The Hidden Costs of Natural Disasters: Are You Financially Prepared?
21st Oct 2024
Natural disasters are becoming increasingly part of daily headlines worldwide, and this is for a number of ever-evolving reasons. Climate change, extreme weather conditions, urbanisation and environmental degradation to name a few... From raging wildfire to hurricanes, devastating floods to tsunamis, the frequency and severity of these natural disasters are no longer just isolated, nor unpredictable occurrences.
Closer to home in the UK, the aftermath of these extreme natural events and changing weather patterns has left homeowners, landlords and commercial business owners with a huge financial strain and burden. Many do believe that they are fully covered in their insurance policies, yet in reality, what’s covered and the lack thereafter is something to be aware of. With this in mind, there are often gaps in policies leaving unwanted hidden costs for policyholders to grapple with which can create unnecessary worry, stress and uncertainty about what lies ahead.
Understanding Natural Disasters and their Frequency
Natural disasters such as floods, earthquakes, storms and wildfires are becoming more and more frequent. The UK Climate Change Committee highlights that the frequency of such events, including extreme heat waves to devastating rainfall, has increased over the past decade. Statistics reveal an astounding rise in extreme weather patterns, which increases the likelihood of the intensity and severity of these disasters.
Every country has its own relevant conditions prone to their region. The UK is most vulnerable to floods where both coastal areas and those with low-lying regions are at heightened risk, storms, such as Storm Kathleen and Storm Lilian, landslides and heatwaves. These all pose damage risk causing property and infrastructure damage.
Home and business owners have a responsibility to understand the regional vulnerabilities where they are based and to ensure they are covered in all instances. This may seem almost impossible as these disasters are so unpredictable, yet understanding the potential risks and proactively taking action to safeguard your assets is advisable and financially recommended. Nobody is immune to such natural disasters, therefore one should understand what is and isn’t covered and try to mitigate any potential risks in the future.
The Direct and Indirect Costs of Natural Disasters
It goes without saying that direct costs are usually the first thing to be taken into consideration, as damage can interfere with day-to-day living and business as usual. However, the financial toll of these disasters often extends far beyond the immediate repairs, such as property damage and clearing up. Below are some common direct and indirect costs associated with big natural disasters:
Direct Costs
- Immediate Repairs: This can extend to any damage on the roof, flooring, walls or electrics of the property. Structural issues are also extremely costly, as well as the replacement of any goods which were inside the property or part of the policy.
- Temporary accommodation: If the property in question is uninhabitable, policyholders will need an alternative place to live whilst the damage is being fixed, and this can usually take months.
Indirect Costs
- Loss of Income:For business owners, a big disaster can result in temporary (or permanent) closures or disruptions to operations leading to significant financial losses. Some policies do pay out for loss of income depending on specific terms and time periods.
- Insurance premiums increase: Policyholders may have higher premiums to pay following a disaster claim, which can have long term ramifications.
The Importance of Comprehensive Insurance Coverage
There is often a misconception that homeowners and business owners believe that their standard insurance policies are comprehensive to cover all eventualities including floods or storms. This may ring true for some, yet it is advisable to always be in the know about what your individual policy does in fact cover, or lack thereof. It’s important to know this at time of signing, as you do not want to be left exposed to any significant risk financially.
It’s important to point out that some standard insurance policies may cover basic damages for example, yet only offer limited coverage or within certain time frames, whereas other policies may be comprehensive - it is not a one-size-fits-all when it comes to insurance. Nobody wants to be left in the lurk of the aftermath of a disaster not being covered, so if you need additional coverage, looking at specialised packages can be the way forward to bridge the gap, be it with home or business insurance options.
Tips for Enhancing Your Coverage
- Tip 1: Regularly assess and enhance your coverage. Start by reviewing your existing policy to understand what is and isn't covered, especially in relation to specific natural disasters. Some standard policies may not cover these events, so you might need to add endorsements or purchase separate disaster-specific coverage if relevant to you as an individual or business.
- Tip 2: Evaluate your coverage limits to ensure they accurately reflect the current value of your home, belongings, and any additional structures on your property as an individual or business.
- Tip 3: Review the exclusions and deductibles in your policy. Some policies have higher deductibles for natural disasters or exclude coverage for certain risks altogether. Fully understand the fine print of your specific policy.
