Soften the Blow or Weather the Storm?

It’s natural disaster season, and it never hurts to be extra prepared. If you live in an area that is prone to disasters, hurricanes, tornadoes, floods, etc., it may be worth investing a little now so you are able to literally weather any storm. 

Should You Invest Now to Protect Your Building Against a Natural Disaster?

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by Constance Hardesty

Small businesses that don’t reopen within 90 days following a natural disaster will probably fail, according to the US Small Business Administration (SBA).

To help them bounce back, the SBA offers disaster loans that cover physical and economic damage. The physical damage loans are based on assessed damage.

For the “once bitten, twice shy,” the SBA allows a 20% increase in the basic loan amount to cover improvements meant to protect the building against future disasters.

That’s a big advantage. If property damage insurance restores your building to its pre-disaster condition, the SBA loan will fund building improvements. If your building is older, that could mean the difference between windows with single-pane glass or with reinforced glass and hurricane shutters. Note: The SBA will not fund costs that are covered by insurance.

Public Safety Canada also offers disaster assistance to small businesses, including loans that allow for property improvements. Loans are available through the Canada Small Business Financing Program.

But why wait? Why not protect your building before disaster strikes? On the other hand, why invest in precautions against something that may never happen?

To sort through the benefits and drawbacks, Trends brought together veterinary consultants including an insurer, a financial consultant, and a real estate broker.

Understanding the Risks

Every square inch of the United States is subject to some kind of weather- or climate-related disaster, though some areas are at much higher risk than others. It’s easy to tick off the riskier states: California for earthquakes, Oklahoma for tornadoes, Florida for hurricanes. But did you know that Texas and Colorado top the states for hail? On the flip side, Minnesota and Montana are among the least likely to be hit by any natural disaster.

The Federal Emergency Management Agency (FEMA) publishes a National Risk Index that reflects the economic impact of natural disasters for every county in the United States. Because population is a key factor in the risk calculation, the riskiest areas are the heavily populated ones, like Southern California and Florida. But that doesn’t mean your building in Enid, Oklahoma, won’t be flattened by a tornado.

You can use the National Risk Index to learn how many times per year on average various natural disasters occur in your county (go to https://bit.ly/3qC4kr5 for an interactive map of US counties, then scroll through data in the column on the left).

In some high-risk areas, governments, insurers, or lenders may mandate protective measures. In other cases, it’s up to you to figure out what to do and how to do it.

Land use controls, product and installation standards, and building codes are often used together to enforce public standards for safety, according to a policy paper published in the Journal of Insurance Regulation. Even where the law doesn’t require disaster mitigation, insurers and lenders might.

HUB International, an insurance broker that serves veterinary practices, provides natural disaster modeling to help clients understand local risks and how disaster-related losses may affect their insurance costs. (HUB is also an AAHA Preferred Business Provider.)

“We have recommended flooding emergency response plans, water-intrusion mitigation plans, wildfire emergency planning, and business continuity planning to help impact the severity of a disaster,” Ryley Georgitsis, associate risk consultant at HUB, explained. “While this may not be directly considered mitigation, some preplanning can raise awareness of the potential for natural disasters and leadership support for additional measures that may decrease the frequency of loss.”

Some solutions may be very expensive, such as adding drainage, reinforcing roofing or changing roofing materials, and installing storm-resistant windows, Georgitsis said. Other precautions come at a more reasonable cost, like installing window film to help prevent injuries from broken glass.

HUB also offers incentives to encourage preventive measures. “We partner with carriers to require certain coverages (glass, shutters) to mitigate the damage from disasters,” Georgitsis said. “At the end of the day, mitigation measures are meant to encourage owners to be profitable because it affects their premiums.”

In one case, mitigation measures saved a business that was in danger of losing its insurance through nonrenewal, Georgitsis said. The owner had invested in bracing the building’s steel frame to protect it against earthquakes. When HUB property specialists toured the building, they found it had the requisite protections in place, and they were able to negotiate the renewal at an $18,000 cost savings.

Invest in the Future

Taking precautions can also increase a property’s value, according to Shawn Henriksen, a licensed real estate broker with PS Broker. Investments in mitigation measures can increase the likelihood of a sale or obtaining a mortgage, she said.

“State laws vary, but in our experience, improvements are negotiable. Most lenders will insist on a Phase 1 Environmental Study and a building inspection,” Henriksen explained. “If items are discovered during the Phase 1 or the building inspection, remedies are usually suggested. These tend to be negotiated between buyer and seller as to which items must be addressed and who is going to pay for the improvements,” she added.

