you're facing? Is it flood? Is it wildfire? Is it all of the above? And also, you know, where in my portfolio, if you have multiple properties and assets, where am I am i most exposed?
Speaker: Once you've got that good understanding of the risk portion, it's also thinking about, well, Do we know how that risk is going to look like in the future? Does that even matter to us? Right. You know, do we need to look at risk evolving in five years time, in 20 years time, in 50 years time, or even 100 years time?
Speaker: And then it's about bringing in the quantification piece. So do you have a clear understanding of the financial impact that that flood or that wildfire is going to have on your assets or on your entire portfolio and therefore your business?
Speaker: And are you investing already in mitigation measures? And if you are, are you actually investing in the right mitigation measures in the right place and at the right time?
Speaker: So those are some of the questions that we ask our clients when when we when we have these conversations. um But, you know, i will also add, you know, you can feel free to reach out to us and we can help frame these questions for you because think, as I mentioned, you know, earlier on in our conversation,
Speaker: This is all dependent on your drivers and your business needs and your specific strategy. But it's important to, again, you know bring it back to being proactive, prioritizing the risk, and focusing on the benefits both today as well as in the future.
Speaker: Yeah, those are some great takeaways for our for our listeners. and I'm sure many will benefit from all of your insights. insights and guidance today. So thanks again for joining me today, Amelie. It's been great getting to know you you and learn more learning more about what you're doing at Chubb.
Speaker: Appreciate it, Tuck. Thank you. For more insights about this topic on resilience, I would invite our listeners to visit Chubb's recent middle market report,
Speaker: which can be found on their website at www.chubb.com forward slash us forward forward slash NCMM. Thanks for listening and we'll talk to you soon.
Speaker: Thank you for listening to The Market That Moves America. Never miss a new episode by subscribing anywhere podcasts can be found. You can also subscribe to our email newsletter at middlemarketcenter.org.
