Natural Disaster-Related Economic Losses ‘Out of Control’

The United Nations warned economic losses linked to natural disasters are out of control, soaring past $100 billion annually for three consecutive years, and will continue to escalate unless risk management becomes a central piece of business investment strategies.

The warning came as the UN released the third edition of its Global Assessment Report on Disaster Risk Reduction, which says direct losses from floods, earthquakes and drought have been underestimated by at least 50 percent. So far this century, direct losses from disasters are at about $2.5 trillion.

Small and medium enterprises are particularly at risk. The 2013 report, which surveyed 1,300 small and medium-sized businesses in six disaster-prone cities in the Americas, found three-quarters have suffered disruptions related to damaged or destroyed power, telecommunications and water utilities, illustrating the inter-dependence between the private and public sectors when it comes to disaster risk management.

Yet only a minority of those surveyed — about 14.2 percent of companies with fewer than 100 employees — had even a basic approach to crisis management in the form of business continuity planning, the report says.

The report, which includes reviews of national disaster loss databases in 40 countries, argues stronger disaster risk management reduces uncertainty and strengthens confidence, opens the door to cost savings and provides an avenue for value creation. Businesses that have invested the most in risk management may financially outperform their peers, the report says.

Governments reported significant progress in developing more effective disaster response and preparedness strategies and are investing more to address risks, according to the report. However, governments are still falling short of anticipating risks in public and private partnerships. For example, the number of export-oriented Special Economic Zones has expanded to 3,500 zones in 130 countries as of 2006. Many of these zones have are located in hazard-exposed areas increasing disaster risks.

Globalized supply chains have created new vulnerabilities as well, according to the report. For example, Toyota lost $1.2 billion in product revenue from the 2011 Japan earthquake and tsunami due to parts shortages.