Macbeth, and King Richard the Third

• Mitigation actions a business can use to protect assets, inventories, and human resources

• Strategies for businesses and communities to work together to mitigate the impact of hazards

• Assess the connection between private sector development decisions and local vulnerability

• Understand the process of business continuity planning to mitigate hazard impacts

• Apply the principles of a risk assessment to make informed investment decisions

• Distinguish among types of insurance that are available to businesses for hazard perils

• Learn how to protect a company’s assets, employees, and business viability in the face of hazards

A resilient economy is an essential element of a resilient community. Economic resilience calls for wise use of privately owned real estate, as well as for a strong business sector that can withstand the impacts of natural hazards and climate change. Communities that have built resilience into the local economy before a disaster strikes are more likely to experience fewer disruptions in productivity, and are better able to maintain a stable tax base, a vibrant marketplace, and a higher quality of life for community members. This chapter discusses the decision-making process of private landowners and real estate investors, and how choices they make regarding the location and use of property can impact community vulnerability. The chapter also describes how public sector actions can influence decisions made by the private sector. The chapter then explores ways that local businesses, particularly small businesses, can protect their assets, their employees, and their businesses’ viability in the face of natural hazards and climate change. The chapter concludes by discussing ways in which the private sector can participate in community mitigation programs and lead efforts to promote hazard resilience and adaptation to climate change.

At the heart of a hazard resilient community is a resilient economy. Residents need a reliable source of decent jobs and affordable housing options. Businesses need an accommodating venue for commerce and trade and a steady workforce. The local government needs a stable source of revenue in order to build and maintain infrastructure and provide services and amenities to community members. All of these elements of a vibrant economy depend on a steady flow of capital investment from both the public and private sectors. At no time are these issues more critical than during the period of recovery and reconstruction following a disaster. After a hazard event, it is essential for the recovery of the community that the economy remains stable or quickly returns to stability after a short period of readjustment. Communities that have built resiliency into the local economy before a disaster strikes will be in a much better position to return to stability after a hazard event. Resilient communities are able to maintain or quickly restore economic vitality following a disaster.

A local community’s overall resilience depends upon the ability of its economy to withstand the impacts of a wide range of hazards and the speed with which the economy can bounce back when a disaster occurs. This is accomplished by placing people and property in hazard-safe locations and by integrating mitigation building techniques into the construction process, such as installing wind-resistant roofing and elevating flood-prone structures. The local government plays a major role in determining what types of structures are permitted within its jurisdiction and where they are allowed to be built; however, the private sector is the main driving force behind a community’s patterns of land use. Choices that property owners make about how to use their land and protect their property have a profound effect on community vulnerability.

A major controlling factor in a community’s economic staying power lies in the patterns of land use that predominate in the area. Because the built environment is such a critical determinant of vulnerability, the first section of this chapter deals with the issue of land ownership, particularly private land ownership in hazardous areas.

Creating a disaster-resilient community depends not only on locational and structural decisions made by private property owners, but also decisions regarding the types of economic activity that are most appropriate for the area in terms of hazard exposure. A truly sustainable local economy is diversified and less easily disrupted by internal or external events, including natural disasters. For instance, a coastal town that depends solely on tourism as its economic mainstay is more likely to suffer dire long-term consequences after a major hurricane than a community with a more diversified economy. Economies that include a mix of industries are much more stable. Making the private sector more resistant to disasters through mitigation and diversification provides fiscal assurance to the local government by making the local tax base more secure, residents safer, and businesses more competitive.¹

Although many factors play into whether the local economy will survive following a disaster, much of the economic resilience of a community depends on the individual businesses and industries located there, how well they are able to prevent large-scale damages, and how quickly they are able to resume operations. A resilient economy is one where productivity is only minimally disrupted by a hazard event. Disasters can have the effect of accelerating economic trends that were present in the community before the disaster hit. For example, if a downtown is experiencing a slow decline, a disaster might fast-forward the negative trend, compounding the difficulties of sanitation, public safety, transportation, and general deterioration.² On the other hand, a disaster can also provide an opportunity for a community to make positive changes and to focus new energy on revitalizing areas of blight or neglect.

BUSINESSES EMBRACE SUSTAINABLE REDEVELOPMENT IN GREENSBURG, KANSAS

When an EF 5 tornado swept through the small town of Greensburg, Kansas on May 4, 2007, the damage was so extensive that many residents wondered if the community would ever rebuild. 95% of the structures in the town of 1600 residents were destroyed, and the few remaining structures were considerably damaged. In the weeks and months that followed, residents held meetings beneath FEMA tents to discuss the recovery effort. Though various and sometimes conflicting visions were debated, the community gradually resolved to rebuild a sustainable town, constructing energy efficient buildings and utilizing 100% renewable energy.³

The business community played a vital role in embracing sustainability, and even found opportunities to capitalize on sustainable redevelopment as a way to strengthen the local economy. The Bucklin Tractor and Implement (BTI), the local John Deere supplier, not only constructed a new LEED-platinum dealership powered by a wind turbine, but eventually opened a new company—BTI Wind Energy—which supplies small turbines for farms and small businesses.⁴

In addition to an exploration of the role played by private landowners in hazardous land management, this chapter also gives a broad overview of how hazards can impact individual businesses, as well as a brief introduction to some of the steps that business and industry can take to protect their inventory, income stream, employees, and other assets to become more resilient. This is important not only for the individual businesses that choose to take the mitigation and preparedness steps necessary to protect their livelihoods, but also for the local economy as a whole. A healthy, viable economy is highly dependent upon healthy, viable businesses that are resilient to the impacts of hazards and that work to lessen, rather than contribute to, a community’s overall level of vulnerability.

SELF-CHECK

• Describe the foundations of a resilient economy.

• Explain why a resilient economy is integral to community resilience.

• Discuss how a local economy could become more sustainable after recovering from a disaster.

Private land owners have rights and privileges with regard to their property, such as the right to cut the timber; divert the surface water; graze livestock; mine ore, coal and mineral deposits; and otherwise extract the land’s natural resources. The rights and privileges of property ownership also include the right to develop and build upon the land as well as to sell it and profit from the sale. These rights of ownership are not absolute. Owners of private property also have duties and responsibilities. Owners must conform to all applicable public laws, regulations, and ordinances, even when such regulations interfere with the landowner’s wishes as to the use of the property. Nevertheless, within the boundaries established by federal, state, and local laws, there is wide latitude for putting one’s property to uses that meet investment-backed expectation. Sometimes, however, these uses are not in the best interests of the community at large.

It is often quipped that the three most important factors of determining the value of real estate are “location, location, location.” This is equally true for determining a property’s vulnerability to many kinds of natural hazards. The experience of past hazard events in this country has made it clear that patterns of land use are one of the primary determinants of a community’s level of vulnerability to natural hazards. When growth and development take place in the floodplain, along the coastline, in areas of seismic risk, near the urban–wildland interface, and other hazardous areas, there is a greater likelihood that property will be damaged and that death and injury may occur as the result of a flood, hurricane, wildfire or earthquake. When we consider this probability, it is important to realize that the majority of land in the United States is held by private landholders and investors. This includes land owned by individual homeowners, small businesses, and large corporations. In addition to the raw and developed land in private ownership, nearly 85% of the nation’s infrastructure is also controlled by the private sector.⁵

One of the most important rights of land ownership is the right to put the land to economically beneficial use, which often includes development. While many owners use their property to locate a business, build their primary residence, or construct a vacation home for their own families, a great deal of real estate is purchased, held, built upon, leased, and sold as a money-making venture. This is particularly true in the coastal zone, which is an especially hazardous area, subject to high rates of erosion, hurricanes and storms, inlet migration, and other coastal hazards. As such, we will use the coastal zone as an example during the following discussion about the ways that many property investment decisions are made. However, the same considerations apply in the development decisions of other types of hazardous lands as well, such as floodplains, wildfire areas, and seismic risk zones.

