Economic Problems Caused By Natural Disasters

The trending topic right now on all search engines and social networking sites is “Hurricane Sandy“, the worst storm to hit the Eastern corridor of the Unites States. The storm has brought New York, the business hub of the world to a standstill with power outages and lack of transportation. What does one do in the face of a natural disaster so utterly devastating? The storm will leave behind not just death and destruction but a financial crunch for a country already reeling under an economic crisis because of high taxes and job killing regulations imposed by the EPA, Congress, and so forth.

This brings us to the big question-how to deal with the economic problems caused by natural disasters. There are two sides to the coin. Yes, a natural disaster brings about destruction of property and when it hits places that are financial hubs, it can mean a huge loss of money. When the natural disaster is of immense proportions, businesses have to close down for more than several days and this costs the business, the community, the city, state, and even the country a vital source of economic activity. Without these actions, the buying and selling, America’s economic engine is put on hold. This is how most free (America used to be more free) societies operate around the world.

Short & Long Term Implications Of Natural Disasters

The short term economic implications of natural disasters are due to damage to property, transportation shut downs, and power outages. Destruction to homes and buildings means sheltering and feeding to those left homeless. The shutdown of public transportation and roads is a heavy blow to businesses, commerce, and transporting emergency personnel is difficult if sometimes impossible. Since most of the business world is online, power outages is the one of the most costly impacts of a natural disaster, along with loss of life. The severity of the crisis will depend on the nature of the natural disaster. For example, analysts are already saying that the short term implications of Hurricane Sandy will not be much and that though it could affect the quarterly figures of the year, it should not affect the economy in the long run.

This brings us to long term implications of natural disasters. As stated before, this depends on the nature of the disaster. Hurricane Katrina left millions homeless and it took months and the strength of the entire country to get New Orleans back on its feet. In some cases, Katrina impacted the New Orleans region for years. There were entire neighborhoods under water and the levy and water drainage systems needed monumental improvement. Sandy did not unleash this type of damage to any particular area. The physical impact of Hurricane Sandy, therefore, should be easier to manage and the affected areas should limp back to normalcy in a few weeks, perhaps a couple of months.

Financially, analysts feel that the money lost due to closure of businesses caused by Hurricane Sandy will be balanced out by the reconstruction and renovation process that would have to be done to repair the damage to the neighborhoods and cities. This is on a macro level of course. There are some people going to be hurt because of Sandy that do not care for this type of tradeoff but Mother Nature rarely abides by humanity’s need or concern.

How Do Natural Disasters Affect The Individual And How To Protect Oneself Financially?

Thus far we have discussed what the short and long term implications are for the economy in general due to natural disasters. But, what about the individual? What can someone do to protect themselves financially against natural disasters? Can someone sign up for insurance as a contingency plan in the case a natural disaster strikes? Certainly, but you need to read the small print carefully when you take out that insurance plan. When you buy a home or a vehicle, insurance is part of this payment package (unless you thwart the law in terms of driving without insurance of course). But, what you may not read is the fine print that lists what kind of damage you are insured for. For example, during Hurricane Katrina, people who were insured against flooding could not claim their insurance since the flood was due to rain water and not a plumbing leak. So, you need to be clear about what you are paying for when signing up for an insurance plan or package.

The kind of insurance that you sign up for should consider the area that you live in and the things that may affect you. If you live in an area prone to earthquakes (such as California), then make sure that you are covered for that particular type of disaster. If you live in a hurricane prone area (such as the south or north east), the insurance that you select should cover the damage that may be caused by a hurricane. Of course, the more coverage you choose, the higher your premium will be. But if you do live in a risk prone area (and everywhere in the world is prone to some sort of natural disaster), it would be foolish not to be insured against that type of risk. Make sure that you obtain the maximum coverage for the premium that you are paying for.

How Do Natural Disasters Affect Insurance Companies?

Insurance agencies are also businesses and they need to make money. They offer you an insurance policy and hope that nothing affects you or your property. But if you live in an earthquake prone area, insurance companies will have a huge premium for insurance policies that include damage by earthquakes. In fact, Hurricane Sandy has probably caught the insurance companies by surprise. This is the worst storm to hit the Eastern corridor and the insurance claims will be high and many.

Insurance companies could lose anywhere up to $7 billion due to Hurricane Sandy. Analysts predict that insurance companies will increase their insurance premiums to balance out the losses that they will suffer due to Hurricane Sandy. Insurance companies were probably already calculating how to balance out their losses even before Hurricane Sandy made landfall. This is just about survival and thinking ahead. This is prudent and wise. They would be derelict to their employees, stakeholders, and customers if they did not plan for the future.

Researchers for Munich Re, a well-known insurance company, say that after studying the climatic conditions of the U.S. since 1980, they have found that the insurance companies have lost half a trillion dollars due to natural disasters. It is only natural that they increase their prices or premiums at certain times or they would not have the financial standing to help those in the future that need it when Mother Nature unleashes her fury.

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