US small firms lack key insurance for disasters: Fed report

After a record setting year for hurricanes and wildfires in the United States, many small businesses found they did not have insurance to cover wind or flood damage or lost customers due to power outages

New York (AFP) – Small US businesses hit by last year’s natural disasters often suffered doubly since they did not have the right kind of insurance to cover their losses, according to a report Tuesday.

Small companies that suffered from the historic hurricanes and wildfires in 2017 largely lacked business interruption insurance that would cover for power failures or loss of customers in a disaster, according to the joint report by four regional Federal Reserve banks.

Of the firms affected in the continental United States, 65 percent cited power outages as the source of their financial losses, yet only 17 percent of that group had business disruption insurance, the report found. 

Another 38 percent cited flood damage and 36 percent had wind damage, yet only 16 percent had flood insurance coverage and only 21 percent had wind insurance.

“We find that although most firms that experienced disaster-related losses did have insurance, the types of coverage appear to be mismatched to the actual damage experienced,” Emily Perlmeter, community development advisor at the Dallas Fed, told reporters.

“This leaves critical gaps that need to be addressed and better understood.”

The report was prepared by the Federal Reserve banks of New York, Dallas, Richmond and San Francisco. A separate study on the situation in Puerto Rico, which was hit by two powerful hurricanes, will be released later this year.

The US broke many records in terms of natural calamities in 2017, including Hurricane Harvey in August, and severe California wildfires. 

The price of the disasters at $306.2 billion for 2017 “is the highest on record, and climate studies indicate these costs will only increase due to the impacts of climate change,” the report said.

“Because small businesses are such important economic drivers in our country, learning more about their levels of natural disaster preparedness is critical,” Perlmeter said.

The Fed cited a number of federal and state programs that can help affected firms obtain affordable financing if they lack insurance. 

These include low- and no-interest lending programs in the states of North Carolina and Texas and a New York City program that conducts risk assessments for small business to determine they have the right insurance for their needs.