To understand how coastal lands are developed, and the degree to which natural hazards may or may not be considered during the development process, we must understand the interests of developers and investors. Generally speaking, the private sector operates with regard to expected profits. Development occurs where and when the investor will likely receive an acceptable return on the investment. Some development projects are relatively small in scale—a single building, for instance—while other developments involve hundreds of units complete with supporting facilities and infrastructure. Whatever the scale of the particular project, commercial developers analyze markets and trends and build where they expect there is sufficient demand for their product with a minimum of risk.

There are a few common factors that investors take into consideration before making a major investment decision^*:

• Demand: In economics, demand is the desire for a commodity together with the ability to pay for it. Scarcity increases the desire for a particular product, such as beachfront property in highly developed coastal areas. When demand is high, the private sector will try to meet that demand.

• Risk: As a general rule, investors are risk averse. The degree of risk that is acceptable depends upon the likelihood and magnitude of the potential profit. Developers consider many aspects of the region, community, and site, as well as the general market and economy, when deciding what and where to build. Natural hazards are sometimes, but not always, one of the factors considered along with other characteristics of a site when deciding upon the feasibility of a particular project.

• Regulation: The regulatory requirements that apply in a particular location play a major role in investment decision making. Some of the land use regulations imposed by state and local governments dictate the height, square footage, setback distances, and occupational capacity of buildings constructed in the coastal zone. Zoning and subdivision ordinances, building codes, fire regulations, environmental protection laws, and other types of regulatory mandates can increase the cost of construction many times over. These constraints are factored into the profitability of an investment project.

• Infrastructure: The availability of infrastructure also plays a major role in development decisions, including where to build and at what density. Development cannot take place without adequate water, sewer, roads, and public services to support it. All but the very largest development companies are dependent to some degree upon public infrastructure in order to build. Much infrastructure is provided by local governments, often subsidized by state and federal funds. The extension of infrastructure into hazardous areas can encourage inappropriate development. Likewise, the refusal to extend municipal services and infrastructure to hazardous lands may help prevent or delay intense development.

• Time value of money: Investors also consider the time value of money when deciding on the viability of a proposed project. Returns on investment that can be realized quickly maximize the profitability of a development project. If a structure is in imminent danger of damage or collapse from storms, rapid erosion, or other coastal hazards before rents or sales can recoup the cost of construction, developers may determine that potential gains are not worth the risk. Part of this calculation depends on what types of mitigation techniques are available to safeguard the property from the impacts of future hazards. The relative ease or difficulty in obtaining government permits to build can also influence investment decisions. Delays in the permitting process add substantially to development costs.

As these development decision factors indicate, investors always consider the level of risk involved in a proposed project or venture. In order to incorporate natural hazards into this calculation of risk, investors must first be aware of the hazards that could potentially impact their properties. Furthermore, the risk must be articulated in ways the investors can understand and appreciate—how will it affect the bottom line? A thorough hazards identification and risk assessment that includes the probability of various hazard events, their expected magnitude and intensity, as well as the severity of potential impacts should be carried out for all projects proposed in vulnerable locations. In the case of projects with heavy up-front capital expenditures (such as a multistory high-rise structure located directly on the beachfront), studies of hazard risk factors are essential.

Despite the obvious need for a complete understanding of risk, investors and developers do not always perform a thorough assessment of potential hazards. Some investors, especially those from out of state who are not familiar with the geography and climate of the local environment, may be unaware of the degree of risk posed by natural hazards. Other investors may rely too heavily on state and local government hazard assessments, which may not be at scale that is directly relevant to the building site in question. Developers may also rely on the agency in charge of issuing building permits to gauge whether a site is safe for property investment. If a permit is issued, the reasoning goes, the area must be free of hazards. Unfortunately, this assumption is not always correct. There remains a high degree of personal and corporate responsibility for thoroughly investigating all of the risks associated with the use of private property.

RESPONDING TO COASTAL CHANGE: GOING WITH THE FLOW

The fundamental problem with living (and investing) in the coastal zone, is that all of our static, immobile construction (buildings, roads, bridges, and utility supply lines) is placed in a dynamic zone. The shoreline, inlets, dune fields, overwash terraces, marshes, and maritime forests shift landward as well as laterally in response to ongoing changes in the coastal environment. Changes in the levels of the sea and the land, changes in storm frequency and wave regime, change in the patterns of currents, change in the offshore topography, change in sand supply, changes in growth, and changes we are only just beginning to realize (e.g., climate change and changes in water quality due to pollution)—change is the rule, especially for barrier islands. Awareness of these dynamic factors is essential to living within this ever-changing environment.⁷ The price for not paying attention to the natural processes along the coast is property damage, costly rebuilding, loss of investment, and risk to human life.

The understanding of hazard risk must be further translated into terms of tradeoffs—how should capital resources be allocated to protect the investment? The more hazards can be linked to the financial viability of a project, the more weight they will be given in the developer’s decision process. In some cases, site-specific risks can be mitigated if adequate funds are expended.⁶ For example, structures located along the oceanfront can be elevated above the expected flood height to reduce the risk of flooding and damage from storm surge. However, modifying a structure of a site to correct hazardous conditions often adds considerably to the engineering and construction costs of the project. A developer will avoid costs considered unnecessary in order to increase the financial attractiveness of a project. In egregious cases, shortcuts to cut costs can lead to unsafe buildings that are unable to withstand the impacts of known hazards.

Although private property owners have many choices and opportunities to realize profit and make financial gains from investment property in the coastal zone and other hazardous locations, the private sector is not granted free reign to exercise its property rights. While developers may avoid unnecessary costs when making financial projections for a development project, regulations and policies set by all levels of government can partially determine the relative weight that hazard exposure plays in those development decisions. For example, many coastal states have setback regulations that determine how far back from the shoreline a structure must be built. Larger structures are usually required to be built further back from the oceanfront than smaller, one-family units. A developer/investor must have enough space on the lot to build the size structure that will realize a profit. Some states also prohibit shoreline hardening structures like groins and bulkheads that damage fragile coastal ecosystems and transfer erosion risks to other locations along the shore. Building codes and construction regulations also play into the determination of profitability. Stringent building standards typically increase the cost of construction, but provide added security to the building against hazard impacts.

These types of tradeoffs can result in wiser investment decisions where a developer may still realize a profit, but projects that are unsustainable or considered inappropriate will not receive the regulatory green light. While the imposition of regulatory requirements does not supersede the requirement of personal responsibility in land use decision making, actions by the public sector can help prevent some of the more foolish (or dangerous) property investment choices.

Local communities benefit immensely from the value that is added to the tax base when private property is put to its best use. At the same time, it is in the best interest of both the public and the private sectors that coastal lands, as well as other lands of intense natural beauty, environmental significance, and culture and societal value, are used in a way that is sustainable over the long term.

SELF-CHECK

• Describe five factors considered during development investment decisions.

• List six public sector actions that can influence private sector building and investment decisions.

• Explain how hazard awareness can help make sound investment decisions.

So far in this chapter we have been discussing the private sector in terms of land ownership and investment in privately held real estate. But the vulnerability of a community depends upon more than the decisions that landowners make regarding use of their property. We know when a disaster strikes that individual families are affected, property is damaged, roads are blocked, power outages occur, and local government services such as drinking water and sewer treatment are disrupted. But one of the longest-lasting and most pervasive effects of a hazard event often involves the local economy. The roots of a community’s economic troubles can be traced to the way hazards impact local businesses.

Staggering economic losses can be suffered following natural hazards of all types. Consider the following financial losses to businesses due to some of the nation’s largest hurricanes over the last few decades. For example, Hurricane Andrew, which devastated much of southern Florida in 1993, seriously affected 8000 businesses and more than 100,000 jobs in Dade County alone. The area’s $500 million-per-year tourist industry was disrupted for several years; agriculture experienced $1 billion in damages with permanent income loss of $250 million; and storm-affected areas suffered daily lost outputs of $22 million.¹ Flooding from Hurricane Dennis and Floyd in eastern North Carolina in 1999 affected about 60,000 businesses, resulting in more than $955 million in business losses. The average repair cost for physical damage was about $40,000 per business, with an average revenue loss of nearly $80,000.⁸ As a result of Hurricane Katrina in 2005, the majority of businesses in the affected Gulf Coast region have suffered significant decline in net income while others have simply ceased to exist. Property damage, destroyed assets, lost revenues, and other financial losses are estimated in the billions of dollars. The economic repercussions of Hurricanes Katrina, Wilma, and Rita were felt in the Gulf region and throughout the country for years. Hurricane Sandy caused more than $250,000 in damages to more than 19,000 small businesses in New Jersey alone, and approximately $950 million in losses to travel and tourism that reduced employment by over 11,000 workers.⁹ Economic impacts of disasters can often persist long after buildings and infrastructure are repaired, and some industries never fully recover to their pre-disaster productivity. These figures demonstrate business losses due to hurricanes. Many other types of hazards have also caused economic devastation, including wildfire, tornadoes, riverine flooding, and earthquakes.

