Business Continuity Focus: Understanding billion-dollar disasters

In the last 30 years, how many weather events can you remember? Maybe some recent “super storms” come to mind – Hurricane Sandy (2012), and Winter Storm Juno (2015) are probably at the top of your list. How prepared for these storms was your firm? 

A 2007 study by the National Association of Insurance Commissioners (NIAC) found that more than 90% of small businesses interviewed had property/liability coverage while less than half (48%) of firms with annual revenues of more than $1 million have business interruption insurance.

It may not come as a surprise then that, following disasters such as these, many small business (20-40%) are forced to shut down, according to an Institute for Business & Home Safety (IBHS) report. It is important to understand the losses that can affect businesses and prepare accordingly. These losses can include: disruption of critical supplies and inability to move product, utility outages and power failures, employee transportation issues or remote access problems, and connectivity issues, just to name a few.  

NOAA’s National Climate Data Center (NCDC) had been collecting information on billion-dollar weather and climatic disasters since 1980, citing sources include the National Weather Service, the Federal Emergency Management Agency (FEMA), U.S. Department of Agriculture, other U.S. government agencies, individual state emergency management agencies, state and regional climate centers, media reports, and insurance industry estimates. In this time period, there have been 178 events exceeding $1 billion (damages and cost). The NCDC reports indicate the total accumulated cost of the 178 events exceeds over $1 trillion.

Frequency of States experiencing $1 billion dollar losses

The image above depicts which states have been the host of some of these costly events. For example, Texas topped the list with 68, California has had 25, Georgia 55, and New York 42. Some of the information you can take form the infographic’s provided above you can see where a large portion of these events are taking place  in the southern mid-west, Gulf coast, and Atlantic coast south of NY.

According to the NCDC, severe storms are the most frequent events, however, they also equate to the lowest average event cost. Tropical cyclones, on the other hand, have the second highest frequency but also the highest average and total cost.  Droughts make up the second highest cost in terms of average cost per event and total cost. 

How did 2014 stack up?

2014 wasn’t a lightweight in terms of disasters. The U.S. had eight separate weather and climate-related disasters that topped the billion-dollar mark. While the totals are still being calculated it’s clear that 2014 was a difficult year in almost every region throughout the country.

What can businesses do for 2015?

Aside from near-historic snow fall totals for some areas in the Northeast, there hasn’t been much activity thus far in 2015.  But obviously we don’t know what’s yet to come.

What steps can firms take now to prepare for damaging events in the future?

• First, we recommend taking a look at past events that have affected your state or region.

• Identify if there are any issues that are specific to that area and determine what can be done to mitigate risk ahead of time.

• Consider insurance coverage that may be available to you.  

• Prepare personnel for upcoming events, activate response plans and procedures, and recover operations in line with your pre-established objectives.

• After any type of incident, remember to review and discuss the results to identify areas for improvement in the future.