Commercial Insurance For Natural Disasters

Losses attributable to natural disasters are not commonly included in commercial insurance coverage (or in any other insurance coverage, including homeowners insurance). Yet the location of a business may require such coverage be obtained to protect the life of the business. Businesses located along the southeast coastline of the US, for instance, should have “windstorm,” that is, “hurricane” insurance, especially considering the increasing frequency since 2004 of severe storms hitting these areas.

California businesses must seriously consider the advisability of obtaining earthquake insurance, even though the probability of a catastrophic earthquake causing total devastation of a business is less than that of a hurricane hitting the southeastern US coastline. Flood insurance, back-stopped by the Federal government, really falls into a different category because it is more available and affordable than insurance for the other two kinds of natural disasters mentioned above.

Natural disaster insurance for businesses would seem to be “no brainers” but for a few key considerations:

The high cost of premiums
High deductibles
Limited coverage
The remote likelihood that a natural disaster will hit an individual business
However, whether or not a business owner decides to purchase natural disaster insurance, the decision may be made for the business by an outside source: a lender or mortgage holder for the business. If a business is located in a high risk area, a lender to a business may insist on natural disaster insurance as part of its loan covenants with the business.

Recent major natural disasters such as Hurricane Katrina and the active hurricane seasons of 2004-2006 have placed extreme stresses on insurance companies with high concentrations of policyholders in the affected areas. This pressure has caused almost unbelievable rate increases in these areas since those storm seasons, increases of up to 600%. Obviously, the expense of actually doing business in these high risk areas has grown proportionately. Unfortunately, however, these high risk areas correspond to high population densities, high property values, high socio-economic demographics and high income areas, meaning they are great places, and potentially very lucrative locations, for businesses to locate.

Some businesses, not tied up with risk-averse mortgage holders or lenders, opt not to purchase expensive natural disaster insurance, because they believe the government will step in to help offset such losses if in fact they occur. In recent times the Federal government has offered loan guarantees and in some cases outright grants to help in rebuilding demolished private residences and in some cases businesses, as well. However, there are no guarantees this will continue and it is also important for businesses to consider that loan guarantees are only what they say they are; they are not outright gifts. Loans to rebuild, even if guaranteed by the government, still have to be repaid at some point, and could place impossible debt burdens on a business.

Natural disaster insurance for businesses is a thorny issue with no clear cut, easy decisions for the average business person located in a high risk area. Its purchase requires careful consideration and the weighing of pros and cons, but even then, the final prudent decision may not be obvious. Sometimes business people have to make decisions based on intuition and their individual risk tolerance, and this is one situation in which those factors definitely come into play.

Online Data Storage Trumps Disaster Insurance

All responsible businesses today protect themselves from financial disasters via insurance policies structured to recoup loss of revenue should the unexpected occur. But an insurance policy can’t restore lost customer and other business data, and that’s often the most expensive loss of all.

A couple of years ago, when a business acquaintance first told me about his company’s decision to switch from media-based data storage (tapes, CDs, zip drives) to utilizing the services of an online data backup company, the first thing that came to mind was a nightmare that had occurred in my business back in the mid- to late 80s. “Disaster” was definitely the word for it – and our protection against the fallout from it was practically non-existent.

Sometime after the end of business on a Friday, some pipes burst in the suite of offices right above ours. Throughout the weekend, untold gallons of water crashed through the ceiling unrestrained and uncontrolled, so that by Monday morning it looked as if a tidal wave had washed us. Unexpected, to say the least, on the 14th floor of a building in the middle of town.

As is the case with most executives it was my habit to be the early bird to the office, and the sight that greeted me when I unlocked the door is forever burned into my brain. Our carpet was soaked through with three to four inches of water. Our furniture was all but floating through our suites – and even the pieces that remained stationary were soaked through and ruined. All the phone lines were shorted out. And I didn’t dare flip any light switches….

Worst of all, though, was what I saw when I went to inspect our small, fledgling IT area. Absolutely everything in the room was thoroughly drenched and dripping water, from our server to the file cabinets housing tape backups to the PCs on the desks. We had, just several months prior, begun the arduous task of moving our client and other business data from hard copies onto an electronic storage system – and I can still hear the one word that echoed in my head as I surveyed the damage: Gone.

Our insurance policy covered the financial losses – but nothing could reimburse us for or replace the staggering amount of vital data lost to the flood. Because this was in the 80s and IT departments were just beginning to be considered in small businesses, the learning curve was steep and expensive when anything out of the ordinary happened. Online data storage services didn’t even exist in those days. Our entire repository of crucial data had been on those tapes and on that server – and we lost almost all of it.

The first lesson my company learned from our flood was that we needed physical, off-site storage for our organizational and customer data. That’s how we handled backup and storage for many years following that event – but while that was a great deal safer than storing our data on-site, there was nothing to guarantee our storage site wouldn’t ever experience such an unexpected disaster, as well.

