WHAT YOU NEED TO KNOW ABOUT PLANNING AHEAD AND SECURING THE RIGHT COVERAGE
Planning ahead is the name of the game when it comes to hurricane season. Even in an inactive season, coastal areas can still experience as many as 12 named storms, seven of which will become hurricanes and three that will evolve into Category 3 or higher storms each year.
From June through November coastal business owners must take a two-pronged approach to survival: firstly, crisis communications, management and business continuity planning and then back up efforts with the proper insurance coverage.
Before Disaster Strikes
A crisis communications, management and business continuity plan in place will help ensure employee stability in the workplace.
“As an employer, you must communicate your expectations as early as possible,” said Hart Brown, VP, Organizational Resilience, HUB International Limited. “Answer questions up front as to what is expected of the employee, including the personnel policy for downtime. Will employees be expected to work from home or will they have to take a vacation day in the event of a storm? How will the work of hourly employees be viewed?”
Pre-determined employee notification channels will be critical to disseminating information should the need arise. Brown suggests that business owners have employee contact information at their fingertips, while also establishing a toll-free hotline number or social media site that can facilitate communication during a storm.
Similarly, understanding each business’ individual risk is key to necessary business continuity planning. Brown suggests isolating the business risk first. Is it wind, power outage or hurricane damage? Will your business be down a day, a week or a month? Review your business assets and make sure the operations that are most critical have built-in redundancy or are covered by insurance.
When Disaster Strikes
Because even businesses with employee communications and business continuity recovery plans in place can suffer a setback as a result of a storm, it’s important to examine your disaster coverage. There are a variety of policies to help coastal businesses recover from an event – each involving a different aspect of the restoration.
“Even some of our most sophisticated clients don’t understand the severity of what could really happen should a weather event strike their business,” said Kristine Chunn, CMO, HUB International Florida. “Each business must look its potential risks straight in the eye when determining requirements for coverage.”
Business income coverage. Take a hard look at your business income coverage limits, which include loss of income as a result of an event. Are they sufficient? Extra expense coverage often accompanies business income coverage for necessary business costs, such as setting up business in a temporary location.
Based on the risks you identified above, can you build in enough cash reserves, or will you need to rely on insurance coverage, in case of an event? Go through a potential business interruption to determine the estimated monthly costs for both loss of income and extra expenses. How long will it take you to get your business up and running again? How much can you afford to lose? Base insurance coverage needs on identified risks to ensure that any business interruption will be covered to the greatest extent possible.
Contingent business income coverage. What if your business isn’t in a storm zone, but a key supplier of your business goes down due to a storm and as a result your business can’t meet demand? Contingent business income coverage can bridge these gaps.
Ordinance or law coverage. Depending on the age and condition of the facility, when rebuilding after a storm, additional building codes may apply. For example, if your facility was built in the 1980s, new code requirements may be mandatory when rebuilding. Additionally, if a building was only half destroyed, most local municipalities will require the entire building to be demolished and rebuilt, often costing more than the insurance will reimburse.
Flood coverage. It’s important to realize that most property policies exclude flood coverage. Secondly, businesses typically buy minimum flood coverage limits, but don’t consider that floods can come from even minor storms or no storm at all.
From Katrina to Sandy, the biggest storms of the last decade have taught us some of the greatest lessons in risk mitigation. Here are a few best practices in both pre-planning and coverage gaps:
- Examine deductibles. What type of deductible do you have on property coverage – a percentage or flat deductible? A calendar year or occurrence deductible? If your business has a lot of locations, occurrence or percentage deductibles could potentially be more costly. Additionally, many policies will have lower deductibles for wind and hail events than for a named storm.
- Know the time element of your coverage. Business income coverage typically has a 72-hour waiting period and with wind, businesses could face up to a two-week waiting period. Do you have a plan to sustain your business during that time?
- Beware of post-storm cyber attacks. Phishing and email scams that include malware are known to increase post-storm, when companies are more vulnerable to cyber intrusion and attack.
- Contingency plans for end-of-the-month storms. When storms occur at the end of the month, a busy financial and regulatory time of month for most businesses, a contingency plan will be critical to getting the necessary reporting done.
- Think twice about basement storage. Oftentimes vital records are kept in a building’s basement. But these records are often at risk of exposure to elements such as floodwaters. When vital records are damaged or lost, businesses may have to find a way to recover the information for legal or regulatory requirements.