How Natural Disasters Lead to Financial Problems - Image

How Natural Disasters Lead to Financial Problems

With Storm Desmond bringing yet more chaos to thousands of UK residents, including flooding, power cuts and sadly a few deaths, it can appear that some natural disasters cannot be prevented. Aside from the human impact, such occurrences also bring with them a huge financial impact for the residents, government and more.

The UK is one of the least affected parts of the world for such devastating disasters but when one happens the amount spent is always brought up. Other parts of the world suffer such disasters more often and the financial problems follow for a number of reasons.

Infrastructure Destruction

TV footage of hurricanes and earthquakes always focuses on the buildings which have been destroyed. The rebuilding of such infrastructure can cost well into the millions for the home and business owners it affects, and is often the amount which gains most focus.

However, there is a much larger financial fallout that isn’t always considered. The companies using such office space will lose out on business during the time they have no base, with a knock-on effect meaning their customers and clients lose out and may potentially go elsewhere.

Poor Preparation

National and local governments that poorly plan for dealing with natural disasters, both in preventing them in the first place and dealing with the after effects, can often find themselves out of pocket if one occurs. Areas at high risk should work it into their budget to avoid having to move finances dedicated to one element to the clear up.

However, some places that regularly experience natural disasters have grown used to the economic after effects. In the Caribbean there is less sensitivity to storms and many businesses have learnt to work around them while governments set aside amounts too.

Insurance

For a lot of the effects of natural disasters it is up to the city and local government to cover the costs. When such events are adequately insured this isn’t a problem, but a lot of the time it isn’t, with only 1% of natural disasters in developing countries found to be insured between 1980 and 2004.

These make massive dents in their budgets, with the solutions involving private lending and catastrophe bonds. In times of such economic hardship this is all scrutinised by the taxpayer. Doing as much to reduce the risk and prevent against natural disasters is usually the most cost-effective method.

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