A surge in hurricanes could put the gust in August this year -- and profoundly affect companies in harm's way.
Business owners riding out the current economic storm could soon have another squall on their hands. After seeing just four hurricanes last year, the National Oceanic and Atmospheric Administration is predicting 11 to 15 tropical storms this season, with six to nine blossoming into hurricanes.
Although it only takes one hurricane touching down on land to cause millions in damage, and that direct hit can come in any given year, experts are anxious because more storms are likely to crowd the Atlantic this season. "It's kind of like putting more bullets in your gun," says Max Mayfield, director of the National Hurricane Center in Miami. "The more bullets you have, the more likely you'll hit the target."
For companies caught in a storm's path, the impact can be devastating. Following Hurricane Andrew, the most costly natural disaster in American history, the Small Business Administration shelled out 5,458 business recovery loans for more than $257 million. Total losses from the 1992 storm were estimated at $30 billion.
And the effects of Andrew linger to this day. Homestead, Fla., one of the hardest-hit cities, lost many small businesses. Firms that did survive found themselves operating in a radically different environment. Vendors had to be replaced. Employee turnover skyrocketed. And the demographics of the local population were recast -- middle-class whites moved out and were replaced by lower-income Hispanic families. "It changed our business in a major way," says Susan Newman, a local branch manager at the Keyes Company, a real estate brokerage. "Now you're looking at different types of customers, different types of financing."
Newman, who lost her own home in the storm, says Keyes faced a surge of customers rushing to sell damaged properties. Because traditional financing evaporated in the months following Andrew, all-cash transactions became the norm. "It was sort of like playing Monopoly," she says.
Like Homestead, the insurance industry found itself transformed. Underwriters paid $15 billion in claims -- more than they collected in Florida premiums for the prior 23 years. Today, with even more coastal development, the industry has shifted from dollar to percentage deductibles to keep coverage viable for both sides. Some businesses opt for often costly interruption coverage, according to Loretta Worters of the Insurance Information Institute, while others rely on contingency planning to reduce premiums. But "it's Russian roulette in some ways," she admits. "You're making a determination of how long you could survive."
Just such a calculation turned out to be the difference between life and death for Sentry Paint Technologies in September 1999. The paint manufacturer faced $7 million in damage after Hurricane Floyd sent 18 feet of creek water crashing through its main facility in Darby, Pa. "I basically had to figure out what I was going to do with my life and how I was going to salvage it," says Ben Breskman, president and CEO at the time.
Access to capital and operational flexibility were key to Sentry's survival. Prior to the storm, Breskman had worked with a risk management expert who helped him get the right insurance. As a result, Sentry collected several million dollars for rebuilding and received an SBA loan for another $1 million.
Perhaps most critically, Breskman immediately contracted out production, so that customers did not experience an interruption in service. Within 17 months, Sentry was back on its feet -- an accomplishment celebrated at the White House, where President Bush honored Breskman as a winner of the SBA's 2001 Phoenix Award for disaster recovery.
But even Breskman, a model survivor, is still reeling from his brush with Mother Nature. In April, he sold his manufacturing operation, choosing to stick to warehousing and distribution. In the event of another hurricane, Breskman explains, the loss of inventory is a lot less dire, financially and operationally, than the loss of expensive manufacturing equipment. "It's going to happen again," he says, "it's just a question of whether it's in my lifetime. You have to wrestle with that."