Natural disaster impacts on small businesses can deepen the second year after an event, bringing a risk of long-term “economic scarring” to communities, research commissioned by QBE finds.

The Oxford Economics Australia study analysed seven Australian bushfires, floods and cyclones between 2018 and 2023, comparing affected communities with similar regions not impacted by a major event.

Two years after an event, catastrophe-hit communities had nearly 10% fewer small businesses than would otherwise have been the case, representing about $43 million in annual economic activity that is never realised.

QBE Australia Pacific GM SME Ming Yiu Song says recovery is often measured by what has been rebuilt.

“This research highlights another side of the story: the businesses that never reopen, the opportunities that never emerge, and the growth that never occurs,” she said.

“Every small business lost can mean fewer jobs, fewer services, less investment and fewer opportunities.

“When those losses accumulate, they can alter the economic future of an entire community.”

In the year of a disaster, affected communities had about 3% fewer businesses; one year later the gap had grown to about 4%, and it reached 9% two years after the event.

In the case of “very high severity” disasters, such as the 2019 Townsville floods, Cyclone Seroja in 2021 and the Murray River floods in 2022-23, communities had 21% fewer businesses two years later than would otherwise have been the case.

The report – titled The Recovery Gap – says many businesses initially draw on savings, insurance payments, government assistance or extra debt, but closures may occur after those resources are exhausted.

Weaker local demand and uncertainty may discourage new businesses from opening, with disaster effects reducing start-up activity for one to two years.

By the third year, regions begin to recover but economic activity remains well below the path it would otherwise have followed, suggesting major disruptions may leave permanent “economic scarring”, the report says.

A strong link was found between resilience and recovery. Two years after a major disruption, lower-resilience communities were supporting about 15% fewer small businesses than expected, while higher-resilience places remained broadly unaffected.

Community resilience factors include disaster preparedness, reliable infrastructure, strong local employment and business activity, access to essential services and community connections.

For businesses, continuity planning, regular maintenance, protecting critical assets and identifying vulnerabilities can help minimise disruption and support a quicker return to trading, QBE says.