The Business Case for Preparedness

Resilience Can Be Critical When Insurance Only Covers Part of Loss

May 24, 2008 12:32 AM

Economic losses due to hurricanes can be staggering. Insurance generally covers only a portion of the losses experienced by businesses and in some cases insurance coverage may not be triggered due to lack of physical damage.

Source: "Florida Case Study: Economic Impacts of Business Closures in Hurricane Prone Counties", Robert P. Hartwig, Insurance Information Institute, June 2002


Key Points:

* The purpose of this paper is to analyze the potential economic impacts resulting from damage or destruction of businesses following a major hurricane strike in Florida. The focus is on non-property losses suffered by businesses. Specifically, we examine losses in terms of the impact on the number of business establishments forced to close under various loss scenarios and the direct impacts on job and payroll loss, revenue loss and fiscal impact to the state in terms of decreased sales tax receipts. Various mitigation strategies adopted in Florida in the post-Hurricane Andrew era are also surveyed."
* Andrew struck south Florida in August 1992 with 140 mile-per-hour winds and produced insured losses of $15.5 billion-about $20 billion in current (2001) dollars. Economic losses were estimated at $26 billion ($34 billion in current dollars). Andrew's reign as the most expensive insurance disaster in history ended, of course, with the terrorist attack of September 11, 2001."
* It is worth noting that some businesses may have business interruption coverage sufficient to compensate them for lost profits (i.e., net income-not revenues) and extra expenses they incur for some limited period following a disaster. However, because such coverage generally responds only when the business itself sustains direct physical loss or damage (or because authorities have closed off the area), the coverage may not be triggered in many circumstances."
* Example of losses incurred in one county due to Hurricane Andrew at assumed 10% loss: Dade County: 4,918 (Establishment Loss), $7,656,606,141 (Sales Loss) $163,657,176 (Tax Loss), $1,595,688,765 (Payroll Loss), 60,072 (Job Loss) $9,415,952,082 (Total Dollar Losses)

Link: http://server.iii.org/yy_obj_data/binary/627581_1_0/hurricane.pdf