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Insurer battles and profits when disaster strikes

The season's  first major hurricane just made landfall but in Rhode Island, one insurer battles stormy conditions all year long. 
/ Source: CNBC

It’s a rare day disaster doesn't strike at FM Global's research facility in West Gloucester, but that's okay because its means FM Global's customers will be better protected when disaster strikes.

By setting its sights on how hurricanes cause damage the commercial and industrial insurer FM Global is shattering windows and stereotypes.

“I think FM Global’s approach to insuring a company is entirely different than anyone else’s,” says Mike Burke, the company's vice president of Catastrophe Exposures.

Instead of actuaries, FM Global employs engineers like Burke, who bring out the big guns to find ways their commercial and industrial clients can make their properties less vulnerable to weather damage.

“What we're trying to do is simulate gravel that's being blown off of adjacent buildings,” says Burke.

A bit of plastic film laminated into the window keeps it together and even though that adds a percent or two to the cost of a building it keeps out the rain and wind and prevents a forty percent loss in the value of the structure, Burke explains.

The reason FM Global spent $80 million building this research facility is the insurer believes most damage is avoidable, not inevitable.

So everyday on the 1,600 acre campus in West Gloucester, R.I., products are tested and solutions are considered, like using an inch of plywood to protect windows from flying debris and fire, rather than a half inch.

Preaching protection, the privately held insurers built a rolling list of clients and a steady revenue stream. Its client list includes a third of the Fortune 1000 and increased revenues up 200 percent to 3.9 billion dollars in the last six years.

FM global says the proof is in the numbers. Converts are persuaded with stats like these: Damage done by Katrina to clients' properties notsecured with FM Global's recommendations was 85 percent higher than properties fortified by its advice.

Practicing what FM Global preaches may also pay off in the form of lower premiums.

"In terms of size of deductible, limit on coverage, price for coverage. all of those things are in negotiation based on the things the customer has already done," says Burke.