- Tip 4: Seek advice from a professional or loss assessor to ensure your policy is comprehensive, and update it regularly to reflect any changes in your circumstances or property value. This proactive approach will provide peace of mind and financial security should disasters strike.
Financial Preparedness: Steps to Take Before Disaster Strikes
Waiting until disaster strikes to think about your finances is a dangerous game to play. Financial preparedness and a plan of action is key to surviving the aftermath of a natural disaster or an unexpected event. By taking steps upfront, you can reduce the strain should the unexpected happen. This is crucial to mitigate the economic impact and ensure a smoother recovery process overall.
- Tip 1: Make sure to keep important documents safe and accessible. Store copies of your insurance policies, property deeds, financial records, and identification documents in a secure, waterproof location. Consider having both digital backups (cloud storage) and physical copies readily available to ensure you can quickly access them in the event of an emergency. Having these at hand will streamline the claims process and help you recover more efficiently.
- Tip 2: If possible, create an emergency fund to cover any living expenses. This is a steep ask for many, but by saving a small amount monthly, this could alleviate the burden should it strike. This could be used to cover repairs, accommodation, day-to-day expenses or unexpected costs which ultimately will arise.
- Tip 3: Research Community and Government Relief programmes such as the UK’s Flood Re scheme can help prepare you with the necessary tools and information to protect you now and into the future.
Recovery After a Disaster: Navigating Claims and Financial Assistance
Navigating the insurance claims process can be daunting at the best of times, and more so following a huge disaster to your property and goods. It’s important to get an understanding when you take out your claim how best to proceed should you need to claim at any point during your policy. This will speed up the process as well as ensure you have everything in check in order to go through the motions.
The key to starting an insurance claim is to document everything with a date and time as it happens / has happened. Take photo and video evidence of the damage and list out all the affected items from the disaster. Contact your insurer as soon as possible following the devastation. Have your insurance policy details to hand as they will ask for your particulars in order to open a claim. Be as specific as possible outlining in as many details as possible the extent of the damage.
Should you proceed on any repairs or clearing up of the damage, track all your expenses, plus any temporary accommodation or disaster-related costs in order to be reimbursed. The insurer may send out a loss adjuster to assess the nature of the damage and document the event from the insurer’s side. It’s important to note that a loss adjuster works in favour of the insurer and not the policyholder.
This is where it can be useful to engage a loss assessor, who is a professional who will work with your best interests in mind. You can instruct a loss assessor at any point in the claims process, so from the get-go or when the negotiations begin or to communicate about a rejected claim. The earlier on in the process, the less stress there will be for the claimant as leaving it in the hands of a professional who thoroughly understands the process is reassuring and can lead to a more swift and successful claim resolution and payout.
Another interesting avenue to look into is that of government programmes and grants from NPOs who may be able to provide financial relief to those who may not have the resources if their coverage is not comprehensive, and need help to rebuild their homes or businesses. There are tens of different schemes available online and thorough research will point you in the right direction.
3 common challenges one can face during the claim recovery process
- Challenge 1: Delays in insurance claims can hinder the commencement of any type of recovery or repair process. A loss assessor can help expedite this process by communicating directly with the insurance company.
- Challenge 2: Underinsurance is often discovered when it is too late and coverage is insufficient to fully cover the costs of rebuilding and replacing items. Frequently review your coverage to eliminate any gaps which may cause strain later down the line.
- Challenge 3: Finding reliable contractors post-recovery is stressful, especially when you're up against the clock. This may lead to price gouging or using contractors who are very expensive but can start immediately. Always get multiple quotes and check their references before engaging in work.
Conclusion: Building Resilience for the Future
Natural disasters may not have been on your radar for consideration, yet it’s important for it to accurately reflect in your insurance coverage, due to its unpredictable nature. Being prepared for any eventuality is key to helping mitigate the impact of the disaster. Ensure you thoroughly understand your policies and they are in fact comprehensive and review them on a regular basis.
Don’t wait for disaster to strike to evaluate your current insurance and financial plans ensuring they are adequate as this may be too late. Being proactive and ensuring you safeguard what is yours is key to peace of mind and financial security later on. This is a big ask and may prove an overwhelming process for many, so liaising with Harris Balcombe - expert loss assessors - may be your answer. The team at Harris Balcombe can provide personalised risk assessments and help future-proof your policies to protect you when necessary.
Contact us today and/or start you claim now and let us help you build resilience for whatever challenge the future may hold for you or your business.
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