The Client and Its Challenge
Natural hazards — such as earthquake, hurricane, tornado, hail, and flood — are responsible for tremendous loss of both property and human life. Yet few organizations understand their true exposures and the potential impact these hazards could have on their business.

The client owned equipment that was installed at the tops of cell phone towers along the East and Gulf Coasts of the United States, where the biggest exposure is a hurricane. The value of the equipment, including business interruption expenses — was $520 million. The client had been paying more $500,000 for a policy that covered this equipment, with a substantial deductible per location.

The Risk Consulting Solution
Marsh was asked to perform a natural hazards study to reveal the client’s true exposure, providing a basis for determining the right amount of insurance that should be purchased. History has shown that these studies can result in significant savings on property insurance premiums.

Marsh studied all of the East and Gulf Coast exposures using a client-generated spreadsheet that listed the longitude and latitude of each tower. A natural hazard model was used to plot the sites on a map and evaluate potential losses. In addition, historical storms and computer-generated storms were analyzed to determine the storm tracks relative to the client’s cell tower locations.

Results
The resulting model revealed that, even allowing for a “worst-case scenario” storm within a 10,000-year time span, the client was vastly over-insured. Marsh presented the study results to the underwriter, which offered to reduce the premium by $150,000.

Based on the model's revelations about the company’s true exposure, the client decided to buy only as much insurance as its contractual obligations required. As a result, it paid $10,000 for insurance on the cell tower equipment resulting in savings of more than $500,000 over the proposed renewal policy.