Category Archives: Business Interruption

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How Small Businesses Can Prepare for the Next Natural Disaster

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As we have witnessed these past two months, Hurricanes Harvey, Irma and Maria devastated many parts of the south coast and the economies of Texas, Florida and Puerto Rico. The damage from the storms is expected to halt U.S. GDP by an entire percent. Recent estimates put the costs of recovery at around $85 billion and $59 billion for Harvey and Irma respectively.

While larger businesses have the resources to rebuild and recover, many smaller businesses do not. They will likely struggle to account for the cost of repairs, and even lose their companies in the process. According to FEMA, nearly four in 10 small businesses struck by a natural disaster are forced to permanently shut down. With more storms expected in the coming weeks as hurricane season persists through November, it is vital that small business owners prepare in the meantime.

The first step for any small business is to prepare internally. Here are three best practices that small-business owners can adopt to prepare for a future hurricane or any other natural disaster.

  1. Establish a recovery plan: Often, disaster recovery plans fall to the bottom of small-business owners’ to-do lists, especially if their business is located in an area that doesn’t typically experience high-risk weather. However, no business is immune from a harmful storm’s impact. So disaster preparedness starts with a formal plan that’s comprehensive and allows the company to quickly restore its normal operations following an emergency.
  2. Discuss your plan with all employees: It is crucial for your entire staff to be on the same page when it comes to what your disaster plan involves in order for it to be effective. So once small-business owners have a plan in place, they need to ensure that their employees know what’s included and what their responsibilities are should a natural disaster strike.
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    Owners can share this information by emailing a copy to all employees and discussing the plan in detail at the next all-hands meeting.

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  3. Back up your business’s data: Small-business owners should ensure their data is backed up both virtually and physically in a secure location. Doing so can prevent a natural disaster from turning into an even worse data loss debacle.

While following these steps can get small businesses on the right track toward hurricane preparedness, no company can be fully protected without insurance.

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With a plan in place, the next step is finding the right hurricane insurance plan. But there is often confusion over what proper hurricane coverage looks like.

Small businesses should take into account the specific rules and regulations of their industry when choosing an insurance plan to protect against hurricanes and other natural disasters. That said, there are two policies that are essential to businesses that need a defense against hurricanes.

Commercial Property Insurance is a policy that helps cover some of the cost to repair damages or restore your business property should a natural disaster cause harm. It is important to note, however, that many commercial property insurance policies only protect damages caused by hurricane winds, not flood damage resulting from rising water. If your business is located in an area prone to hurricanes, ask your insurance provider about “riders” (also known as endorsements), which can be added to your policy for more complete coverage.

Business Interruption Insurance is a policy that helps companies deal with the extended time (and business) they may lose as a result of hurricane damage. Often, this forced, lengthy pause in operations is what causes small businesses to permanently close, due to the high costs they incur and their inability to generate the revenue required to cover those costs. Business interruption insurance helps small businesses through by providing the funds for necessities such as taxes, loan payments, rent and salaries. Again, it is key to ask your provider exactly what a policy covers before purchasing it. Typically, business interruption insurance only protects your business if the circumstance that forced you to shut down is already covered by your commercial property policy.

This year’s Atlantic hurricane season has already been deemed the third worst on record. With more than a month to go, small businesses can ensure that they’re protected from damages through internal company policies and a thorough insurance plan. As far as hurricane insurance coverage goes, it’s crucial for businesses to do their research and find the policies that will provide the best protection. Although developing these plans will take time and effort, the risks mitigated and money saved as a result will be well worth it in the long run.

Tips for Managing a Hurricane Claim

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Despite early predictions of a mild 2017 Atlantic hurricane season, the latest forecasts reflect the likelihood of more named storms than originally anticipated. If that is not ample motivation for risk managers to double-check their hurricane preparation, then the reality that it only takes one major storm to generate a widespread disaster should be sufficient to warrant a review of their claims preparation.
This process will not only help spot potential gaps in your insurance, but also any issues in your planning that may affect the amount and delay the timing of a claim recovery. Based on recent experience, here are some tips for hurricane claims preparation and management.

Conduct a thorough review of your property insurance. Start by checking your deductible. After a loss, the first question risk managers often get from leadership is: “What’s our retention?” You also need to see if your policy has a blanket or percentage deductible. If the latter, is it a percentage of total insured value (TIV)? Do separate deductibles apply to physical damage and business interruption? Double-check your business interruption deductible. A 2% deductible on a business interruption loss equals seven days of self-retention (365 days x 2%).

In reviewing your policy, check the definitions of covered perils. Look for specific references to “storm surge,” “named windstorm” and “flood.” You’ll also want to make sure your policy covers costs to protect and preserve insured property that sustains physical damage and addresses business interruption losses when a facility is closed to preserve or protect property.

