Hurricane Season Could Mean Large Economic Losses

 The start of hurricane season is one week away, and the National Oceanic and Atmospheric Administration (NOAA) expects another above-average year with up to 21 named storms (winds of at least 39 mph), of which six to 10 could become hurricanes with winds of 74 mph or higher—including three to six major hurricanes with winds of 111 mph or higher.

If NOAA's predictions are correct, 2022 would be the seventh consecutive year with above-average storm activity—the longest streak in recorded history, per NPR.

Aside from the devastation and loss of life created by natural disasters, these events pose significant risk to businesses and come with severe economic consequences. Last year, natural disasters losses totaled $280 billion, of which about $120 billion were insured, according to Munich Re.

So, if this year is expected to be another destructive hurricane season, it likely means another expensive hurricane season as well. "The hurricane seasons have become increasingly costly over the last five years, causing financial loss to total over $20 billion per year," according to DTN, which specializes in subscription-based services for the analysis and delivery of real-time weather, agricultural, energy, and commodity market information. "Conservative storm loss projections in the next 50 years could reach above $35 billion in materials, wages and economic interruptions."

Roughly 40% of domestic jobs and 46% of GDP come from the coastal regions, which experience the majority of hurricanes, DTN stated. But that does not mean other states are completely protected. "Hurricane Ida spanned nine states, demonstrating that anyone can be in the direct path of a hurricane and in danger from the remnants of a storm system," said Federal Emergency Management Agency (FEMA) administrator, Deanne Criswell. "It's important for everyone to understand their risk and take proactive steps to get ready now.

Natural disasters present "an important opportunity for companies to assess their incident preparedness, data backup and business continuity plans—before disasters strike," according to IT technology services company, CMIT Solutions. The company recommends the following in case your company or your customers' company is impacted:

• Make sure your data is backed up and can be accessed if disaster strikes. Many businesses have both comprehensive image backups on-site (on physical hard drives) and off-site (safely stored in the cloud). Disaster preparedness plans should outline the steps required to reinstall important data, who can perform those steps and the chain of command to make those decisions.
• Create a way to work offsite in case a company's physical infrastructure is damaged. Detail which computers to use to reinstate and rebuild compromised data—and what happens if a company's physical infrastructure is damaged to the extent that no functioning machines are immediately available.
• Create a business continuity plan with short-term and long-term steps needed to get a business back on its feet. Past disasters that your company faced can help shape different contingencies.
• Come up with an incident management plan with defined roles and responsibilities for your employees so everyone knows what to do in the face of a disaster.

For credit professionals, hurricanes and other natural disasters can create a tricky situation. On one hand, creditors want to get paid no matter the circumstance. But on the other, they want to maintain a positive relationship with their customers.

You have to go above and beyond your regular duties as a credit professional and look at your customer relationships as more than just a business transaction, said Mary Lou Schwartz, credit manager at Ferguson Enterprises LLC (Metairie, LA), who has several customers impacted by Hurricane Ida last year. "If all you're doing is dialing for dollars and not getting to know your customers, you're not doing your job. That's only part of your job," she said in the April edition of Business Credit magazine.

-Annacaroline Caruso, editorial associate