Ironically, in some cases a major disaster can actually boost a local economy, at least in the short term. As disaster assistance funding and insurance payments pour into the community for reconstruction and recovery, a building boom often results. Construction jobs, and the services needed to support the construction activity, can often bring in more income to a community than previously existed. New York state government estimated that construction costs to repair and replace buildings and infrastructure damaged by Hurricane Sandy would amount to approximately $42 billion. This influx in new spending was expected to generate 352,000 new jobs, including about 299,000 jobs in the relatively high-wage construction industry.⁹ However, many of these jobs are temporary and are often filled by workers from outside the affected area. Some communities prioritize licensing for contractors from the local area to help inject additional money into the local economy.

LOCAL HIRING IN MISSISSIPPI TO SPUR ECONOMIC RECOVERY

In the aftermath of Hurricane Katrina and the BP Oil Spill, community leaders in coastal Mississippi were concerned that federal recovery funds were not being used to hire local residents. In response, the Mississippi Jobs First bill was signed into law in 2012, which prioritizes hiring local residents for recovery jobs in Mississippi.¹⁰ Minor Sinclair of Oxfam America explained that the bill is an “innovative approach that looks beyond the damaged buildings in a disaster to focus on the heart of the problem…we can replace the things that we lose but we need to revitalize a whole economy and the life of a community. This bill puts people back to work, which is vital to putting life back into the area.”¹¹ Under the new law, contractors for public works projects that receive federal disaster funds are required to describe the types of jobs available, skills required and wages paid, and how the contractor will attempt to recruit disadvantaged, low-wage and unemployed applicants. The Mississippi Department of Employment Security can then use the information provided by the contractor to identify and train local workers to meet these needs.

Businesses associated with preparedness and recovery activities, such as building materials suppliers, roofers, and appliance and furniture store, are also likely to have increased levels of business in the recovery period following a disaster. Some of these industries may experience a significant rise in profits. Large building supply outlets, such as The Home Depot, routinely warehouse plywood, generators, and other materials needed for disaster response and recovery. They can send supplies quickly to a targeted region, extend store hours, and otherwise respond to the increased demand, often experiencing record sales in both retail and wholesale markets.¹²

Similarly, FedEx has developed a reputation for using their tremendous transportation and logistics network to aid in disaster preparedness and response. Each year, FedEx sets aside space for more than four million pounds of disaster-related charitable shipping and has formed innovative partnerships with FEMA, the American Red Cross, Salvation Army, and other public and nonprofit organizations.^* However, in recent years FedEx and other private sector companies large and small are beginning to understand that the vitality of their business depends on the resilience of communities. Businesses are therefore making greater efforts to invest in preparedness, community resilience, and long-term recovery to ensure that communities are able to get back on their feet quickly following a disaster.

As the physical reconstruction phase winds down, economic activity can flatten out to a more normal pace, and the structure of the local economy begins to regain its pre-disaster balance. It is at this juncture that local communities and the businesses that operate in them have an opportunity to rebuild an economic structure that is less vulnerable to future disruptions from natural disasters.¹ Much of this work involves strengthening the businesses that make up the community’s economic sector.

Communities depend upon their business and industries for their very existence. The local business sector provides jobs and tax revenue, and stimulates commerce, trade, and other economic activity. Aside from the temporary boost that occurs from selected business operations during the recovery phase of a disaster, the ripple effect of a disaster can permeate all other sectors of community life. Destroyed businesses have multiplier effects on community difficulties, as residents lose jobs, property values decline, and tax receipts diminish.¹² When a business protects itself from natural disasters, it also is protecting one of its community’s most valuable assets.

Of all employers in the United States, 99.7% are small businesses.^† All businesses and industries are subject to hazards, but small ones (generally defined as those employing less than 50 people) are especially susceptible, with some 30% not surviving when stricken by a natural disaster.¹² The percentage of small business failures can be even higher in some disasters. For instance, it is estimated that about 50% of the smaller or newer businesses in North Carolina did not recover following Hurricane Floyd, a storm that caused massive flooding throughout the eastern third of the state. Of the larger, more well established businesses in the state, approximately four out of six recovered. In general, many small local businesses are lost after a major event.

In addition to direct impacts that can damage property and destroy company assets and inventories, small businesses typically suffer a host of burdens associated with their relative size and place in the local economy when a disaster strikes. For example, small businesses typically rely on a local customer base,^* much of which can be eroded when residents and surrounding businesses can no longer patronize the company. Small businesses also suffer disproportionately from a shortage of employees when community residents are displaced, in addition to experiencing cash flow problems, lack of capital, and a loss of suppliers.

Many small companies fail primarily because of a lack of knowledge and resources to develop property and business protection plans. Many small business owners do not fully understand how the local economy is structured nor do they comprehend the ways in which the economy may change because of a hazard event. Small companies may exhaust personal and business sources of capital in an attempt to revive and may fail to adjust their business plans to meet the changing post-disaster economy.² All these factors point to the need for businesses to prepare a business protection plan well in advance of a hazard event.

SELF-CHECK

• List several economic impacts of disasters on businesses.

• Describe how some communities experience a temporary economic boost following a disaster.

• Explain why small businesses take a harder hit from disasters than large corporations.

Businesses that are aware of the hazards that face them and take action before a disaster strikes can often prevent many of the losses and damages associated with natural and human-made hazards. There are many different approaches to business protection planning, but all preventative measures begin with an assessment of risk and an analysis of the potential impacts of hazards on business viability.

Various terms are used to describe the types of planning activities that many companies carry out in order to protect business. Contingency Planning, for example, is the process of developing advanced arrangements and procedures that enable an organization to respond to a disaster so that critical business functions resume within a defined time frame, the amount of loss is minimized, and the stricken facilities are repaired or replaced as soon as possible. Business Continuity Planning is another commonly used term to describe this process, as is Continuity of Operations Planning. These plans are usually directed toward maintaining the business’s viability when one or more functions are impaired or disrupted. Many of these plans focus on data and digital records protection, retrieval, and restoration.

Some businesses have very specific plans for dealing with situations particular to that industry or activity, such as a Spill Prevention Control and Countermeasures (SPCC) plan, or similar procedures for handling hazardous waste or dangerous substances. Many businesses maintain a Safety and Health Plan designed for workplace safety and employee health. Many of these planning activities are undertaken in response to regulations issued by state and federal agencies, including the OSHA and the EPA.

Fewer businesses, however, have a comprehensive emergency plan that covers all the types of hazard, including natural hazards and human-made hazards, and that covers all the components of the business, including physical assets as well as operations. Many of the various stand-alone plans that businesses may have in place can be consolidated into a comprehensive emergency management program or process, but it is essential that mitigation and preparedness be a part of that system. If a business already has an emergency plan, mitigation for natural and human-made hazards can often be incorporated into the existing plan.

A comprehensive disaster preparedness and mitigation plan for a business involves three main elements:

1. Property protection: safeguarding physical facilities and their contents (e.g., equipment, inventories, raw materials, digital files) from known hazards.

2. Contingency planning: anticipating all the emergencies that could occur and creating plans accordingly to minimize disruptions.

3. Insurance: determining adequate coverage and purchasing the right kinds of insurance to help defray immediate and long-term costs if a disaster does occur.

To become more disaster resilient, a business must first identify and understand what hazards it faces and what is at risk from those hazards. A business risk assessment helps answer these questions.

