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Economic Losses From Disasters Underestimated, Hurt Small Businesses

Economic losses caused by natural disasters have been underestimated by at least 50 percent and are “out of control,” according to U.N. Secretary-General Ban Ki-Moon during last week’s launch of a UN report on the business case for disaster risk reduction.

To develop the study, the United Nations Office for Disaster Risk Reduction (UNISDR) reviewed reported losses from disasters in 56 countries.

“Our startling finding is that direct losses from floods, earthquakes and drought have been underestimated by at least 50 percent,” said Ban. “So far this century, direct losses from disasters are in the range of $2.5 trillion. This is unacceptable when we have the knowledge to reduce the losses and benefit from the gains.”

Most disaster damage assessments do not account for uninsured losses from recurring, small-scale but costly disasters common in low and middle-income countries, according to UNISDR.

Ban said that while governments bear responsibility for measures to mitigate disasters, the private sector also has a key role to play — it accounts for 70 to 85 percent of worldwide investment in new buildings, industry and critical infrastructure. Markets have traditionally placed greater value on short-term returns than on the sustainability and resilience of businesses, but this is now shifting.

Small businesses suffer the most from disasters, according to the study. While large corporations can bounce back from disasters because of insurance and diversified assets, they can be crippling to small enterprises.

In a survey of 1,300 small and medium-sized businesses in six disaster-prone cities in the Americas, the report found three-quarters had suffered disruptions to business related to damaged or destroyed power, telecommunications and water utilities. However, only 14 percent of those with fewer than 100 employees had even a basic approach to crisis management in the form of business continuity planning.

A survey released earlier this year by investor advocacy group Ceres found that only one out of eight insurers said they have in-depth climate change strategies. Insurer Climate Risk Disclosure Survey: 2012 Findings & Recommendations is based on 184 company disclosures responding to a climate risk survey created by insurance regulators in California, New York and Washington.


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