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Agency Forward®
By Brian Halaiko

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Preparing your clients for natural disasters

July 17, 2024

As insurance professionals, part of our commitment to our clients is to find ways to prevent losses. It’s important to ensure your clients have taken steps to prepare and plan for potential natural disasters. After all, the past few years have seen natural disasters surge in both frequency and severity.

In 2023 alone, the U.S. faced 28 distinct weather and climate disasters, each costing at least $1 billion. This set a record for the highest number of billion-dollar disasters in a single year, with total damages amounting to $92.9 billion.1 Together, these events included a winter storm, a wildfire, a drought and heat wave, four flooding events, two tornado outbreaks, two tropical cyclones, and 17 severe weather/hail events. What’s more concerning still is that these disasters weren’t limited to a specific area, and these various weather events impacted regions across the United States.

With this in mind, it’s crucial to open a dialogue with your clients on the subject of preparing for natural disasters. This planning can help minimize clients’ resulting losses and promote business continuity amid challenging circumstances,and provide them with the resources they need to handle disasters when they strike. Here’s what you need to know about the potential losses facing your clients following natural disasters and how to help them mitigate these concerns.

How natural disasters impact personal lines clients

As natural disasters increase in frequency and severity, individuals who own homes, cars, boats and other property face significant financial risks in the face of a loss. In particular, following a catastrophic event like a hurricane, flood or wildfire, personal lines clients may experience the following:

  • Property value impacts—Those who live in areas prone to natural disasters may have difficulty selling their home and could see the value of their investments drop significantly. As an example, according to CoreLogic Data, properties in wildfire zones in California tend to experience much slower appreciation and will often sell for less than comparable properties in less risky areas.2
  • Property damage—Natural disasters can cause significant and unpredictable property losses for personal lines customers. Rain from storms and tidal surges from hurricanes can increase flooding risks, leading to significant and costly water damage. Wildfires have the potential to engulf homes, vehicles and other property, sometimes leading to their destruction.
  • Disruption—In the wake of a natural disaster, personal clients may be left without homes, vehicles or critical utilities (e.g., water or electricity). In some cases, their home may be temporarily or permanently unlivable, forcing them to relocate. Not only are these disruptions stressful, but the cost of replacing lost property or finding temporary housing can be insurmountable for some individuals.
  • Insurance challenges—As billion-dollar natural disasters continue to affect regions across the country, premiums are going up for certain personal lines clients. In some cases, insurers are excluding coverage for specific weather events or pulling out of higher-risk regions altogether. For personal lines customers, this means fewer or more expensive options when it comes to safeguarding their property.

Watch the Personal Lines Roundtable: Engaging clients on the importance of emergency preparedness

This latest roundtable episode features Dr. Anne Cope from the Insurance Institute for Business and Home Safety (IBHS), providing an update on weather trends occurring across the country. Additionally, Jeff Rommel, Vice President of PL Claims, shares the resources Nationwide offers to assist clients before, during, and after weather events, along with simple tips to guide your clients if they need to file a weather-related claim.

 

The effects of natural disasters on businesses

Natural disasters can carry numerous implications for businesses—many of which can damage their overall stability. Specifically, the following issues could prove detrimental to your clients in the wake of a natural disaster:

  • Property damage—All types of natural disasters have the potential to result in structural damage—and your clients’ properties are no exception. Depending on the severity of the disaster, this property damage can range from minor repair issues (e.g., a few broken windows from a tornado) to costly rebuilding concerns (e.g., a completely burned-down building from a wildfire).
  • Business disruptions—Various problems caused by natural disasters can disrupt your clients’ operations, halting their sources of income for extended periods. Namely, these disasters can destroy essential equipment, contribute to supply chain or transportation failures, limit properties’ energy sources and delay or prevent critical business communications.
  • Loss of customers—Natural disasters may also lead to your clients having a hard time maintaining customers. This is especially common when local officials instruct individuals to temporarily evacuate their homes due to a disaster—making clients’ nearby businesses less convenient or accessible to their communities. Based on the nature of the disaster, an evacuation may last for only a few days, or extend for several weeks or months. In any case, having a displaced customer base could substantially reduce clients’ profits.
  • Employee injuries and fatalities—While it is hard to imagine financial losses, these disasters could easily lead to increased injuries and fatalities among your clients’ workforces. Such serious losses not only contribute to lowered staff morale, but can also prevent your clients from being able to fill open positions following a disaster. In addition, some employees may decide to permanently relocate after a disaster occurs, leaving your clients with a limited talent pool.
  • Insurance challenges—While securing the right insurance policy is crucial to protecting a business, there are considerations when it comes to hurricane-related damages. In particular, standard insurance policies may exclude certain types of damage, such as flooding. Additionally, the claims process can be slow, delaying essential funds for repairs and recovery for affected businesses.

Best practices to prepare clients for natural disasters

Despite the ramifications that natural disasters can cause for your clients, there are several measures that you can discuss with them to help minimize their resulting losses and remain operational, such as:

  • Analyzing key risks—Your clients’ natural disaster exposures depend on where their businesses are located. For example, clients stationed in the Midwest should be focused on snowstorm risks rather than hurricane concerns. As a result, be sure that clients review the disaster exposures common within their specific areas. From there, instruct clients to conduct risk assessments that outline possible natural disaster scenarios and how these instances would impact their operations.
  • Offering resources—Based on your clients’ findings in their natural disaster risk assessments, make sure you offer them ample resources to help control key exposures. In particular, encourage your clients to develop emergency response plans that address how their businesses can safely respond and maintain continuity in the event of a natural disaster. A variety of government resources can help your clients develop such plans, including:
  • Addressing coverage concerns—Review your clients’ risk assessments and business properties to determine whether their current commercial insurance policies will offer adequate protection for losses stemming from natural disasters. Work with your clients to make policy adjustments and secure additional or specialized coverage as needed.

Overall, natural disasters are an ever-present threat for which your clients must prepare. Many weather experts predict that—in light of recent climate change trends—these disasters will only become more frequent and severe in the years to come.3 That is why Nationwide is working with the Insurance Institute for Business and Home Safety (IBHS) as well as a broad coalition of industry stakeholders to help local, state and federal governments better prepare for—and adapt to—climate change.

The insurance industry plays a unique and critical role in the disaster mitigation and recovery process, serving as a leader in promoting pre-disaster loss-prevention techniques. Communicating with your clients on this topic will allow them to bolster their emergency planning protocols as needed—thus helping them successfully weather the storms ahead.

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