Thousands of communities throughout the nation experience social and economic disruption from natural and human-made hazards every year. Every year thousands of businesses also experience emergencies internal to their operations, such as a frozen pipe that bursts over a long holiday weekend and floods the facility. Hazardous materials and dangerous chemicals can be unintentionally released, causing plant closures and downtime while containment and decontamination measures are carried out. For example, in 2013, an explosion in a fertilizer plant in West, Texas killed 15 people and wounded another 226, in a tragic and preventable event in a county that did not have an emergency response plan or a fire code. These scenarios clearly demonstrate the vulnerability of businesses located in every region to all sorts of hazards. For these reasons, a business mitigation and preparedness program begins with a thorough risk assessment that factors in the types of hazards that might occur, the vulnerability of the business to those hazards, and the losses that might result if the hazard event does happen.

Central to preparing a business for the potential consequences of natural and technological hazards is an understanding of risk. Chapter 10 covers the steps involved in a risk assessment in greater detail, but the process is outlined here as it pertains to businesses. There are three basic levels of hazard assessment that businesses should carry out for a complete understanding of their risks:

1. Hazard identification defines the magnitudes (intensities) and associated probabilities (likelihood) of hazards that may pose threats to the business and community.

2. Vulnerability assessment characterizes the exposed populations and property, and the extent of injury and damage that may result from a hazard event of a given intensity in a given area.

3. Business impact analysis considers issues associated with an entire range of hazard intensities and probabilities, from the fairly common, low-intensity event (e.g., minor flooding from groundwater seepage) to the relatively rare, catastrophic event (e.g., a magnitude 6.8 earthquake). Risk analysis captures the full range of potential casualty and damage experiences, and provides the basis for a business impact analysis and strategy to minimize losses.¹³

The first step in a business risk assessment is to identify and list the full range of potential hazards that can impact the company. For business planning purposes, a hazard is any unplanned event that can cause death or significant injuries to employees, customers, or the public; or that can shut down a business, disrupt operations, cause physical or environmental damage; or can threaten the company’s financial standing or public image.¹⁴ These include emergencies that can occur within a facility, emergencies that can occur in the community, and emergencies that occur with a business supply chain. Hazards include the full range of natural hazards that face the community where the business is located, including earthquakes, hurricanes, drought, and other natural events. In addition to the natural hazards that can potentially affect a business are numerous types of technological events, including nuclear facility accidents, terrorism, hazardous material incidents, and cyber-risks. Each of these types of events must be addressed within the context of the impact it has on the company and the community. What might constitute a nuisance to a large industrial facility could be a disaster to a small business.¹⁴

There are numerous ways a business can gather information about the hazards that are present in the community and that may affect its facility. Some factors to consider are as follows:

• Historical: What types of emergencies have occurred in the community, at this facility, and at other facilities in the area?

• Geographic: What can happen as a result of the facility’s location? Factors to consider include proximity to floodplains, coastal areas, seismic faults, forested areas, dams, and so forth. Proximity to potential human-made hazards, such as facilities that produce, store, use, or transport hazardous materials, or proximity to major transportation routes and airports is also pertinent.

• Technological: What could result from a process or system failure? Possibilities include fire, explosion, hazardous materials incidents, safety system failures, telecommunications failures, power failures, or heating/cooling system failures.

• Human error: What emergencies can be caused by employee error? Are employees trained to work safely? Do they know what to do in an emergency? Human error is the single largest cause of workplace emergencies and can result from poor training, poor maintenance, carelessness, or fatigue.

There is a wide variety of sources businesses can rely on for information about hazards, including local and state emergency offices; federal, state, and local regulatory agencies; local planning, zoning, building, and public works departments; fire, police, emergency medical services; electric and telecommunications utilities; local emergency planning committees; the American Red Cross; National Weather Service; and neighboring businesses. If the community where the business is located has a current local hazard mitigation plan in place, the company can also refer to that plan during its hazard identification, as well as to the state hazard mitigation plan.

Armed with information about the natural and technological hazards that could conceivably impact the business, a company is in a position to assess its vulnerability to these hazards. During the vulnerability assessment, a business determines the probability and potential impact of each hazard. In other words, a prediction is made about what will happen to the business if any of the hazards identified were to actually occur. The location of the business relative to the probability of natural hazard events is one of the primary determinants of vulnerability (e.g., businesses located on the coast are more vulnerable to hurricanes and storm surge). Business vulnerability is also a function of the community’s overall vulnerability, including the infrastructure and local services that the business depends upon for daily operations.

Vulnerability may change as the business grows (or shrinks), new buildings are constructed, more inventory and customers are acquired, and greater value is accumulated. For this reason, it is important to assess future vulnerability to hazards based on likely trends and changes, as well as present vulnerability based on current conditions.

A business can gauge its vulnerability using a ranking system such as low, moderate, or high for each hazard based on frequency, as determined by historical records and expected future trends, the relative strength of typical hazard events, and the direct and indirect impacts that can be expected from each type of hazard.

• Direct impacts include physical damage to structures, such as buildings and other facilities. Direct impacts also include losses to inventories, equipment, and other physical assets.

• Indirect impacts result from the closure of roads or obstruction of transportation networks; loss of utilities, such as water, sewage, and electric power; and disruption of telecommunications.

Once a business has a general idea of its vulnerability to certain identified hazards based on location, probabilities, and intensities, the analysis must turn toward the specific impacts these hazards will have on that particular business. This is done by conducting a business impact analysis, which involves calculating the types of damages and losses that can be expected during any one of the identified hazard events and relating them to the characteristics of the business itself. This in turn will determine the types of actions that must be taken to reduce vulnerability.

The conditions that make a business operate smoothly and profitably vary from company to company. For example, the protection of inventory and business records may be most critical to a retailer or a business in the service sector (e.g., finance, insurance, real estate, restaurant, hotel). A small manufacturing plant may have equipment or machinery that is essential for the success of the business. For farmers, it may be the protection of crops that have been harvested and stored, livestock and poultry, or critical farm equipment. The purpose of a business impact analysis is to identify the parts of the business that need to be up and running as soon as possible in the aftermath of a disaster as well as those that the business must keep intact to remain viable.

• Services or products provided: Whether the product or service can be deferred is an important consideration in assessing the financial impact of a disaster on a business. For example, if a burger stand cannot sell hamburgers for one week because the kitchen is closed for repairs due to damage from an earthquake, the owner cannot make up for the lost income from the missed sales. The same applies to a bed and breakfast, where every day without a patron represents lost revenue. However, in the case of a store that sells appliances, the customer can defer his purchase if the store is closed, which does not necessarily result in lost income for the business (assuming the inventory has been adequately safeguarded).

• Site dependence: Whether a business is at a fixed site or whether business functions can be temporarily moved to a safer location has an important bearing on preparedness and risk reduction strategies. If the business is unable to relocate in the event of an emergency, it is more important to consider mitigation actions to protect or strengthen the building and its contents. A manufacturing plant or a restaurant, for example, cannot easily transfer operations to another locale, while an investment firm or travel agency may be more flexible and can temporarily work out of alternative office space.

• Dependence on information technology: In the case of customer service and similar industries, business continuity is very dependent on the functionality of information technology and the protection of critical data and files. These businesses will focus on securing continual access to their vital records in order to minimize disruption from hazards.¹³

Operational problems due to disasters are not always connected to property damage or impacts on the business itself. External impacts include disruptions to the flow of supplies and in the ability to ship goods or deliver services to customers and clients.¹⁵ Therefore, the business impact assessment will also consider losses that can occur upstream from the business as well as those downstream. This is particularly true during the aftermath of large-scale disasters that have a regional impact involving multiple communities.

