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Aon Media Center

Lessons Not Learnt 125 Years After Krakatoa
London
NYSE: AOC

LONDON, 26 August 2008 – The eruption of Krakatoa on 27 August 1883 has been recorded as the first natural disaster of the modern age, yet business and governments, 125 years later, still have not learnt the necessary lessons to protect themselves and their interests against such forces, according to Aon, the leading global risk and insurance firm. Speaking on the eve of the 125th anniversary Aon is calling for businesses to review their plans for dealing with natural disasters.

Within the areas of devastation where the pyroclastic flows and tsunamis from the Krakatoa eruption killed approximately 36,000 people, there are currently 60 million inhabitants. There are more than 40 of Indonesia’s largest petrochemical production facilities, including many owned by foreign companies, and the port of Bandar Lampung, currently home to 800,000 people lies at the head of a bay which would amplify any tsunami waves, potentially dwarfing the 22 metre high wave that hit this area on 26 August 1883.

Stuart Fraser, catastrophe modeling analyst at Aon, said: “If an eruption such as Krakatoa occurred again today, the world economy could be severely impacted in an extremely short period of time. The falling ash from any eruption would mean aircraft would either need to be diverted by several hundred kilometres or grounded all together; a tsunami could devastate major petrochemical production plants and global good and crop production could be affected. After the Krakatoa eruption the intensity of the sun’s energy reaching the ground in Europe dropped by 20%, remaining 10% below average for several months. Over the northern hemisphere in the year following the eruption of Krakatoa, an average surface cooling of 0.340C was observed.”

Karl Jones, senior broker at Aon commented: “Building any sort of presence in volcanic and seismic hotspots such as California, Japan, China, Indonesia or the Gulf of Mexico is an inherently risky operation. Over the past few years the expansion of manufacturing in areas outside of the G10 has meant the exposure to catastrophe has significantly increased, in many cases not being fully recognised by risk managers.

“Businesses will often see a cost-effective location to do business in, but do not take all the implications of setting up facilities in these types of locations in to account. Surveying locations for the possibility of natural catastrophes is vital to ensure there is as little disruption to your supply chain as possible, staff is kept safe and your business can continue to thrive even during the most disastrous of situations.”

There are steps you can take to prevent catastrophic losses in the event of a natural disaster:

  • Educate staff on evacuation procedures and either establish self-owned or link into local volcano monitoring activities.
  • Properly evaluate exposures and contingent exposures arising out of a catastrophic event.
  • Ensure appropriate insurance coverage is in place that includes key customers and suppliers.
  • Ensure the company has tested continuity processes in place.
  • Ensure modeling of the natural surrounds is completed prior to any decision to build or establish a presence in any potential hot-spot.

Ends
For more information contact:
David Skapinker
+44 (0)20 7505 7478
david.skapinker@aon.co.uk
http://aon.mediaroom.com

About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.

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