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Investors shun businesses disrupted by flood

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Businesses in Australia must take proactive steps to strengthen the resilience of their facilities in flood-affected regions or risk long-term damage to the value of their operations, FM Global says.

A global study by the insurer of 71 large publicly traded companies which reported financial damage from a major flood finds the event impacted the value of each business, with investors increasingly considering flood-related property loss and business disruption as “bad management rather than bad luck”.

The analysis looks at losses from 10 flood events, including Cyclone Debbie, which caused heavy damage in Queensland and northern NSW in late March 2017.

“The lessons are increasingly clear,” FM Global Australia Chief Engineer Michael Stuckings says. “Flooding can be costly in both the short and the long term and businesses in Australia must take proactive steps to strengthen the resilience of their facilities in flood-affected regions.”

Building above flood levels, designing flood-resilient structures, moving critical equipment above flood levels and using flood barriers can mitigate potential damage, enabling businesses to recover more quickly, he says.

A year after flood losses, shareholder value at the 71 firms had declined by an average of 5%, equivalent to a collective $US82 billion ($114 billion). That was far more costly than investing in flood protection, reflecting investors’ lowered expectations of future cashflow, rather than the cost of the flood damage itself, as well as "shaken confidence in your company’s managerial decision-making,” FM Global says.

The findings make a strong case for making resilient choices, including smart site selection, emergency planning, structural reinforcement, elevation of critical machines and equipment and use of flood barriers, it says.