Business interruption: The flooding impact seldom assessed
Interruption of commerce due to a flooding event could cost far more than replacing damaged assets
One morning a few months ago, I was driving into work as I normally do—taking a route through Biltmore Village—when I found my path blocked by floodwaters. Having lived in Asheville for over 15 years, I was reminded of the 2004 floods, when Hurricanes Frances and Ivan dropped staggering amounts of precipitation that lead to catastrophic flooding across the city.
Despite the image above, the flooding in 2018 was very different than it was back in 2004. It’s clear that Asheville has taken enormous strides in the intervening 14 years. As the City’s blog details, this time it was back on its feet within about a day, and NOAA’s Storm Events Database estimate damages at around $100,000. Contrast that with the $80 million estimate for damages from the 2004 flood events.
These loss estimates tell only part of the story. In 2004, in addition to the tens of millions of dollars in property losses, it was estimated that tens of millions more were lost from business interruption. I wouldn’t be surprised if it was also the case that the losses from business interruption exceeded the property losses—possibly to an even greater degree—with the 2018 event.
I decided to drive around a little and see what else was happening around the city (never driving through water, of course). I saw the story of business interruption playing out all over. Take the local Lowe’s, for example:
The store itself was sitting high and dry. Water wasn’t rushing in through the doors and down the aisles, destroying merchandise along the way. Instead, the river had effectively created a moat around the store, making it inaccessible.
Now, consider the nearby Home Depot, located on higher ground:
Drawing on one of the many resources to which we have access through our partnership with Esri, I did a back-of-the-envelope calculation: being closed for that single day may have resulted in over $150,000 in lost revenue for Lowe’s. And how many of their 160+ employees lost a day‘s wages?
Now, imagine how that plays out across an entire city with dozens (or hundreds) of businesses closed for days on end, with thousands (or tens of thousands) of employees out of work during that time. It doesn’t take long before the replacement cost of business assets is far exceeded by the cost of just not being open for business.
A few months later, losing access took on a much more personal meaning.
My sister, brother-in-law, and niece live in Wilmington, North Carolina. As it became increasingly certain that Hurricane Florence was going to hit them pretty much head-on, they boarded up their house and evacuated.
A few weeks later, their story was similar to that of thousands of other people like them in Wilmington: their house was fine. They just couldn’t get to it.
While we quantify climate risk as a business, I tell these stories because ultimately we are in this business because it is personal. What gets us into the office in the morning is the knowledge that our creativity and our hard work can protect property and save lives.
Our personal experiences both inform us and drive us to innovate. Having experienced loss of access first-hand has led us to quantify it in our resilience assessments.
In my next post, I will show how we’re applying these same concepts to emergency response.