Even if a business escapes a disaster unharmed and its employees are not directly impacted, there is still a risk that the business will suffer significant losses. When some local businesses fail, there is a chain reaction because of the negative impact on the local economy and the interrelationships among various members of the economic sector. These can be broken down into two types of losses: upstream and downstream. Upstream losses are those the business will suffer when one or more of its suppliers are affected by the disaster and cannot deliver the goods or services the business needs. Many businesses depend on regular, sometimes daily deliveries, such as produce to a restaurant or machine parts to a manufacturer. If the supplier’s operation is damaged by the disaster and it cannot keep up its pre-disaster schedule, this upstream loss will affect other companies, even those that are undamaged. Downstream losses occur when a key customer and/or the lives of residents in the community are affected by the disaster. For example, if residents in the area are cleaning up debris and repairing their homes after a major flood, a local theater may experience a dramatic loss of customers and will not be in a position to accept deliveries from upstream suppliers.¹⁵

The resilience of the regional transportation system is also an important factor when projecting potential up- and downstream losses. If goods are shipped to and from a business by surface transport or by air, damage to local or regional road systems, rail lines, and airports can severely impact a business’ ability to obtain needed supplies or to deliver its product to market. For example, if an assembly plant relies on the delivery of parts by truck, but the highway between the supplier and the manufacturer is damaged by flood or earthquake, the plant and the supplier will both suffer losses.

SELF-CHECK

• What is a business protection plan?

• What are four factors to consider when gathering hazard information for a business?

• What are the elements of a business risk assessment?

Upon completion of a thorough hazard risk assessment and business impact analysis, a business will be able to create a mitigation and preparedness plan to bolster resiliency. The plan will list mitigation strategies and actions that the business intends to carry out and incorporate into the company’s larger business plan. There are three major components to an effective business protection plan: property protection, business continuity, and insurance.

A business strategy to protect company property from hazard losses covers the building(s) and other structures, the building interior, as well as exterior components and surroundings. The building’s physical conditions and how well it can survive a natural or technological hazard can determine whether the company is able to keep the business open following an incident (see Figure 9.1).¹⁵ Though building owners typically have more control over their property than renters, business tenants have many of the same concerns, as the issues remain the same whether the occupants own the building or rent space in it.

Examples of physical retrofitting measures that businesses may consider include the following:

• Upgrading facilities to withstand the shaking of an earthquake or high winds

Businesses located in special flood hazard areas may wish to consider floodproofing, a term that covers a variety of techniques that provide some protection to certain types of buildings. The NFIP has different requirements related to floodproofing for residential and commercial space. Although the NFIP does not allow new residential buildings to be dry floodproofed, nonresidential buildings, such as commercial space or manufacturing facilities, can be dry floodproofed. Residential buildings, on the other hand, are allowed to be wet floodproofed in areas used for parking and storage.

• Dry floodproofing involves strengthening walls to withstand hydrostatic and dynamic forces, including debris impacts. Openings, including doors, windows, and vents, are sealed or filled with special closures to block entry of floodwater. In some instances, walls can be coated with waterproofing compounds or plastic sheeting.

• Wet floodproofing intentionally allows floodwater to enter certain enclosed areas to reduce the damaging pressures that can collapse walls and foundations. Flooring and wall materials must be resistant to flood damage, and the contents of floodable areas should be removed when flood warnings are issued. The NFIP regulations allow wet floodproofing measures, called “enclosures below base flood,”¹⁶ only under very limited circumstances in new buildings. However, such measures can be used to reduce damage to existing buildings.

There are also nonstructural mitigation measures for protecting business property from hazards, such as the following:

• Move valuable, including equipment, from lower floors to upper floors above flood level

• Elevate or relocate the main breaker, fuse box, HVAC (heating, ventilating, and cooling), etc. above anticipated flood levels

• Secure light fixtures and other items that could fall or shake loose in an earthquake

These and similar strategies can help reduce the likelihood that a business will fail because of physical damage to the structure during an anticipated hazard event. Many property protection measures can serve double duty, enhancing safety for one or more hazards. Securing roof shingles, for example, helps protect a building from high winds due to hurricanes, as well as from tornadoes and thunderstorms.

Even the best-designed and well-maintained buildings can be damaged, forcing a business closure. Even if a building sustains no damage, a major hurricane, earthquake, flood, or other catastrophic event can close roads, cause power outages, or create other problems that force a business to shut down. This is why every business needs a continuity plan to get up and running as quickly as possible in case disaster strikes.¹⁵ Based on the business impact assessment performed earlier, each company will need to create a plan that specifically speaks to its particular risk and minimizes downtime.

The ability of many businesses to resume operations following a disaster relies on the ability of suppliers to deliver what the business needs and to make the delivery on time. To ensure that critical suppliers of services and materials will be available when needed and to encourage the continuity of the supply chain, there are several things a business can do, such as the following:

• Diversify the pool of principal suppliers, making sure they are not all located in the same geographical areas

• Request or require that all critical suppliers have a business continuity plan of their own

• Encourage a mutual aid agreement between the main supplier and similar companies

• Maintain a list of backup vendors that can provide the business with materials, supplies, and services in case the primary ones are disabled

These and other measures can keep the business going, even when a widespread hazard cripples much of the community. By planning in advance, a business won’t be left scrambling in the aftermath of a disaster in an attempt to resume operations with contacts that are unfamiliar.

Certain records are essential to perform critical business functions. Without access to data and information, business operations can come to a standstill. Some business records are required for legal or contractual reasons, others are required by regulatory or oversight agencies. Certain vital records may also be necessary to support recovery efforts following a disaster and to make insurance claims. A company’s vital records might include the following:

Any number of hazards can cause data to become lost, corrupted, or damaged, and a crucial element of a business contingency plan must include provisions to protect data and vital records. The majority of businesses today are dependent on computers and computer networking systems. Online security is a critical consideration for these businesses, and maintaining connections during power failures and other disruptions caused by natural hazards must be addressed in the pre-disaster phase.

The most important records should be backed up on one of more forms of media (printed copies, electronic, removable storage devices, cloud-based servers, etc.). Some companies and universities contract for a “hot site” or “mirror site” at a host institution or facility in a different state where important backup information is stored. Contracting with a mobile information technology service is another option, but this assumes the downed business will have transportation access as well as a source of power. Procedures for protecting and accessing vital records may include the following:

The services of a data center and disaster recovery facilities can be helpful in securing vital records, as data is backed up on a regular basis and can be made available if normal business operations are interrupted.

In areas of the country that experience repetitive floods and other disasters on a fairly regular basis, it is important to identify alternate sites for business relocation following a disaster. Moving to a safer location can save money, prevent lost revenues, and break the cycle of destruction and rebuilding that occurs when businesses are located in hazardous areas. The three main elements of a business relocation plan include (1) land use planning and site selection; (2) building standards and design; and (3) temporary business location.¹³

In the long term, the most direct and cost-effective strategy to minimize or prevent damages and losses from natural hazards is to guide development away from hazard-prone areas when other development locations are available. Local governments, working with private businesses and organizations such as the local chamber of commerce can use a combination of planning and regulatory tools, ordinances, and interagency cooperative agreements to reduce the number of people and value of property at risk from hazards. This involves planning for the construction of new businesses that might enter the community in the future, as well as selecting sites where current businesses may move before or after a hazard has caused severe damage.

In selecting a location for new businesses or business relocations, there are several factors to consider, including (1) access to customers, (2) access to suppliers, (3) access to employees, (4) cost to lease or purchase office/retail/manufacturing space, (5) access to key services—electrical, water, telecommunications, and (6) the vulnerability of the property and building to natural and technological hazards, including flooding, landslides, earthquakes, fires, hazardous materials spills, etc.¹³

When business owners are displaced from their buildings as the result of a disaster, income is disrupted and the solvency of the business becomes a critical issue. An important section of a business relocation plan is the identification of viable alternative business locations that can accommodate—at least temporarily—the displaced business. Before a disaster strikes, businesses should select an alternative site from which to operate during recovery. Some businesses have established mutual aid agreements with similar businesses, or made pre-arrangements to rent available space at another location if base operations are unusable or inaccessible. Some businesses may have other facilities or branch offices that can be used to resume operations.

