Key Investor Takeaways as Hurricane Season 2019 Winds Down
“Do we have another Puerto Rico on our hands?” was the question on the minds of consultants, insurers and businesspeople following Hurricane Dorian’s passage through the Caribbean in early September. Climate change data suggests that high-category hurricanes will affect the Caribbean more frequently but the region still isn’t properly prepared. Moreover, there is a big difference between levels of preparedness on different countries in the region. When Dorian hit the Bahamas, remaining stationed over Grand Bahama and Abaco islands for 40 hours, there was little to do but wait. No risk scenario had envisaged the country’s logistical and tourism hubs experiencing uninterrupted hurricane conditions for two days.
For firms with assets in the region it is useful to analyse the destruction Dorian caused and compare it with other natural catastrophes in the region to understand the risk posed to their investments. Because although Dorian did carry reminders of the conditions in Puerto Rico after Hurricanes Irma and Maria left the island in disarray in the same two-week period in 2017, there were marked contrasts between the two situations. These differences, which include the speed of information flow, the availability of long- and short-term relief strategies, as well as infrastructure risk mitigation strategies, will remain critical as companies evaluate the resilience of their Caribbean operations to natural disasters.
Information on deaths and infrastructure damage flows slowly in the Bahamas because the country does not have clear evacuation and reporting guidelines for this type of scenario. In the US, there is a system for reporting missing people in the aftermath of a natural disaster and a register that tracks evacuees and their movements, the Bahamas requires individual police reports for each missing person or casualty. If a casualty cannot be ascertained, perhaps due to the absence of a body, the process is much longer. For this reason, the death toll in the Bahamas will likely continue to rise slowly, and will remain an unreliable piece of data when evaluating damages.
Similarly, public spending is decentralised in the Bahamas, with local governments of the nine most affected districts (all of them in the north of the country) handling financial aid from various international and regional sources, as well as the central government based in the capital Nassau. Oversight of most of these funds is also decentralised, and will often be directed at specific projects and areas, without the national government having jurisdiction over its spending. This creates significant difficulties for local governments to prioritise specific issues that are critical for the restoration of business operations, such as basic services or roads. As a result, companies should have their own catastrophe mitigation plans in place. Relying solely on government support will leave you exposed to the worst effects of a natural disaster.
No risk scenario had envisaged the country’s logistical and tourism hubs experiencing uninterrupted hurricane conditions for two days….
The most interesting comparison to make with the Bahamas regarding Hurricane Dorian is Florida state, 500 km to the west of the country. Florida, along with much of the US Atlantic coast, maintains highly established hurricane warning, evacuation and sheltering systems. Individual counties and airports in the state provided real-time updates on their situation in the run up to Dorian’s approach, either on social media or through specifically setup hotlines. The state government then echoed the information shared by local governments, giving it wider projection, while the federal government was charged with releasing longer-term relief funds after the disaster. These measures, which have taken time to establish, help local companies mitigate the impact of natural catastrophes. Indeed, the impact of Dorian on Florida state was far less significant than was expected. Moreover, the systems help reduce uncertainty, making it easier for the government to plan its response.
Compare and contrast in the Caribbean
Unfortunately, no countries in the Caribbean can match the measures that Florida has in place. What Florida is doing right, and governments in the Caribbean region continue to struggle with, is balancing long-term disaster preparation with short-term risk mitigation. Disaster relief agencies, such as the Caribbean Disaster Emergency Management Agency (CDEMA) aim to coordinate relief efforts at a regional level. However, their efforts are undermined by the fact that individual jurisdictions receive international relief funds from various sources, while many do not have local strategies in place.
Puerto Rico is a halfway house between them both. Like Florida, Puerto Rico had evacuation and hurricane warning strategies in 2017. The steady flow of information from the island allowed the media and the international community to stay relatively informed of the situation on the ground as the storm progressed. Later on, this information also helped highlight differences between federal government sources and local level reporting, especially in terms of casualties and disruptions to basic services. So that helped give a more accurate short-term picture of the destruction. However, long-term relief was more difficult to come by. The US maintains a tight grip over Puerto Rico’s finances and while the US Congress allocated $42.5billion for hurricane relief, only about a third of this amount has become available for the local government to spend. Puerto Rico’s Governor, Wanda Vázquez, claims short-term reaction capabilities, especially evacuations and the availability of real-time information, have been improved. However, less is said about long-term relief strategies, which remain a challenge.
High-category hurricanes are increasingly becoming the rule, rather than the exception in the Caribbean…
In Dominica and Antigua and Barbuda the problem is the reverse. Following the Hurricanes Irma and Maria, they did have access to long-term relief funds. They received post-disaster financial aid from diverse sources, including intergovernmental organisations such as the UN Development Programme, individual governments such as the US and the UK, as well as specific insurance frameworks such as the Cayman Islands-based Caribbean Catastrophe Risk Insurance Facility (CCRIF). However, information flow was much slower than in Puerto Rico. Evacuation was also tardy, with most of it taking place after the hurricane had destroyed infrastructure.
Other places in the Caribbean, such as Grenada and St Vincent and the Grenadines, as well as rural areas of Cuba and the Dominican Republic, remain woefully unprepared on both fronts. In tourist hotspots, such as Punta Cana in the Dominican Republic and St Vincent island, there is a lax attitude toward construction codes in cities, with periodic flooding caused by heavy rains. A high-category hurricane in these jurisdictions would entail heightened risks for companies without their own natural disaster contingency plans. If your investment is in an area without direct connections to cities or international airports then you’re particularly exposed. Again, it’s a situation where relying on local governments for critical services means your company is likely to face long-term business disruptions.
Understanding the local reality
Put simply, the same natural catastrophe in the Caribbean can have a very different impact, depending on where it lands. High-category hurricanes are increasingly becoming the rule, rather than the exception in the Caribbean. As such, it is important to go beyond readily available data, such as the speed of winds and the amount of rain, and understand the full extent of political, operational and infrastructure risks in the context of natural disasters. Ultimately an investors’ risk mitigation strategy will need to change depending on the local reality.