Category Archives: Business Interruption

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Colorado Flood Damage Estimated at Over $2 Billion

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Colorado River at Flood Level

Economic damages from the recent flooding in Colorado are expected to surpass $2 billion, according to a recent report from catastrophe risk modeler Eqecat. Most of that financial burden will fall on residents because very little flood risk is insured in the state.

Between 1,500 and 1,800 homes have been destroyed and thousands of homes have been damaged, leaving more than 10,000 people displaced. The estimated total cost to repair destroyed homes averages $300 million and early reviews of residential flood damage indicate an average of $20,000 to restore each of the 17,500 flooded homes that were not destroyed. But because of exclusions to the basic homeowners insurance policy, most of the losses will not be covered by insurance.

Historically, a very small portion of homeowners purchase flood insurance on homes outside of the 100-year flood zones outlined by the U.

S. National Flood Insurance Program, which provides insurance as part of a mortgage. Of the 17 counties impacted, most of the areas are not within defined flood zones.

President Obama declared a major disaster in nine of the hardest-hit counties, making residents eligible for direct federal grants to repair their flood-damaged homes, replace personal property and provide rental assistance, Reuters reported. This status also allows workers left jobless by the disaster to claim unemployment payments of up to 26 weeks and makes special low-interest loans available to farmers and small businesses to help cover their uninsured flood losses.

While these measures may help with immediate need, the extensive damage will require months of recovery and more rain is currently expected to cause rivers to crest another foot above flood stage today. With hundreds of miles of road flooded and many bridges and dams damaged or destroyed, Eqecat estimated losses to commercial and government properties and related expenses to total around $1 billion. Colorado officials announced a Dec.

1 target to complete temporary fixes to at least some of the heavily damaged roads, according to the Weather Channel. State highway crews and National Guard troops have already begun work to repair highways to mountain towns cut off by the flooding – roads that will only lead to more treacherous situations in remote areas as winter approaches.

Residents of one town have been told they will be displaced for up to six months, according to NBC News. Lyons town administrator Victoria Simonsen told a public meeting last week that E. coli bacteria had contaminated the drinking water system and the wastewater system incurred at least $1 million in damage, leaving the town unlivable for the foreseeable future.

This morning, authorities announced the eighth confirmed death from the flooding. Reuters reported that the search for hundreds of missing residents is winding down, with all but a half-dozen people now accounted for.

Hurricane Sandy Rebuilding Task Force Releases Recommendations

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Hurricane Sandy damage to New Jersey boardwalk

President Obama’s Hurricane Sandy Rebuilding Task Force released their findings yesterday, sharing 69 recommendations to repair existing damage and strengthen infrastructure ahead of future natural disasters.

The task force encouraged an emphasis on new construction over simple repair, citing the impact of climate change on severe weather events.

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“More than ever, it is critical that when we build for the future, we do so in a way that makes communities more resilient to emerging challenges such as rising sea levels, extreme heat, and more frequent and intense storms,” the report said. Construction designed for increasingly dangerous storms, infrastructure strengthened to prevent power failure and fuel shortage, and a cellular service system that can subsist during disasters are all critical investments to prevent future loss.

Recommendations included streamlining federal agencies’ review processes for reconstruction projects, revising federal mortgage policies so homeowners can get insurance checks faster, and making greater use of natural barriers like wetlands and sand dunes.

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The team also said that planners need better tools to evaluate and quantify long-term benefits of future projects along the shoreline, but did not detail what would be best ecologically and economically.

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According to USA Today, Sen. Charles Schumer (D-N.Y.) said the Sandy task force report shows that “we have much work to do hardening our energy, telecommunications and transportation infrastructure,” and that “the federal government must be a proactive partner with local governments and the private sector.”

Some of the task force’s suggestions have already been put into place. As the AP reported, this includes the creation of new Federal Flood Reduction Standard for infrastructure projects built with government funds and promotion of the Sea Level Rise Tool, which will help builders and engineers predict where flooding might occur in the future.

The government has closed over 99.5% of over 143,000 National Flood Insurance Program claims related to Hurricane Sandy and paid out more than $7.8 billion to policyholders, according to the task force report. The federal government should support local efforts to mitigate future risk by funding local disaster recovery manager positions and encouraging homeowners to take steps to reduce the risk of future damage, which will also make rising flood insurance premiums more affordable, the report said.

The team has also launched Rebuild by Design, “a competition that will attract world-class talent to develop actionable plans that will make the Sandy-impacted region more resilient.”

2013 Hurricane Season: Active Storms Ahead

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Saturday, June 1, marks the beginning of the 2013 Atlantic hurricane season. Forecasters from Colorado State University predict 18 named storms for the 2013 season, with nine of those forecasted to become hurricanes and four expected to be major hurricanes. The National Oceanic and Atmospheric Administration’s Climate Prediction Center warns there could be even more storms to hit the Sunshine State — up to 20, in fact, compared to the average of 12. If these and other predictions are right, Florida will see its share of storms this season.

