| Losses attributable to natural disasters are not | | | | insurance companies with high concentrations of |
| commonly included in commercial insurance coverage | | | | policyholders in the affected areas. This pressure has |
| (or in any other insurance coverage, including | | | | caused almost unbelievable rate increases in these |
| homeowners insurance). Yet the location of a | | | | areas since those storm seasons, increases of up to |
| business may require such coverage be obtained to | | | | 600%. Obviously, the expense of actually doing |
| protect the life of the business. Businesses located | | | | business in these high risk areas has grown |
| along the southeast coastline of the US, for instance, | | | | proportionately. Unfortunately, however, these high |
| should have "windstorm," that is, "hurricane" | | | | risk areas correspond to high population densities, |
| insurance, especially considering the increasing | | | | high property values, high socio-economic |
| frequency since 2004 of severe storms hitting these | | | | demographics and high income areas, meaning they |
| areas. | | | | are great places, and potentially very lucrative |
| California businesses must seriously consider the | | | | locations, for businesses to locate. |
| advisability of obtaining earthquake insurance, even | | | | Some businesses, not tied up with risk-averse |
| though the probability of a catastrophic earthquake | | | | mortgage holders or lenders, opt not to purchase |
| causing total devastation of a business is less than | | | | expensive natural disaster insurance, because they |
| that of a hurricane hitting the southeastern US | | | | believe the government will step in to help offset |
| coastline. Flood insurance, back-stopped by the | | | | such losses if in fact they occur. In recent times the |
| Federal government, really falls into a different | | | | Federal government has offered loan guarantees and |
| category because it is more available and affordable | | | | in some cases outright grants to help in rebuilding |
| than insurance for the other two kinds of natural | | | | demolished private residences and in some cases |
| disasters mentioned above. | | | | businesses, as well. However, there are no |
| Natural disaster insurance for businesses would seem | | | | guarantees this will continue and it is also important |
| to be "no brainers" but for a few key considerations: | | | | for businesses to consider that loan guarantees are |
| - The high cost of premiums | | | | only what they say they are; they are not outright |
| - High deductibles | | | | gifts. Loans to rebuild, even if guaranteed by the |
| - Limited coverage | | | | government, still have to be repaid at some point, |
| - The remote likelihood that a natural disaster will hit | | | | and could place impossible debt burdens on a |
| an individual business | | | | business. |
| However, whether or not a business owner decides | | | | Natural disaster insurance for businesses is a thorny |
| to purchase natural disaster insurance, the decision | | | | issue with no clear cut, easy decisions for the |
| may be made for the business by an outside source: | | | | average business person located in a high risk area. |
| a lender or mortgage holder for the business. If a | | | | Its purchase requires careful consideration and the |
| business is located in a high risk area, a lender to a | | | | weighing of pros and cons, but even then, the final |
| business may insist on natural disaster insurance as | | | | prudent decision may not be obvious. Sometimes |
| part of its loan covenants with the business. | | | | business people have to make decisions based on |
| Recent major natural disasters such as Hurricane | | | | intuition and their individual risk tolerance, and this is |
| Katrina and the active hurricane seasons of | | | | one situation in which those factors definitely come |
| 2004-2006 have placed extreme stresses on | | | | into play. |