Considerations to be made during the business recovery location plan include the following:

• Factor in the ability of vendors/suppliers or rental companies to quickly transport critical items such as computers, inventory, and equipment to the recovery location

• Pre-arrange for an industrial cleanup or emergency repair service and/or a security service to protect damaged facilities

• Review the lease of the primary location space to determine who is responsible for what in case of damage from a natural disaster

• Explore rental options to replace damaged equipment, machinery, vehicles, and other assets during the time they are being repaired or replaced

The traditional approach to business protection focuses on planning for continuity of operations, strengthening buildings and facilities against hazard impacts, and carrying out nonstructural mitigation measures. Unfortunately, businesses often have overlooked the impacts of disasters on their employees, yet employees are the company’s most important asset. “A business can be as secure as Fort Knox, but if employees cannot make it to work, the bottom line will be affected.”¹² Businesses should always consider ways to help employees prepare themselves and their families for emergencies. This will increase their personal safety and help the facility get back up and running quickly and effectively. Those who are prepared at home will be better able to carry out their responsibilities at work.¹⁴

There are many tactics for making employees safer on the job as well as enhancing their ability to withstand a disaster in their own homes so they can return to work as soon as the facility is open for business. Types of activities in an employee assistance plan may include the following:

• Pre-arrange alternate forms of transportation for employees, such as a carpool or pick-up service, including four-wheel drive if necessary

Another important consideration involves employee compensation. Payroll continuity following a disaster is key to maintaining the loyalty of employees and supporting community members who may be struggling to get back on their feet. Examples of company-wide policies that can help employees handle disaster-related problems at home and meet their personal financial obligations include direct deposit of paychecks for all employees, cash advances, overtime pay during disaster, and payment of one week’s salary (or other amount) even if the business is not operational. Many companies choose to set up an EAP, which is typically a third-party organization which contracts with a business to provide a variety of support programs for employees. For example, some EAPs collect donations from employees or fundraisers that can then be used to support employees in times of need.

Businesses should also make it a priority to ensure the safety of all employees during a hazard event at company facilities. Many companies establish policies to convene all employees at least once a year to review emergency plans, practice evacuation drills, and provide CPR, first aid, and other emergency training. It is also essential that employees have direct access to emergency phone numbers, such as fire department, police department, ambulance service, and the local emergency management agency. Installing weather radios to listen for tornado, hurricane, ice, thunderstorm, and other severe weather warnings issued by the media and the National Weather Service can alert employees to impending events. Onsite sheltering measures to protect employees, including space for their families, during a hazard event can also create a safer and more secure workplace.

TAKING CARE OF EMPLOYEES

One of the hardest hit communities during Hurricane Floyd was the town of Greenville, North Carolina, where the Grady-White Boat Company is located. When the company was cut off from the rest of the community after the Tar River crested at over 20 feet, the company president turned his full attention to his employees, many of whom lost their homes and vehicles during the storm. Acknowledging that production would not resume at full throttle until the needs of employees were addressed, priority was giving to a company-wide self-help initiative that focused on three objectives: providing transportation to employees, arranging for housing of the displaced, and addressing the immediate needs of workers (including short-term financial needs). As a result of the spontaneous company-driven relief effort, the Grady-White Boat Company was able to resume business operations quickly. Equally important, the disaster served as the impetus in a new effort to launch a county-wide business vulnerability assessment project.¹³

Most companies discover that they are not properly insured only after they have suffered a loss. Lack of appropriate insurance can be financially devastating. On the other hand, the proper amount and kind of insurance can allow a business to resume operations, make up for lost revenues, repair damaged property, replace equipment and materials, and otherwise recover from a disaster. There are three main types of insurance protection for businesses: (1) property insurance for all structures, equipment, and vehicles; (2) business interruption insurance to cover lost income during downtime; and (3) extra expense insurance, which compensates the business for additional expenses that are incurred due to a disaster. Despite the availability and wisdom of purchasing insurance to cover base assets and operations of a business, a surprising number of small businesses fail to take this basic step to protect their investment.

Of the small businesses that do carry insurance, many are not fully aware of the details of their insurance policies. Businesses should always include a discussion with insurance advisors as part of a thorough hazard mitigation and preparedness effort. For instance, most policies do not cover flood or earthquake damage; these hazards may require separate policies for coverage. The insurance should be tailored to the individual business and take into consideration not only property damage, but also the loss of revenue and extra expenses that occur when business is halted by a disaster.

Like many aspects of a viable business plan, the devil is in the details when it comes to insurance. Issues that should be addressed in the pre-disaster stage include a wide range of topics addressing property valuation and extent of coverage. Sample questions a business may wish to pose include the following:

• To what extent is the business covered for loss due to interruption of power?

• Is the business covered for lost income in the event of business interruption?

• How long is the coverage for lost income if the business is closed by order of a civil authority (e.g., a mandatory evacuation order)?

• To what extent is the business covered for reduced income if customers do not come back once the business reopens?

• Does the policy cover the cost of required upgrades to meet current building codes if a structure is in need of repair following a disaster?

• Will mitigation and preparedness measures result in a decrease in premium rates?¹⁵

These and other questions can help a business specify the type of coverage it chooses to carry, as well as other options that may be available through additional insurance products.

Typically, property insurance policies exclude coverage for flood or earthquake damage. These hazards are usually covered through additional policies to supplement the fire insurance that many businesses routinely carry. If a business is located in the flood zone of a community that participates in the NFIP, the company may be able to purchase a federally-backed flood insurance policy. Under NFIP rules, buildings located in the flood zone that are damaged in excess of 50% of the market value of the structure must be torn down. Some businesses purchase ordinance or law-compliance coverage to help pay for the extra costs of tearing down a structure and rebuilding it to meet code standards.

Business interruption insurance can help even when businesses sustain significant losses during a hazard event. Just a short duration without customers, suppliers, and other critical operations can create a huge gap in revenue and net income. Furthermore, businesses typically experience a lag in revenues even after reopening following a disaster. Customers may seek alternative sources to fill their needs and may not readily resume relations with previous service providers. Business interruption insurance can help fill some of these gaps until the company is up and running again.

Business interruption insurance compensates for income lost if the company must vacate the premises due to disaster-related damage. Business interruption insurance also covers the profits that would have been earned, based on financial records, had the disaster not occurred. The policy covers recurring operating expenses—such as utilities—even though business activities have come to a temporary halt. The price of the policy is generally related to the risk of a fire or other disaster damaging the premises.¹³

As income shrinks following a disaster, expenses—both previous ongoing business expenses and new expenses due to the disaster—will rise. Extra expense insurance reimburses a company for expenditures made over and above the normal operating expenses to avoid a shutdown during recovery and reconstruction following a qualifying disaster. Extra expense insurance is generally calculated by estimating projected revenues and expenses, calculating anticipated income, and then determining the potential losses from a temporary closure.¹⁵ Extra expense insurance will usually only be paid if the extra expenses help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.¹³

SELF-CHECK

• Describe upstream and downstream losses.

• List four business mitigation strategies to lessen the impact of natural hazards.

• Explain the purpose of property insurance, business interruption insurance, and extra expense insurance.

Business continuity planning, property protection, and insurance can help a company safeguard its assets against hazard impacts, but these measures alone cannot guarantee the post-disaster viability of the business. Any pre-disaster planning must be carried out within the context of the larger community, or a business will find it very difficult to survive a temporary closure. It is in the best interests of businesses to engage in mitigation practices that not only provide a direct benefit to an individual company by minimizing potential downtime, but that also make the community as a whole more resilient to hazards. By looking beyond its own plant, factory, retail, or office space and broadening its mitigation efforts, private sector business owners can also secure a work force that is able to return to their jobs; facilitate the reactivation of utilities, roadways, and government services; and help commerce resume quickly following a disaster.