I never once fully stopped worrying about it – until I learned about online data storage and backup services. Today, my company utilizes both an on-site tape backup and the services of a remote, online backup system. Our in-house tapes are mostly used for monthly backups (thus saving wear and tear on the tapes and maintenance on the hardware) and we use an online data and storage service for daily data backups. We’re fully covered, now – and our data is as safe as it possibly can be

Disaster Insurance Ahead of the Dollar Collapse

Disaster Insurance Ahead of the Dollar Collapse

Most people simply cannot conceive of a US dollar hyperinflation any more than a current resident of San Francisco could imagine a 1906 or 1989 earthquake. Many simply choose to not dwell on these potentialities, often rationalizing them against other existential if not abstract inevitabilities.

Dollar Confidence and Money Velocity

Money velocity can be defined simply as GDP divided by money supply.

Since the financial crisis, the M2 money supply has grown by over 45 percent. During the same time GDP grew by only 13 to 14%. So, velocity had to decrease substantially – and it did. Even though more dollars were spent and our GDP went up, the GDP growth wasn’t anywhere near the growth in the money supply.

Right now, more dollars exist than ever before and dollars are still being created faster than growth. Therefore, V has to be at it lowest point since the start of their creation. It is. And V will continue to fall until that fact changes.

Again though, the dollar can fall rapidly if we have a loss of confidence, even with falling velocity. In fact, historically that’s what does happen. A hundred things could trigger it.

The million dollar question is – When?

Triggers for the Nonlinear

In much the same way that a small business is somewhat like a microcosm for a large corporation, the collective is nothing at all like the individual or local community when it comes to complexity.

Excess dollars are sitting in the banks as reserves. The banks are keeping these reserves in order to meet demands that can arise from their uncovered derivative bets.

The Federal Reserve member banks are using some of the money that the Federal Reserve is making available to them to speculate on stock market futures; thus, pushing stock prices to unrealistic levels.

The other way through which the dollar can lose value is via its exchange rate to other currencies. Foreign holders of dollars may watch five years of dollar creation in order to finance federal budget deficits – and see no end. Thus, they can come to the conclusion that their dollar holdings are being debased.

If they make this decision, (or rather act on it) they will decide to get out of dollars or to reduce their exposure to the US dollar.

Forecasting Earthquakes

Tectonic movement is a constant reality. Significant earthquakes are happening always around the world. Although tracking the aftershocks is possible, and seismic science has grown immensely, there remains no reliable way of forecasting initial large events to this day.

All that can be said is that within a fairly wide time span there will be a significant quake over some period of time. There is very little argument. It is well known that while the infrastructure on new construction is constantly subjected to upgrades, it is an impossible task to keep up with the changing requirements.

On an individual level, it is much worse. Most people have short memories for disasters or events that involve intense fear, pain, or discomfort. It is the mystery of enduring multiple childbirths, though most are quick to point out that it is quite natural to block out events that might otherwise cloud forward growth or production. Unfortunately, when taken over the collective, the short memories become an additional burden to already fragile systems.

Much of what we learn will come in retrospect.

In finance, no doubt there will remain a furious coverage of the unfolding. Mainstream media complex will profit from the collapse. As such, we can be sure that the unfolding events will be covered widely (if not erroneously) in their conclusions or the determination of the causes.

100 Years of the Fed – 42 for Fiat

It is relatively easy to blame our captured central banks for the multitude of risk they have created over the millennia.

Monetary policy has effectively allowed the movement of capital and wealth from the backs of ordinary people to the financial elite.

In essence, they have robbed the population of its purchasing power by debasing the currency over a long period. At the same time, they have produced an elaborate public relations machine capable of charming its victims.

They have kept true to their original (unspoken) intention to protect their own. They have also facilitated the socialization of risk by encouraging moral hazard and allowed for the emergence of the too big to fail.

Nothing epitomizes the US Central Bank’s public relations and propaganda sensation more than the fact that the majority of educated individuals cannot name the Federal Reserve Chairman before Paul Volker. Additionally, Volker’s name is still on the forefront of the collective psyche – and a symbol for the last vestiges of responsibility and prudence.

It is perhaps by this measure alone that the future will judge the eminent risk we face at this moment in time and the need for the minimum of personal and financial protection. In this way, at the very least, the history of tomorrow will be written by those who recognized the unfolding of today’s events and took action.

Flood Coverage Or Disaster Insurance – Which is Better?

There is a “free” type of insurance offered by the federal government for homeowners that protects them in case of some type of natural disaster. It’s referred to as disaster insurance. Since flood damage is covered by disaster insurance and is not covered by a standard homeowners policy, many people choose to take this free coverage instead of purchasing flood insurance. Is disaster insurance enough to provide you adequate protection.

The simple answer is no, and there are several reasons why. First, disaster insurance is just a loan. It is offered to homeowners, in order to help them rebuild their home or repair damage caused by other natural disasters, at a low interest rate. But every cent of it, including minimal interest charges must be paid back.

