Enhancing resilience: Understanding the impact of flood hazard and vulnerability on business interruption and losses

Abstract

Without taking additional measures, flooding is becoming more likely and intense in a changing climate, which causes large economic damage. Households and firms are directly impacted by physical flood damage, but further ripple effects on society occur through business disruptions. By using post-disaster survey data from the 2021 flood event in the Netherlands, this study adds to the literature on business interruption duration and losses after flooding. The current empirical literature on flood impacts on firms is often unable to distinguish separate effects for flooded and non-flooded firms and does not incorporate flood severity and the influence of risk reduction measures. Here, we use multivariate regression models to determine depth-duration functions that describe the relationship between flood hazard characteristics and business interruption duration. This relationship can be used to calibrate flood damage models that capture indirect firm impacts. The prediction of business interruption after flooding allows for differentiation in business interruption between firms within a flooded area, reducing the reliance of these macroeconomic models on restrictive assumptions. Our results indicate that a day of business interruption duration costs a firm on average 0.5 % of their annual revenue; an effect that is stronger for firms with a weaker connection to their region. Flood damage mitigation (FDM) measures taken at the building level do not significantly affect business interruption duration, although further research on this is required. Finally, quick damage compensation is found to reduce business interruption duration and thus revenue losses, calling for higher insurance uptake and rapid and streamlined post-disaster insurance and government compensation.