But Floridians are not oblivious to these stats. As the the June issue of Risk Management states:

Regardless of the predictions, many Floridians were already expecting to be hit. The state that is geographically most vulnerable to Atlantic storms and has the longest coastline among the lower 48 (1,350 miles) has been spared each of the past seven years. Hurricane Wilma, one of seven major hurricanes that made landfall in the United States during the historic 2005 season (the year of Katrina), was the last storm to punish Florida.

With 2013’s predictions being far worse than those of 2012, businesses should begin preparing now. According to the Insurance Information Institute, 15 to 40% of businesses fail following a natural disaster.

Of those businesses that recover, on average, it takes about 11.5 days for them to become fully operational. This is a recipe for serious revenue and customer loss.

Bob Boyd, president and CEO of Agility Recovery, a provider of business continuity and disaster recovery solutions, provides the following advice for businesses in the path of hurricanes (or any natural disaster, for that matter).

Before the Storm

  • Ensure you have tested and activated your crisis communications plan prior to the storm’s approach. Even if the storm isn’t on a direct path to your location, activating this part of your plan will ensure reliable communications with your stakeholders.
  • Backup all data on servers and personal computers, and ensure you are able to remotely access and restore the data to an alternate site without delay.
  • Move vital records, equipment, supplies and inventory to a safe or fortified location.

    Postpone any future deliveries or shipments until the storm passes and transportation routes are passable.

  • Fill fuel tanks of generators and all company‐owned vehicles, and ensure employees are familiar with your emergency transportation plan for critical staff. Plan ahead for interruptions including curfews, law enforcement roadblocks, mass transit shut-downs, and impassable roads and bridges.
  • Enable remote access to your company’s website and social media channels to ensure constant communication with stakeholders. Contact the media ahead of time to make sure they know how to reach your leadership and spokespersons.

During the Storm

  • Ensure employees are away from wind and flood hazards and know the company policy regarding inclement weather. Take into account the fact that coastal flooding and storm surge are the most destructive and deadly forces during a hurricane.
  • Establish teams working on a 24-hour schedule to monitor any equipment that must consistently remain on line.
  • Preemptively shut off any unnecessary electrical switches to prevent surges or electrical shorts and accidents before the necessary checks are completed post-landfall.

After the Storm

  • Watch and listen to local news and online media channels for damage reports, transportation outages, lingering flooded areas and other potential dangers prior to assessing your facilities.
  • Establish and follow company policies for limiting access to your facilities until the area has been declared officially safe by local law enforcement, inspectors or company officials.
  • Begin contacting employees, suppliers, critical partners and other stakeholders to ensure their safety and ability to return to work.
  • Begin salvage as soon as possible to prevent further damage to facilities, inventory and assets. Begin work to restore any critical business functions that have been interrupted by the storm.

As we saw with the last two major hurricanes (Katrina and Sandy), preparation is paramount. In the New York area, Governor Cuomo marked this past week as Hurricane Preparedness Week — asking the state’s residents to review their preparations for the upcoming season. With 2013 predictions well above the seasonal average, this is advice every Atlantic coastal state should take seriously.

Solar Storms — A Real Risk

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A recent report from Lloyd’s of London broker Aon Benfield says that we are in for some extreme solar weather for the remainder of 2013, which could lead to business interruptions and large insurance claims. This peak in activity comes in accordance with the sun’s 11-year cycle.

The report states:

Massive ground currents resulting from geomagnetic storms can flow through electricity distribution networks, resulting in large scale blackouts and permanent damage to transformers. Enhanced X-ray and powerful ultraviolet solar radiation during a solar flare can impact on radio propagation and telecommunications systems, blocking global communications. Solar radiation can even cause a satellite’s orbit to decay, while static electrical discharges interfere with GPS services creating problems for aircraft at high latitudes.

Researchers state that if a solar storm similar to that which occurred in 1921 happened today, it would cost upwards of $2 trillion, with recovery taking up to 10 years for the U.S. alone. The infamous solar storm of 1921 caused “the entire signal and switching system of the New York Central Railroad below 125th Street to be put out of operation, followed by a fire in the control tower at 57th Street and Park Avenue.” Interference was also reported throughout most of Europe.

Though it’s impossible for scientists to predict exactly when or where the next solar storm happen, what they do know is that with more sunspots come more stoms. And the fall of 2013 is when the Sun is set to reach the crest of its 11-year sunspot cycle.

“Well-rehearsed contingency planning for a wide range of potential natural and man-made disasters is always going to be worthwhile for any business,” says Aon Benfield analyst Ryan Springall within the report. “The crucial issue for many businesses and households in the case of geomagnetic storms is likely to be loss of electrical power, possibly for an extended period.”

The study also points out that insurers could be liable for unforeseen losses as a result of a solar windstorm — anything from machinery breakdown to D&O. If scientists are right, this coming fall will be a hotbed of solar activity. It would be prudent to develop a broad-based business interruption plan and alter your insurance to cover such a rare event.