Natural disasters

RECENT NEWS
Insurance Journal  Aug 9  Comment 
The vast majority of global natural disasters during July were the result of severe flooding across the Asian region, bringing more than $10 billion in economic damages, according to a report published by Impact Forecasting, Aon Benfield’s...
guardian.co.uk  Jul 16  Comment 
World’s oldest insurance market warns cost to global economy of cyber-attack could be as much as worst natural disasters Lloyd’s of London has warned that a serious cyber-attack could cost the global economy more than $120bn (£92bn) – as...
Insurance Journal  Jul 12  Comment 
New types of insurance could cut the costs of natural disasters for poorer countries and reduce the amount of humanitarian aid needed, according to a report commissioned by Britain’s international development ministry. The cost of natural...
Insurance Journal  Jul 11  Comment 
The Southeast has seen its fair share of natural disasters and flooding in the last several years, including two hurricanes in Florida last year – the first hurricanes to hit the state in more than a decade. But none of …
Insurance Journal  Jul 10  Comment 
The UK will attempt to build a market for insuring countries against natural disaster, with the goal of providing more stable funding for relief from famines and floods. Prime Minister Theresa May will announce the move at the Group of …
NPR  Jul 3  Comment 
Scientific American concludes that disasters correlate to a 1-percentage-point increase in poverty in the affected areas. It also finds that the rich leave disaster-prone areas but the poor can't.
Insurance Journal  Jun 9  Comment 
Forecasters again lowered the odds of El Niño forming by year’s end, a scenario that may mean more Atlantic hurricanes at a time when federal agencies charged with predicting and responding to natural disasters lack top administrators. The...
Forbes  Apr 27  Comment 
Weather patterns are rapidly changing, creating a need for better advanced weather detection and rapid public service announcements to those at risk of an impending natural disaster.
Forbes  Apr 27  Comment 
How advances in deep learning can be used to watch the daily firehose of global news imagery to catalog illegal dumping, assess smog levels and even send flash flooding alerts, all by having AI look at news photographs
Insurance Journal  Apr 24  Comment 
Physical property damage due to natural disasters, weather-related or man-made incidents, can be relatively straightforward to assess, but understanding how a different form of property causes damage can be a little more ambiguous, according to...




 
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A natural disaster is the consequence of a natural hazard (e.g. hurricane, volcanic eruption, earthquake, landslide) which moves from potential in to an active phase, and as a result affects human activities[1]. Business is one such activity.

The International Red Cross, which publishes an annual World Disasters Report, says the economic cost of natural disasters has skyrocketed. In the past two decades alone, direct economic losses from natural disasters multiplied five fold to US$629 billion. Annual direct losses from weather-related events increased from an estimated $3.9 billion in the 1950s to $63 billion in the 1990s[2].

Natural disasters tend to affect insurance companies as well as local businesses affected by the disaster. The impact on other businesses can vary. For example, disruption in the oil drilling and refining activities in the Gulf of Mexico during the 2005 hurricane season caused some companies to lose revenue due to the loss of productive capacity, but also caused the price of oil to increase thus benefiting others in the industry. Landstar System, which has a contract to provide trucking services to the U.S. Government in the aftermath of natural disasters, was also a beneficiary[3].

Some studies have suggested that commodities provide an effective hedge against natural disasters because disasters such as floods, drought and hurricanes can affect commodity supply (see oil example above) and increase the price. However, the effect can differ across commodities - a drought could cause a shortage of corn and increase corn prices. The higher corn prices raises feed prices, which could cause ranchers to slaughter cattle earlier than usual and depress the price of that commodity in the short term.

Companies with negative exposure

Many companies are adversely impacted by the threat or actuality of natural disasters. Some include:

  • Property & Casualty insurance companies
  • Homebuilders and REITs with exposure to earthquake or hurricane prone regions
  • Travel and vacation companies, including cruise lines like Carnival (CCL) and Royal Caribbean Cruises (RCL) who operate in the Caribbean, where hurricanes are most common.
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