Financial losses and flood damages experienced by SMEs: Who are the biggest losers across sectors and sizes?

Abstract

As climate-related disasters increase in frequency, magnitude, and variability, the various facets of flood disaster impacts demand more effective and targeted mitigation actions and resilience strategies. Within the private sector, small and medium-sized enterprises (SMEs) are particularly susceptible to climate-related events like flooding. As the backbone of the UK economy, SMEs' anticipatory adaptation is urgently needed to safeguard the socio-economic system of places at flood risk. Although many studies have examined the financial losses and other damages SMEs face, the discrepancies in losses and damages due to the size and economic sector of the SME are not sufficiently addressed. This knowledge gap hinders more targeted and effective flood-risk management and is also often cited as a reason why flood insurance is unavailable to SMEs. This paper examined the experience of 417 SMEs after three different flood events in the North of the UK. By performing parametric and non-parametric statistical tests using IBM SPSS 25, we offered granularity on the commonalities and differences in financial losses, types of damages, business closures, and decreases in sales that SMEs of different sectors and sizes experienced. The main findings showed the distinctive categories of financial losses that are more common and expensive for some sectors than for others, and provided a detailed list of losses in nine categories for SMEs in 13 sectors. It also revealed that the losses-to-turnover ratio is a more accurate representation of the negative impact that a flood event can exert on SMEs. In addition to informing SMEs of areas to focus their resources to increase their mitigation and adaptation potential, findings from this study can also support insurers, business chambers, the government and other supporting organisations in identifying potential risks to seek prevention and tailor programmes to build SMEs’ socio-economic resilience in a changing climate.