Due to rising population, climate change, and dreadful environmental conditions, natural disasters are increasing in number. They are deadlier and cause insurers all over the world billions of dollars due to damage.
According to the World Bank,
there are several factors that affect a country’s exposure to natural
disasters, such as geographic size, the type of disaster, the strength
and structure of its economy and established socioeconomic conditions.
In a globalized economy, all these factors as well as other aspects
impact on how the world’s finances will be affected.
For
example, recently, hurricane Sandy’s economic toll is poised to exceed
$20 billion after the biggest Atlantic storm slammed into the Eastern
U.S., damaging homes and offices and flooding subways in America’s most
populated city. Another example would be the recent earthquake in Japan
where news agencies, economists and common people have all been
pondering about of natural disasters and its effect on economy.
It’s
still too early to completely comprehend the impact on Japan in March
2011 due to earthquake and tsunami that have affected its national
economy, and how that, in turn, will affect the global economy. The land
area is at risk with seismic activity. A 7.1 magnitude earthquake struck
off the coast of Honshu on April 7, rattling residents and relief
workers. Also, the world is still waiting to see how the crisis at the
Fukushima nuclear power plant will progress. Containing the radioactive
material to same as before could take months. Traces of radiation have
been found in a variety of agricultural products, including dairy
products and spinach as well as in tap water in Tokyo. With several
other nuclear reactors offline as a result of the quake and tsunami, the
Tokyo Electric Power Co. has only been able to provide about 75% of
their normal kilowatts, resulting in ongoing rolling blackouts in nine
of Japan’s prefectures. Japan’s economy is largely export-based, but
since the earthquake, manufacturing plants have been forced to shut
down. Asian stocks took a dive, with the Nikkei index dropping 6% in a
matter of days, though it has climbed steadily during the three weeks
since the quake.
Some economists have been optimistic, pointing at Japan’s quick recovery from the 1995 Kobe earthquake
as a model. The earthquake killed over 5,000 people and caused an
estimated $100 billion worth damages or roughly 2.5% of Japan’s GDP.
Within a year, however, Japan’s economy had more or less recovered,
though the Asian stock market took a little longer to rally. Political
and financial institutions have taken action to avert a financial
meltdown. In the days after the quake, the Bank of Japan announced that it would be pumping billions of Yen into the economy and provide loans to financial institutions at low interest rates.
When
businesses get destructed, the goods and services they provide just end
overnight. Depending on the size of each business and the number of
businesses destroyed, the nation can be in a huge economic crisis. After
a severe natural disaster, many businesses will not rebuild at all as
the cost is prohibitive or out of concern and anticipation of a future
hurricane, tsunami or other earthquakes etc.
Every
year, hurricanes destroy homes and property. It is common for one
hurricane to cause millions of dollars worth of damage to residential
and other buildings. Many of the structures in midst of a powerful
hurricane get completely demolished and the debris has to be unsoiled,
the buildings rebuilt, which is an extremely costly process.
Especially,
after a destructive hurricane, many people lose their homes and are
forced to move to other places as may not be able to build back their
homes or start over in the same area. When large numbers of people leave
the same region at the same time, it will seriously affect the economy
of that local community.
