2017 Was the Costliest Year to Date – Here’s Why
The National Oceanic and Atmospheric Administration (NOAA) recently released an updated historical table of disaster events. The table, indicating U.S. billion-dollar disaster events, summaries, report links and statistics covers events ranging from 1980-2017.
In 2017, there were 16 weather and climate disaster events with losses exceeding $1 billion each across the United States. These events included 1 drought event, 2 flooding events, 1 freeze event, 8 severe storm events, 3 tropical cyclone events, and 1 wildfire event. Overall, these events resulted in the deaths of 362 people and had significant economic effects on the areas impacted.
According to NOAA data, 2017 became the costliest year to date, surpassing 2005, the year of Hurricane Katrina. Previously, 2005 topped the chart with $215 billion in losses. Hurricanes Harvey, Irma and Maria helped propel 2017 to a total of $306 billion in losses. Harvey created the most financial damage, resulting in nearly 41 percent of the total yearly cost, or $125 billion.
Reflecting on the previous year of natural disaster destruction, what have we learned? We sat down with Firestorm COO, Hart Brown, to discuss the financial implications natural disasters can have on organizations. Hart provided insights on what organizations and leaders can do to mitigate potential losses.
Now that we know 2017 was the costliest year for organizations per the NOAA report, what does this mean for employers and business owners?
Hart Brown (HB): First, we must understand why the cost was so high in 2017. To begin, the number, types, and severity of natural disasters have increased over time. Additionally, events are occurring in new geographies. Populations in the northeast are not equipped to handle severe hurricanes and communities in the South are not prepared to handle winter storms. We’ve seen major disasters strike areas that are underprepared. Historically, natural disasters have occurred in less-populated locations. The population of these areas have grown in terms of citizens and businesses, leading to higher damages when disasters strike.
It will become increasingly difficult to obtain insurance in these disaster-stricken areas. We expect the cost of policies to increase over time. When this happens, we call the insurance market a ‘hard market.’ When this transition occurs, the onus shifts from insurance companies to the insured. Organizations are now expected to manage risks themselves in order to reduce the amount of insurance needed. To do so, organizations must have plans, policies, procedures and training in place. If an organization is conscious about how they plan for disasters, they can prove to insurance companies their preparedness level and receive preferential treatment. The responsibility to manage risk is more on organizations rather than a simple insurance purchase.
One interesting factor to observe is the capital available for insurance and reinsurance. Recently, there has been more money in the insurance market than organizations have had to pay in claims. This has created a surplus in the finances available to address natural disaster events. As a result, insurance prices and premiums begin to drop. Insurance becomes cheaper in many cases. This scenario is great for the consumer, but not ideal for an insurance company.
What can business owners do this year to better prepare and mitigate damages and risks we saw in 2017?
HB: There are different opportunities to improve the level of preparedness in an organization. As an organization moves merchandise (goods, materials, equipment, etc.), they must understand a natural disaster risk covers their entire supply chain. If an organization receives goods from one side of the country or world that was hit with a disaster, their merchandise may be delayed or unavailable. Understanding supply chain risk and ensuring each part of a supply chain has its own disaster plan is critical.
Organizations must have their own natural disaster plans, policies and procedures in place. They also need to understand the length of time their organization may be shut down due to a disaster. As the severity of storms and natural disasters grow, we are beginning to see the disaster recovery time increase beyond the standard 48-72 hours. We need to think about extending plans to match the amount of time a facility, area, or location may not be available.
What can organizations do at the onset of a disaster?
HB: Natural disasters are usually unexpected, and we have very little warning. The time to prepare and plan is before an event. We recommend all employers train employees on the disaster plan during the onboarding process and throughout the year.
Train employees on what to take during an evacuation, which documents are important, where they should evacuate to, and what they should do with their pets. Ensure everyone has an understanding of the disaster plan. Being prepared provides employee confidence and reduces anxiety. This becomes very important in times of disaster. We encourage organization leaders to not only think about their employees, but also their employees’ families. This level of caring and compassion resonates with employees and creates loyalty to the organization itself. Training prepares employees at work and at home. Our book, Disaster Ready People for a Disaster Ready America, specifically addresses the need for crisis and disaster preparedness at home. The book has become a cornerstone of many corporate preparedness programs.
We recommend organizations have a business continuity plan that includes shut-down and restart procedures.
Many plans detail a thought process about manual work-arounds or conducting business at a separate location, but many lack steps to turn everything off. Ask yourself these questions:
- In what order and in what sequence is electricity turned off?
- How do we ensure the area is safe to return?
- How do we turn everything back on after a disaster?
- How do we enter a facility once it has already been flooded?
- How do we address the risks? How do we create a disaster team to enter the facility to ensure it’s up and running again?
In many cases, these details are overlooked.
What should employers and business owners learn from 2017 disaster?
HB: A few key learning points are very important to remember from disasters that occurred last year. In many cases, reports and stories emerged of companies realizing that the perimeter of their facility did not stop at their property. The perimeter goes beyond the physical property lines and continues with the families and people involved. Organizations took an active role in helping the families understand how to evacuate homes and where to go if evacuated.
After the hurricane struck Puerto Rico, organizations sent equipment, goods and people to reestablish the minimum level of support elements for the people affected. As quickly as possible, organizations must understand the impacts disasters have on people and assist in any way possible. Doing so creates a loyal relationship with employees, and in many cases, employees for life.
We must remember that every crisis is a human crisis. Learning from last year’s crises and understanding the human element of a disaster enables organizations to recover faster.
To help prepare your employees at home and the workplace, download our book, Disaster Ready People for a Disaster Ready America, or contact the Firestorm team to receive a no-fee assessment.