# _<u>Box 4: Business response to disaster risk and impact</u>_

<mark>In wealthy countries, and in particular with regard to floods and hurricanes, property damage and business interruption form the great part the economic damage of disasters. Surveys of businesses including those in Santa Cruz and Northridge California (after earthquakes) and South Dade County, Florida (after a hurricane) suggest that many businesses were forced to close for at least some period after the disaster due to property damage, loss of lifeline service or employee absenteeism. Longer-term impacts included declining customer traffic due to community damage. Nonetheless, it should be noted that available evidence suggests that, at least in the US context, the vast majority of businesses do recover despite very low levels of disaster insurance and even lower levels of insurance claims.</mark> <mark>What determines the extent and speed of business recovery from disasters appears to be primarily the nature of the business (sector, customer base, size), and the damage done to the community in which it operates (including interruption of lifeline services). These factors matter more than direct physical damage to business plant and buildings themselves, and considerably more than disaster preparedness measures taken at the company level.</mark> <mark>Alongside the strong influence of disaster impacts beyond company control, the small impact of mitigation measures on outcomes may in part reflect the comparatively limited set of measures taken before (or, indeed, after) the disasters. For the great majority of companies, measures were limited to generic actions like first aid supplies and training rather than complex and disasterspecific measures like structural assessments and business relocation plans. And most measures taken focused on avoiding loss of life rather than business continuity. Perhaps unsurprisingly, larger companies in more regulated industries took more mitigation measures than did others (sources: Webb, Tierney and Dahlhamer, 1999, 2003, Tierney and Dahlhamer, 1997, Chang and Falit-Baiamonte, 2003).</mark> That people in rich and poor countries frequently appear to place a low value on disaster mitigation suggests interpretations of protection as a ‘luxury good’ might be over simple. Similarly, given that rich countries also tend to have relatively well educated citizens with greater access to information, that there is still an unwillingness to pursue mitigation or even insurance in those countries suggests a limited role for ‘lack of knowledge’ in driving apathy towards disaster risk reduction (Box 5). Again, holding other factors including income constant, fatalities per earthquake do not appear to be lower in areas where earthquakes are more frequent (Anbarci, Escaleras and Register, 2005, see also Shaw et. al. 2004). Even repeated experience of earthquakes does not appear to foster (successful) efforts towards mitigation, then.

And that most people who suffer in natural disasters lack insurance suggests a limited role for moral hazard – under-preparation due to anticipated payments from insurers. Even in the US, where there are widespread federal insurance and generous disaster relief programs, the great majority of the financial cost of natural disasters is born by victims (Burby, 2006). In the developing world this will be even more the case, and particularly with regard to those people most at risk of dying in a natural disaster, insurance or government payments would be of little benefit regardless.<sup>9</sup>

> 9 It is possible that reaction to disasters by donor agencies may create at least the appearance of a considerable over-response which might fuel moral hazard in other communities which witness the largesse.

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