Check fee coverage for claims preparation. In a catastrophe, you may need to retain an outside claims consultant to manage your claim; this coverage—standard in some policies and optional for a nominal surcharge in others—comes in handy for complex claims.

Risk managers also shouldn’t overlook the extended period of indemnity, which gives policyholders additional time after a damaged property is restored to regain market share. And don’t miss assessing how your business interruption coverage addresses payroll; most policyholders want coverage that treats payments to hourly workers as a fixed expense (ordinary payroll), especially during catastrophe events.

During your policy review, be sure not to miss the opportunity to pre-select your adjuster. Designate an adjuster in your insurance policy and meet with them and your insurer’s claims director or examiner before any loss. Besides informing them about your company’s operations and claim strategy, a meeting helps structure the claims process.

List your claims team in your emergency response plan. Creating a team in advance—including claim advocate, restoration company, forensic accountant, engineers and building consultants—will mean they can be mobilized immediately following a major loss event.

After a loss event, communicate with key internal stakeholders. Keep your c-suite, operations, procurement and legal teams fully informed of your loss situation and claim process. And be sure all employees have ample instruction. They will need guidance for setting up loss accounts, invoicing, tracking internal labor, inventory, fixed asset ledgers and on any purchases to help mitigate the loss. They also need to understand the sensitive nature of any discussions with insurance company representatives.

Act quickly to assess the loss. Immediately evaluate the extent of property damage and obtain recommendations on temporary repairs and remediation needed to preserve and protect property. Show the adjuster the full scope of the loss so an appropriate reserve is established.

Designate a key member of your claims team to coordinate, manage and communicate activities of emergency resources, remediation, restoration vendors, environmental specialists and other providers involved in your claim. This encompasses all site inspections and remediation, timelines, target dates, ownership of issues and accountability, and facilitates expedited reviews of damaged inventory.

Work closely with your insurer throughout the loss adjustment process, as well, to negotiate partial payments based on expected short-term expenditures.

Get outside help for complex losses. By bringing expertise and special resources, such as drones and other technology, to determine extent and scope of loss, prepare accurate damage and business interruption assessments, claim experts can make a significant difference in your recovery.

Large-scale catastrophes can involve delays in insurance adjustment and elongated downtime, which can have enduring and widespread negative consequences for an enterprise. With careful planning, risk managers can help their organizations achieve faster and more complete recoveries.

For more information on hurricane preparedness and natural catastrophe planning, visit: http://www.aon.com/disaster-response/

Protecting Your Business from Wildfires

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There are currently about 60 large wildfires burning in the United States, mostly in western states.

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But a combination of high temperatures and dry and windy conditions can make wildfires a threat almost anywhere. Adding to the situation is the fact that more and more businesses are expanding into the wildland-urban interface (WUI)—wildfire-prone areas where homes and businesses are located. This creates a growing wildfire risk to businesses, according to the Insurance Institute for Business and Home Safety (IIBHS).

The Property Casualty Insurers Association of America lists the most expensive U.S. wildfires to date, all in western states:

To protect buildings from wildfires, IIBHS recommends that businesses survey the materials and design features of their structures; as well as the types of plants used, their location and maintenance.

Organizations also should determine their fire hazard severity zone (FHSZ) by evaluating the landscape, fire history in the area and terrain features such as slope of the land. Organizations can request the FHSZ rating from local building or fire officials in their area.

IIBHS notes three sources of wildfire ignition:

  1. Burning embers, or firebrands, generated by a wildfire and made worse in windy conditions.
    • Embers can ignite in several ways: By igniting combustible construction materials directly when accumulating on or immediately adjacent to them. Combustible construction materials are those that ignite and burn such as wood, plastic, and wood-plastic products used in decking and siding. By igniting nearby plants and accumulated debris such as pine needles or other combustible materials such as a wood pile.
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      By entering a building through openings, such as an open window or attic vent, and ignite combustible items inside the building.
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  1. Direct flame contact from the wildfire
  2. Radiant heat emanating from the fire

It is critical to assess a building’s construction, including roofs, windows, vents and exterior walls, also important is the area surrounding a structure, including trees and plants, IIBHS said.

A defensible space zone around the building will reduce the risk of fire. This includes consideration of specific types of plants and how they are grouped and maintained.

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Plant characteristics associated with higher combustibility include:

  • Narrow leaves or needles (often evergreen)
  • Volatile resins and oils, as indicated by leaves that have an aromatic odor when crushed
  • Accumulation of fine, twiggy, dry, or dead material on the plant or on the ground under the plant
  • Loose or papery bark that often falls off and accumulates on the ground (such as palms and eucalyptus).

2017 Atlantic Hurricane Season Outlook

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With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

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