Public-private partnerships are increasingly being developed to help address disaster preparedness and mitigation. A wide range of public–private partnership models are emerging around the country to channel business sector involvement into the adoption of local hazard mitigation and preparedness as well as climate change adaptation practices.¹³ These partnerships are likely to lead to more viable solutions than would be developed by any one group working independently.¹²

STRENGTHENING PREPAREDNESS THROUGH PUBLIC–PRIVATE PARTNERSHIPS

The City of Newport News, Virginia developed a public–private partnership in March 2012 to build relationships and improving coordination across multiple stakeholders to increase resiliency throughout the city. The City of Newport News houses several large companies, including Newport News Shipbuilding, Huntington Ingalls Industries, and Canon Virginia. To better connect these private sector partners to the emergency management structure, a Private Sector Liaison position was created within the Division of Emergency Management to involve private sector partners in trainings and exercises, improve communication and information sharing, and enhance situational awareness during disaster events. In addition to the Private Sector Liaison position, the staff at the Newport News Emergency Operations Center have opened the doors to key private sector partners during both day-to-day and incident operations to improve understanding throughout the community of public sector emergency plans, procedures, contacts, and resources.^*

* City of Newport News Public–Private Partnership Program. http://www.fema.gov/media-library-data/1395940722346-78d7907fd85d7e38ac604b00cf75ca69/Newport+News+Public+Private+Program+final+March+2014_508.pdf.

Mitigation partnerships bring together the leadership and expertise of business, state and local governments, utilities, research and academia, nonprofit groups, and other community organizations to develop integrated strategies to reduce exposure to hazards and make post-disaster recovery easier. Partnership activities can include awareness and education activities, integration of business and community vulnerability assessment programs for identifying community-wide hazards and risks, a team approach to disaster response and recovery, and sponsorship of community-based programs that address hazard mitigation and sustainability.

One of the most important actions the business sector can take to bolster community resiliency is to support the building code—a strong and well-enforced building code actually costs businesses less in the long run. Even though initial outlays for new construction may be higher to incorporate the latest disaster-resistant materials and construction techniques, these standards are generally designed to ensure safety at certain specific impact levels, such as wind speed or seismic ground shaking.

Sometimes being a good corporate citizen is not sufficient motivation for private businesses to become involved in hazard mitigation and preparedness initiatives at the community level. There are a variety of incentives that communities can use to encourage the private sector to become engaged. Some incentives are offered by the local government, such as lowered tax rates or tax discounts for property that is built or retrofitted to withstand hazard impacts (e.g., hurricane shutters to prevent wind damage, elevation to protect against flooding, seismic retrofit to strengthen a building against earthquake shaking). Other types of incentives can be offered by the building supply and home improvement industry, such as rebates or discounts on purchases of mitigation-related materials and supplies. In return, the retailer, wholesaler, or distributor receives increased sales, good public relations, and recognition in the community as a partner in mitigation efforts. The lending and insurance industries can also play a part in stimulating mitigation actions by home and business owners through premium discounts and lowered loan rates. In return, both the lender and the insurance provider benefit from the increased safety of the secured property.

When properly applied, incentives can be a powerful lever to engage individual businesses and homeowners in a community-based risk reduction initiative. Combinations of incentives can also be used to reward risk reduction efforts. Sample incentives are displayed in Table 9.1.^*

PROPERTY PROTECTION REBATES

The village of South Holland, Illinois, has a rebate program to help property owners fund retrofitting projects to protect against surface and subsurface flooding. If a project is approved, installed, and inspected, the village will reimburse the owner 25% of the cost up to $2500. As of 2010, more than 900 floodproofing and sewer backup protection projects have been completed under this program.¹⁸ Perhaps not surprisingly, contractors have become some of the best agents to publicize this program.¹⁹

The bulk of this chapter has addressed the link between the decisions private landowners and businesses make and the resulting vulnerability of communities, and emphasized the need to encourage private sector decision makers to mitigate and prepare for the impacts of hazards in order to protect the economic base of communities. However, it is increasingly clear that some private sector industries have a particularly central role and interest in encouraging mitigation and preparedness. The insurance industry exemplifies this unique role and serves as a fundamental risk manager, developing tools to understand risk and mechanisms to spread risk across society to lessen the individual impact of disasters. For example, the insurance industry played a leading role historically in transitioning cities to be significantly less vulnerable to extensive fires that wreaked havoc in many major urban areas a century ago. Today, many insurance companies—and the reinsurance companies that purchase insurance policies and further distribute risk—are taking an active role to partner with the public sector and nonprofit organizations to devise new ways to better communicate risk to individual landholders and municipalities, incentivize mitigation and preparedness, and ultimately reduce the vulnerability of insured properties.

As disaster losses continue to increase in the United States, insurers are faced with the challenge of providing affordable coverage to properties facing growing vulnerability—which is especially pronounced with climate change making the level of risk more uncertain. Additionally, regulators often limit the degree or pace at which insurers can raise rates. As a result, several prominent insurance companies are acknowledging that for many properties to remain insurable, investments in physical resilience are needed.

The President’s Climate Action Plan released by the Obama Administration in June 2013 recognized the role that the private insurance sector plays in promoting resilience. The Plan initiated a process for insurance representatives from leading national and international companies to work with the public sector to take steps to reduce their exposure to disaster impacts, including those worsened by climate change. A Roundtable held at the White House in June 2014 centered on innovative ways to “share data between the federal government and the insurance industry to better communicate and reduce risks to policyholders, communities, and taxpayers.”²⁰ While the outcomes of this specific endeavor have yet to be determined, it is clear that insurance companies have a unique interest and ability to work with other stakeholders in communities to reduce vulnerability to hazards and the impacts of climate change.

NEW YORK CITY DEVELOPS A “CATASTROPHE BOND” TO INSURE SUBWAY

Hurricane Sandy caused nearly $19 billion in damages to New York City, and brought much of the city’s transportation system to a halt. During the recovery process, the city soon realized that obtaining insurance for its subway system was prohibitively expensive, especially in the face of rising sea levels and the likelihood of more extreme flooding events in future years. The Metropolitan Transportation Authority (MTA) took an innovative step to work with a global catastrophe modeling company to develop a catastrophe bond.

The bond is triggered if the water level during a storm reaches 8.5 feet above the normal water level at a NOAA Water Level Station in New York’s Battery Park; when flooding is above this critical level, the MTA is able to use the proceeds from the bond sales to repair and rebuild facilities. Since the bond will not cover damages due to flooding below this level, the MTA has an incentive to enhance resilience to smaller storms that do not meet the bond threshold. Through this innovative financing mechanism, New York City is able to reduce its insurance premiums while simultaneously investing in mitigation of its subway system. Issued in July 2013, this was the first catastrophe bond ever issued to protect solely against storm surge (Figure 9.2).²¹

FIGURE 9.2 New York City’s 108-year-old subway system experienced unprecedented flooding during Hurricane Sandy in October 2012. This photo, taken on the first anniversary after Sandy, shows MTA Chairman Thomas Prendergast, along with Housing & Urban Development Secretary Shaun Donovan and Governor Andrew Cuomo, inspecting a removable subway flood control cover. (Photo credit by Metropolitan Transportation Authority/Patrick Cashin.)

Economic resilience is a vital part of creating a disaster-resilient community. This chapter has described the planning process a business can follow to become more resilient to disasters and identified a number of mitigation actions a business might take to reduce its vulnerability to natural hazards. This chapter provided a list of factors to consider during private land investment and development decision making, and described how these decisions relate to a community’s economic resiliency. This chapter also outlined several types of business protection plans and described the purpose and process of conducting a business impact analysis. It is important for a community and its businesses to work together to mitigate the impacts of hazards. The chapter explored this connection, as well as the processes by which a business can mitigate the impacts of hazards on its own facilities and operations, thereby improving the resilience of the whole community.

1. A resilient community needs a resilient economy in order to contribute to geo-global stability. True or False?

2. Land ownership in the United States means that an owner can do anything she wants on her land. True or False?

3. A diverse economy is advantageous for a community because it offers jobs to people of diverse ethnic backgrounds. True or False?

4. Community infrastructure planning can be used to steer development away from hazardous areas. True or False?

5. Investors are required to take natural hazards into consideration when deciding when and where to build. True or False?

6. Established businesses are usually not affected by natural hazards because they are insured. True or False?

7. Small businesses typically open sooner than larger stores or chains simply because they are smaller and easier to clean up. True or False?

11. Upstream losses refer to the damage that is caused by development in the river basin that results in increased flowage in the community. True or False?

