Along with providing us with a demonstration of the Earth’s creative energy, the current Kilauea eruption has destroyed homes, fouled the air, and generally disrupted the economy of the Big Island. When the lava cools, families can rebuild if possible, the air will clear back to our former level of intermittent vog – we hope, and the tourists will return to see what Pele has wrought.
But how do the many businesses that have been impacted by the eruption rebuild and re-establish themselves?
There is the obvious impact on businesses that have burned up or, in the case of farms, where the volcanic gases have killed crops and essentially put them out of business. There is the less direct impact on those tourism-based businesses that have closed or laid off workers due to a lack of customers. While not as dramatic as being burnt down, it can certainly feel as dramatic to affected businesses, and that impact extends outward to an extended area that has been affected by vog and tourist cancellations.
So, what do the options for recovery assistance look like to those impacted by this event?
For both individuals and businesses, the first source of recovery funding comes from insurance. For homeowners impacted by the eruption, an important player is Hawaii Property Insurance Association, a nonprofit insurance pool that functions as an insurer of last resort for homeowners otherwise unable to obtain coverage, which would be most of those in Lava Zones 1 and 2. Coverage limits go up to $350,000, but it is important to note that this insurance provides only residential and not business coverage.
Businesses, depending on their individual circumstances and locations, may have been able to secure commercial business coverage. While business policies would generally cover loss by fire, that would not be the case if the cause of loss was volcanic eruption, unless that “peril” was added to the policy by endorsement (unlikely) or unless it was covered by an additional catastrophic “named peril” policy. Businesses may also have business interruption coverage, which would come into play for economic losses resulting from an event. Circumstances under which that might come into play depend on policy language, and insurance policies vary wildly and include multiple and confusing limitations on coverage, so in all circumstances, policyholders need to check with their carriers to determine their coverages.
Then there is the government. FEMA, operating through the state, provides immediate assistance in the form of grants for housing and emergency assistance, and aids with things like road and bridge rebuilding, and with assistance to nonprofit agencies performing essential services of a governmental nature. FEMA assistance is in the nature of emergency assistance.
The Small Business Administration takes the lion’s share of the heavy lifting in recovery financing, and it provides assistance to both the business and nonprofit sectors, and to individuals as well. It is important to emphasize that the SBA provides loans and does not provide grants. Just as in non-disaster times, these loans, require underwriting and are based on the recipient’s ability to repay, and therefore are considered on a case by case basis.
Assistance from either FEMA or SBA is triggered by a presidential declaration of disaster, requested by the governor. Regarding our eruption situation, this declaration was previously provided for state and local government and for qualified nonprofits, with the deadlines for submission of claims already passed for government entities and ongoing until February 2019 for nonprofits. The declaration for the private sector, including businesses and individuals, was just signed Thursday.
SBA offers two categories of loans: one for physical damage and one for economic injury. Deadline for claim submission for physical damage is Aug. 13; the deadline for economic injury is March 14, 2019. These loans are intended to cover what insurance doesn’t cover, at low-interest rates, and with repayment periods of up to 30 years. They can be used to repair or replace real estate, personal property, machinery and equipment, and inventory and business assets destroyed or damaged in the disaster. They can also be used to help with refinancing, relocation, and with the cost of improvements to protect against the same type of disaster damage from occurring in the future. Claims can be made at disasterloan.sba.gov or at the Disaster Recovery Center at the Kea’au High School gym. The SBA encourages all who have suffered physical damage or economic injury loss in the current disaster, and who want to rebuild businesses or homes, to apply for financing. Applications will be considered on a case by case basis.
Underlying the whole recovery situation is the sobering notion that none of these recovery funding options will bring you back to where you were before the disaster; they will not make you whole. Neither insurance nor government agencies can do that, as these are tools intended to help manage, not eliminate risk. I wish there was a happier picture to paint for those businesses and individuals impacted by the eruption. Government and risk management entities are here to help to the best of their ability and within the defined parameters under which they operate, but Pele’s latest self-assertion will be with us for the indefinite future, and for some, things will never be the same.
Dennis Boyd is the director of the West Hawaii Small Business Development Center, funded in part through a cooperative agreement with the U.S. Small Business Administration and the University of Hawaii at Hilo.