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The Rise in Natural Disasters Is Putting More Businesses at Risk. Are You Protected? Natural disasters are devastating and can shut down your business if you aren't prepared for them. Here's how to protect yourself and your business.

By Randy Sadler Edited by Russell Sicklick

Opinions expressed by Entrepreneur contributors are their own.

As a business owner or leader, you live to build something that will stand the test of time and leave a lasting mark on the community and your industry. With natural disasters, all of the work put into building your business can be destroyed within seconds. If your business doesn't have the right protection in place, it could mean never opening your doors again.

This isn't an attempt to be a fearmonger or be pessimistic. Rather, it's looking at facts like Tornado Alley expanding to many states in the southern U.S. and covering not only just the Midwest as it was known, but now approximately half the country. Meteorologists also reported in the same article that there has been an increase in the average number of days that the most severe level of tornadoes appears per year.

In addition to an increase in natural disasters, the increase in businesses impacted from these occurrences isn't entirely due to natural causes alone — it's also a rise in the number of people and businesses moving within hurricane zones. For example, the Washington Post reported that in Charleston, South Carolina, the population has grown 25% just in the last 10 years. The rapid pace has led to increased development within vulnerable areas including hotels, restaurants and retail. Areas within coastal Florida, North Carolina and Georgia have also found issues with sea level rise, flooding and natural disasters that are costly to businesses.

In 2021, natural disasters of all types caused $145 billion in damage across the U.S. There were 20 separate billion-dollar weather-related disasters, one of which was the winter storm/cold wave that swept across Texas and wreaked havoc on the state. With the frigid and unusually cold temperatures came increased demand on the power grid. Ultimately, the demand outpaced the supply and resulted in the severing of power to 26 million Texans.

For businesses, unplanned downtime is a huge unplanned expense, especially in the industrial/manufacturing sectors. Fortune Global 500 manufacturing and industrial firms lose almost $1 trillion due to the costs/lost revenue from unplanned downtime.

Businesses, regardless of industry, must take the risk of natural disasters into consideration, since 40% of businesses do not reopen. Further, another 25% of businesses fail within a year after the disaster and another 90% fail within two years after the natural disaster. That's why it is essential to know your options and plan for natural disasters so your business can have the best chance to survive.

Related: 5 Ways to Prepare Your Business for Natural Disasters, Catastrophes and Income Loss

Plan for potential disaster

Whether or not you think a natural disaster may occur, you must have a plan in place in case of a disaster. A Business Continuity Plan (BCP) is the best course of action as BCPs are bespoke strategies designed to keep your business running in the case of an unplanned event. To best mold this to your business, you need to assess the nearby and/or potential hazards.

For instance, if on the coastline, your business would likely be best served by having a disaster readiness plan and BCP that most directly responds to the threat of flooding and hurricanes.

Next, you need to develop a business Emergency Action Plan (EAP). EAPs are a necessity because they offer your business a step-by-step process for navigating the moments during a natural disaster or unplanned event. EAPs in those moments can be the difference between life and death, not only for your business but also for the people on-site when a natural disaster is occurring.

Related: What Entrepreneurs Can Do to Overcome the Impact of Natural Disasters

Ensure your business by insuring it

Starting off with traditional insurance options, property insurance protects your business's building, fixtures and physical assets. Floods, sinkholes, earthquakes, terror incidents, nuclear, biological and environmental events are not covered.

Additionally, business interruption insurance is important, but it may not provide enough protection. For a business with operations obstructed by damage, the damage is covered by property insurance and the subsequent losses from that interruption are as well, yet there are some major gaps with this policy. Specifically, when an establishment is forced to close due to lack of power or nonphysical damage, there can be a denial of business interruption claims — meaning you can have the property repaired, but you won't be able to have the lost revenue covered by insurance.

This is where a captive insurance company may be the right fit. A form of self-insurance, a captive is a wholly owned subsidiary of your business that retains premiums paid and pays them out when your business needs them. For example, in the instance of a business interruption policy not being triggered with your traditional insurance provider, your captive will cover gaps in the insurance plan.

Captive insurance is ideal for addressing natural disasters since the policies can be broadly written to address complex, evolving and unexpected risks as natural disasters. Plus, the premiums paid (minus claims) become profit that the business can utilize to recover from the disaster.

Related: Is Your Business Ready for the Next Devastating Natural Disaster?

Tie up tech loose ends

In addition to the strategies and tactics for dealing with potential natural disasters via a Business Continuity Plan (BCP), the technology and data storage your business possesses must be properly maintained. Unfortunately, reports from PEW Research Center detail how businesses hit by natural disasters are ripe commodities in the eyes of hackers. This makes the fail-safes and security measures you put in place for your business's sensitive data a premium.

Ensuring your business has the capability to resume/continue operations remotely is also a major step. Should meeting physically be out of the question, the team from at least an executive level needs to have accessibility to online remote work resources. Your business could potentially face an extended period in a remote capacity. You need to make sure you have the provisions and capabilities to provide an effective remote work environment that will allow your business to continue operations.

Randy Sadler

Entrepreneur Leadership Network® Contributor

Principal and CMO, CIC Services

Randy Sadler started his career in risk management as an officer in the U.S. Army. He has been a principal with CIC Services for seven years and consults directly with business owners, CEOs and CFOs in the formation of captive insurance programs.

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