13. Local mitigation plans may play an important part in mitigating the impact of natural hazards on business operations

14. Insurance should be tailored to the particular business and should take into consideration (indicate all applicable)

4. What is a factor following a disaster that may have long term impacts on resilience?

7. Name three elements that a comprehensive disaster preparedness and mitigation plan should contain.

9. Describe the positive and negative aspects of hazards insurance as a mitigation action for businesses.

10. How can a local jurisdiction’s mitigation plan contribute to economic resilience?

1. Imagine that you have just inherited a business from a somewhat foggy relative in a community you are not familiar with. What steps would you take to make your newly acquired business resilient to natural hazards?

2. Still focusing on the inherited business: what are some of the mitigation actions that you might consider?

3. In this same situation, what factors would you consider in choosing an insurance policy?

4. After moving to this community, how would you rely on the community to make you less vulnerable to the next natural hazard event? How would you contribute to the community’s hazard mitigation efforts as a member of the business sector?

5. Imagine that you are a local economic development director and have been invited to give a speech to the local chamber of commerce on “Building a Resilient Community.” Outline such a speech.

6. Imagine that you are a city manager. What sort of policies, programs, and projects would you promulgate to insure that the business community in your jurisdiction was moving toward resilience?

Natural hazards are a part of the natural environment and will be with us forever. There are indications that disasters resulting from the impact of natural hazards on the built environment are increasing in frequency and magnitude. This means, of course, that businesses may be impacted more heavily than in the past. Think of possible careers that this generates. Explore the Internet to find possibilities in business administration, management, continuity planning, insurance, and so forth.

Contact a local business owner and discuss with them their business contingency plans for natural hazards in your community. What are they doing to be prepared? Are they taking any mitigation measures? Are they concerned about disaster striking their business? What types of insurance do they have? What help from the community do they desire?

As a kid, did you ever run your own lemonade stand? If you were to start your own business today (whether it be selling lemonade or otherwise), what from this chapter would you incorporate into your business location, design, and policies?

1. Schwab, J. et al. 1998. Planning for Post-Disaster Recovery and Reconstruction. Chicago: American Planning Association Planning Advisory Service. Report No. 483/484.

2. Eadie, C. 2001. Building Economic Vitality into Disaster Recovery in Holistic Disaster Recovery: Ideas for Building Local Sustainability after a Natural Disaster. Boulder, Colorado: Natural Hazards Research and Applications Information Center, University of Colorado.

3. National Renewable Energy Laboratory, U. S. Department of Energy. Greensburg, Kansas: A Better, Greener Place to Live. Revised October 2009. http://www.nrel.gov/docs/fy10osti/45086.pdf.

5. Johnson, L., L. D. Samant, and S. Frew. 2005. Planning for the Unexpected: Land-Use Development and Risk. Chicago: American Planner Association.

6. French, May, S. P. 2002. Incorporating resilience in private sector project planning and review. In: Building Disaster Resilient Communities Instructor Guide. R. J. Burby Ed. Federal Emergency Management Agency, Emergency Management Institute, Emmitsburg, Maryland.

7. Gered, L., W. J. Neal, D. M. Bush, O. H. Pilkey, M. Stutz, and J. Bullock. 1996. Living with the South Carolina Coast. Durham, NC: Duke University Press, p. 41.

8. Delia, A.A. 2001.Population and economic changes in eastern North Carolina before and after Hurricane Floyd. In: Facing Our Future: Hurricane Floyd and Recovery in the Coastal Plain. J. R. Maiolo et al. Eds. Wilmington, NC: Coastal Carolina Press.

12. The H. John Heinz III Center for Science, Economics and the Environment. 2002. Human Links to Coastal Disasters. Washington, DC: The Heinz Center.

13. NC Division of Emergency Management, 2001. Managing Your Business to Minimize Disruption: A Guide for Small Business in North Carolina. NCEM.

14. Federal Emergency Management Agency. October 1993. Emergency Management Guide for Business and Industry. A Step-by-Step Approach to Emergency Planning, Response and Recovery for Companies of All Sizes. Publication 141. FEMA.

15. Institute for Business and Home Safety. 2005. Open for Business: A Disaster Planning Toolkit for the Small to Mid-Sized Business Owner. Tampa, FL.

16. FEMA Mitigation Directorate. 2013. Wet Floodproofing Requirements for Structures Located in Special Flood Hazard Areas in Accordance with the National Flood Insurance Program. Technical Bulletin 7–93.

17. North Carolina Division of Emergency Management. May 2003. Keeping Natural Hazards from Becoming Disasters: A Mitigation Planning Guidebook for Local Governments. North Carolina Department of Public Safety.

19. FEMA. 2005. Reducing Damage from Localized Flooding: A Guide for Communities. Publication 511. FEMA.

* Much of this discussion on private investment decision making is based on Reference 6.

Incentive	Provisions
Tax	• Reduction in local government taxes for property protection measures undertaken by homeowners and business owners • Waiver of sales tax on building materials to retrofit structures
Insurance	• Differentiated premiums in hazard areas based on mitigation measures • Waiver of deductible on natural hazard losses for strengthened buildings • Reduced premiums/waived deductibles for strengthened public facilities • Building code enforcement grading system to allow property owner premium discounts on new construction built at or above code
Retailer, manufacturer, or wholesaler pricing	• Manufacturer’s rebates on products used for mitigation • Discounts or rebates at point-of-sale (e.g., The Home Depot) • Project-specific discounts or rebates
Financial	• Building fee waivers/reductions for structures built with mitigation features • Discounted construction loans/lower rates for retrofitted structures

Business Continuity Planning or Continuity of Operations Planning (COOP)	Plans directed toward maintaining a business’s viability when one or more functions are impaired or disrupted. Since the advent of computerized business operations, many of these plans focus on data protection, retrieval, and restoration.
Business impact analysis	A calculation of the types of damages and losses that can be expected during an identified hazard event; the damages are related to the characteristics of the business. The business impact analysis assists in determining the types of actions that must be taken to reduce vulnerability.
Contingency planning	The process of developing advance arrangements and procedures that enable an organization to respond to a disaster so that critical business functions resume within a defined time frame, the amount of loss is minimized, and the stricken facilities are repaired or replaced as soon as possible.
Demand	The desire for a commodity together with the ability to pay for it. Scarcity increases the desire for a particular product—for example, beachfront property in highly developed coastal areas.
Direct impact	Includes physical damage to structures, such as buildings and other facilities. Direct impacts also include losses to inventories, equipment, and other physical assets.
Dry floodproofing	A structural mitigation technique that strengthens walls to withstand hydrostatic and dynamic forces, including debris impacts. Openings, including doors, windows, and vents, are sealed or filled with special closures to block entry of floodwater. In some instances, walls can be coated with waterproofing compounds or plastic sheeting.
Hazard identification	A step of the business risk assessment that defines the magnitudes (intensities) and associated probabilities (likelihood) of hazards that may pose threats to the business and community.
Indirect impacts	Result from the closure of roads and disassembly of transportation networks; loss of utilities, such as water, sewerage, and electric power; and disruptions to telecommunications.
Infrastructure	Facilities and systems that support development, such as water, sewer, and roads.
Land use regulation	Legislation that controls property uses, including zoning and subdivision ordinances, building codes, fire codes, environmental protection laws, and other types of mandates that dictate where and how growth and development take place.
Risk	The potential losses associated with a hazard, defined in terms of expected probability and frequency, exposure, and consequences.
Risk assessment	A process or method for evaluating risk associated with a specific hazard and defined in terms of probability and frequency of occurrence, magnitude and severity, and exposure and consequences.
Safety and health plan	Plan for ensuring workplace safety and protecting employee health.
Spill Prevention Control and Countermeasures	Plans and procedures for dealing with hazardous waste or dangerous substances.
Time value of money	One of the basic concepts of finance, the time value of money is based on the premise that faster returns on investment maximize profitability.
Vulnerability assessment	A step in the business risk assessment that characterizes exposed populations and property and the extent of injury and damage that may result from a hazard event of a given intensity in a given area.
Wet floodproofing	Structural mitigation measure that intentionally allows floodwater to enter certain enclosed areas to reduce the damaging pressures that can collapse walls and foundations.