Natural disasters

RECENT NEWS
Insurance Journal  Jul 14  Comment 
Insurers could soon be able to deploy drones for speedier response to natural disasters under a provision in legislation reauthorizing the Federal Aviation Administration passed by the Senate Wednesday. “The process called for in this...
BBC News  Jun 27  Comment 
Natural disasters and an unstable political environment mean an uncertain environment for Thai companies. How do they cope?
Channel News Asia  Jun 13  Comment 
Deputy Prime Minister Tharman Shanmugaratnam cites growth areas in the region that insurers can tap, including providing insurance solutions for cyber and natural disaster risks as well as investing in infrastructure.
newratings.com  Jun 13  Comment 
WASHINGTON (dpa-AFX) - Social networking giant Facebook activated its Safety Check feature in the U.S. for the first time on Sunday following the mass shooting at a gay nightclub in Orlando, Florida. A click or tap on the 'I'm...
Insurance Journal  Jun 8  Comment 
Arkansas’ emergency management director said he favors a proposal from the Federal Emergency Management Agency that gives states disaster “deductibles” as an incentive for the state to be better prepared for natural disasters. FEMA’s...
NPR  Jun 3  Comment 
Back in 1983, Congress authorized a public health emergency fund. But the pot of money was never very substantial and it hasn't been replenished. The fund now stands at $57,000.
NPR  May 24  Comment 
But it's one thing to make a pledge. Will the participants in the first U.N. World Humanitarian Summit deliver?
Clusterstock  May 23  Comment 
You're not the only one who feels lost looking at the oil market. The violent price swings and unpredictable surges up and down are here to stay, according to Barclays analysts, and it has more to do with unexpected production outages than the...
Insurance Journal  May 19  Comment 
Canada will have to set aside more money to deal with natural disasters like wildfires, storms and floods as climate change starts to bite, the head of the country’s property insurance industry group said on Wednesday. A wildfire sweeping...
Financial Times  May 17  Comment 
Finance leaders aim to help countries cope with natural disasters




 
TOP CONTRIBUTORS

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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