Abstract
Losses due to floods have dramatically increased over the past decades, and losses of companies, comprising direct and indirect losses, have a large share of the total economic losses. Thus, there is an urgent need to gain more quantitative knowledge about flood losses, particularly losses caused by business interruption, in order to mitigate the economic loss of companies. However, business interruption caused by floods is rarely assessed because of a lack of sufficiently detailed data. A survey was undertaken to explore processes influencing business interruption, which collected information on 557 companies affected by the severe flood in June 2013 in Germany. Based on this data set, the study aims to assess the business interruption of directly affected companies by means of a Random Forests model. Variables that influence the duration and costs of business interruption were identified by the variable importance measures of Random Forests. Additionally, Random Forest-based models were developed and tested for their capacity to estimate business interruption duration and associated costs. The water level was found to be the most important variable influencing the duration of business interruption. Other important variables, relating to the estimation of business interruption duration, are the warning time, perceived danger of flood recurrence and inundation duration. In contrast, the amount of business interruption costs is strongly influenced by the size of the company, as assessed by the number of employees, emergency measures undertaken by the company and the fraction of customers within a 50 km radius. These results provide useful information and methods for companies to mitigate their losses from business interruption. However, the heterogeneity of companies is relatively high, and sector-specific analyses were not possible due to the small sample size. Therefore, further sector-specific analyses on the basis of more flood loss data of companies are recommended.
Highlights
Losses due to floods have dramatically increased over the past decades and amount to an estimated global annual average loss of US $104 billion [1,2]
This study improves the understanding of flood-related business interruption duration and costs in Germany, based on analyses of empirical data from 557 companies affected by the June 2013 flood
The processes leading to business interruption costs and duration are complex, with various variables influencing these flood consequences
Summary
Losses due to floods have dramatically increased over the past decades and amount to an estimated global annual average loss of US $104 billion [1,2]. The losses of companies, including losses due to business interruption, contribute a large portion to it [4]. For an optimal allocation of funds, cost-benefit analyses are performed, of which a central part is the estimation of benefits, i.e., averted flood losses. Cost-benefit analyses, which exclude certain loss categories, such as losses due to business interruption, lead to sub-optimal decisions [5]. Quantitative knowledge about processes that determine business interruption, as well as models to estimate business interruption time and resultant losses, are necessary. Even though business interruption losses are expected to exceed the direct flood losses of companies [6,7], little is known about it and only a few models for estimating time of, or losses due to, business interruption are available
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