In some cases, the sale of a building prompts the need for mitigation improvements. That’s because, in many jurisdictions, when a building is significantly renovated or altered or there is a change in its use, the building must be brought up to code.

But what if you are not selling or renovating your building? What if you rent, not own? When does it make sense to invest in disaster prevention for its own sake?

That’s an individual business decision based on local threats, the likely consequences—financial and otherwise—and your tolerance for risk.

“What might be right for a building located on the Florida coast that is hit by hurricanes every year may not be right for those of us here in Texas who had the Great Freeze in February,” says Karen Felsted, MS, CVPM, CPA, president of PantheraT.

That said, at least one mitigation measure is affordable and quite broadly useful.

“The most common disaster mitigation measure I’ve seen recently was the installation of generators in Texas practices after the February power outages,” Felsted noted. “Not everyone who thought about it actually went through with it, but those who did seem happy with having covered that risk.”

Besides generators, hurricane shutters and fire-resistant roofing offer a return on investment. As real estate broker Henriksen pointed out, they not only help to protect the building but can enable business continuity.

“We have represented several practices in the country, particularly Florida, New Jersey, Mississippi, and California, that have gone through hurricanes, flooding, and out-of-control forest fires,” said Henriksen. “Because our clients had invested in generators, hurricane shutters, or removing trees close to the veterinary facilities, their buildings not only survived these natural disasters, but most continued to provide boarding and medical attention to pet owners and displaced animals.”

“Each situation needs a cost-benefit analysis,” Felsted added. “A loan is helpful in that it provides upfront money to pay for the work, but it has related costs, most notably interest. Certainly, the costs will be deductible as a business expense, but the practice will spend much more than it saves in taxes.”

As part of the analysis, Felsted recommends considering the following:

• What disaster might happen? There is always the possibility of some totally unforeseen thing, but certain kinds of natural disasters are common in certain areas so one can make some reasonable assumptions.

• How likely is it that something may happen? Is this an annual possibility or a 100-year event?

• What is the risk to the practice? Besides physical damage to the property, think about business continuity, impact on employees and the community, and other consequences.

• What is your individual risk tolerance? Some people are willing to take some chances; others want to be as fully protected as possible.

• What are the various ways of protecting yourself? Will you rely on insurance and personal savings instead of or in addition to mitigation measures?

• What are the costs of protection?

Once you’ve been affected by a disaster, the SBA can help. As mentioned, you can increase your SBA disaster assistance loan up to 20% of your verified physical damage to make mitigation improvements.

Generally, you have two years after your initial loan approval to request an increase not only for mitigation measures and code-required upgrades but also for higher rebuilding costs.

To be eligible for SBA disaster assistance, your practice must have been affected by a federally declared disaster.

Conversations about property protection typically center on property damage and restoration, but the impacts for veterinary practices go much deeper. As you weigh the risks, be sure to consider the effects on patients, staff, clients, and your practice’s reputation.

AAHA’s Disaster Preparation Standards

AAHA has thousands of standards related to many different aspects of veterinary practice. Here are just a few of the dozens of disaster preparation–related standards. Neighborhoods change over time. Natural disasters can occur. A practice should review changes in their surroundings and potential threats at least annually and update security needs.

 

  • Practices should have a written disaster and emergency management plan. This plan needs to include:
    • An evacuation plan for people and animals
    • An assembly area or meeting place (so everyone can be accounted for)
    • Emergency contacts list
    • Location of gas shut-off and electrical breakers
    • Options for the containment of patients and the continuation of life-sustaining care
    • A content list and location of a kit containing essential supplies such as a flashlight, mask, respirator, and tools.
  • Practices should have adequate emergency lighting. Battery-operated lights or alternate power sources should be maintained, tested, and inspected monthly.
  • Practices should keep a source of back-up lighting and power, such as a generator. This must be maintained and tested regularly in case of emergency.
  • Written instructions and/or diagrams are posted for the practice team and client evacuation in case of fire or other danger. For more information log on to your accreditation evaluation tool at eval.aaha.org.
Constance Hardesty
Constance Hardesty, MSc, has survived catastrophic hail, -30° weather, floods, ice storms, two tornadoes, and a hurricane.

 

Photo credits: Dynamic Graphics/liquidlibrary via Getty Images Plus

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