Secondly, although it does cover flood damage, it will not cover any damage done to your home by heavy rains, runoffs, or landslides unless the damage occurs during a bad storm and the President declares a state of emergency.

Lastly, flood insurance coverage limits are significantly higher than the payouts you will receive from disaster insurance. Not only are the payouts higher, they occur much faster than they do with disaster coverage. It can take months to receive the funds necessary to make your home livable again from disaster coverage. Flood insurance policies pay immediately. The best thing about flood coverage is that it’s not expensive. A fifty thousand dollar coverage limit, for example, can be obtained for less than $200 a month.

Disaster Insurance

You could be faced with financially ruins if you needed but didn’t have disaster insurance.

Having Disaster Insurance Coverage to soften the effects of a loss is not only a smart decision but is also a requirement by lending institutions like Banks and Credit Union. Insurance providers form the backbone of modern civilization. You wouldn’t be able to get a mortgage to buy a house or a car or in some cases a business loan without insurance.

Homeowner Insurance:

Your homeowners Insurance will cover a multitude of things that can happen to your home including fire, burglary etc. Both the structure and contents are covered. Since there are as many if not more losses for which you also will not have coverage it is important to take the time to read your policy and understand what is excluded.

Renters Insurance:

I am willing to bet you that if you ask the people you know who are renting if they have Renters Insurance, most of them will answer that they don’t.

Renters insurance is probably the “best buy for the buck” as far as insurance is concerned. For an annual payment that’s probably less than a weeks’ salary most renters can buy renters Insurance and enjoy the peace of mind knowing that their furniture, clothes and other personal effects are covered.

Let me encourage you wholeheartedly to buy some renters insurance and if you are a homeowner renting out a part of your house you should encourage your tenant to buy renters insurance.

Find out from your attorney if you can insist on renters insurance as a condition of leasing or renting out your house or apartment. It’s that important.

Flood Insurance for Homeowners:

Floods are caused from rising water and should not be confused with water damage caused by roof leaks or wind driven rain. Remember also that the President does not have to declare a disaster for you to claim payment from your flood policy.

Floods are not covered by your homeowners’ policy and so if you want flood coverage you will have to purchase a flood insurance policy.

When you are shopping for a house it’s a good idea to do some research on the area in which you plan to buy your house to see if it is in a flood zone.

Though you do not have to be in a flood zone to buy flood insurance, the cost will be much higher if you are in a floodplain otherwise called “Flood Hazard Area” (SFHA).

Your Insurance agent can check the flood map to see if your area is in a high risk, medium risk or low risk area.

The maximum amount of coverage that you can buy for your house of $250,000 and contents of $100,000. This will be different if it’s a two family house. Will this be enough to rebuild your house if it got swept away in a flood? Take this in account as you shop for your dream home.

Flood Insurance for Renters:

Just as renters insurance will provide peace of mind for you and your family you should be aware that it does not cover floods and your landlords’ flood policy will not cover your stuff either.

Take my advice and also purchase flood insurance, its inexpensive and will be one of your best buys. The maximum you will be able to purchase is $100,000 and will afford you peace of mind knowing that there will be financial help for you if you had a loss…

Hurricanes Disaster Insurance:

Most Insurance companies if not all will include a very large deductible into your homeowners’ policy for hurricane damages. This is usually a percentage of the amount of your insurance coverage on your house and ranges from 3% to 7%.

Here is an example: Let’s say your house is insured for $200,000. Your deductible is 5% ($10,000), Hurricane damages to your house is $50,000. You will only be paid $40,000.

Are you able to come up with a deductible of $10,000 to repair your house if it was damaged? What if the damages were less than your deductible? You would not be paid anything by your Insurance Company. Your disaster insurance emergency fund should be an amount at least equal to your deductible but certainly recommended to be more.

Earthquake Insurance:

Are you living in an area that’s known to have earthquakes? If so then your disaster insurance plans should include Earthquake Insurance. Be aware that your Homeowners Policy will not cover you for an earthquake.

Many Insurance companies offer special “Earthquake Insurance” and though coverage is not mandatory unless required by your mortgage holder, the deductible can go as high as 15% and sometimes more. This is important to know when shopping for a house as you put your house maintenance budget together.

Tornado Insurance:

This is the most devastating of all natural disasters. Tornadoes can rip through a neighborhood like a shredder leaving nothing but unrecognizable rubble behind. Unfortunately there is no “Tornado Insurance” available. You will have to depend on your homeowners insurance to cover you.

I have spent some time on flood, hurricane and earthquake Insurance because they are the most common natural disasters. However this is by no means meant to ignore the other many natural disasters to which you might be exposed if you are living in such areas.

Speak to your Insurance company or agent about the extent to which you are covered and if there is a mandatory deductible that’s being applied to a claim if there was damage to your house.

Having spent some time in as an insurance agent and also as a real estate agent I would caution my clients on the importance of adequate insurance. As a real estate agent I would remind them as much as I am reminding you that before you buy “Think about how easy or difficult it would be to sell your house if it’s in an area known for a special kind of disaster.”