Is Your Business Prepared to Survive This Year’s Active Hurricane Season?

Advance Planning and Proper Insurance Essential to Recovery, Says the I.I.I.

NEW YORK, May 30, 2006 – Communities can survive disasters only if their businesses survive. While there is no way to lower the risk of a natural disaster like a hurricane, there are critical measures that business owners can take to protect their company’s bottom line from nature’s fury.

A disaster plan and adequate insurance are keys to recovery, particularly with the active hurricane season anticipated for this year, say the Insurance Information Institute (I.I.I) and the Institute for Business & Home Safety (IBHS).

Develop a Disaster Recovery Plan

No matter how small or large all businesses should develop a business impact analysis to identify what they must do to protect themselves in the face of a natural disaster. Large corporations often hire risk managers to handle this task and some companies hire consultants with expertise in disaster planning and recovery to assist them with their plans. But smaller businesses can do the analysis and planning on their own.

Your business plan should cover the following:

  • Set up an emergency response plan and train employees to carry it out. Make sure employees know who to notify about the disaster and the correct measures to take to preserve life and limit property losses.

  • Write out each step of the plan and assign responsibilities to employees in clear, simple language. Practice the procedures set out in the emergency response Compile a list of important phone numbers and addresses. Make sure you can get in touch with key people in the aftermath of a disaster. The list should include local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and insurance company claim representatives.

  • Decide on a communications strategy to prevent loss of customers. Post notices outside your premises; contact clients by phone, email or regular mail; place a notice in local newspapers.

  • Prepare the things you may need initially during the emergency. Do you need a back-up source of power? Do you have a back-up communications system?

  • Protect employees and customers from injury on the premises. Consider the possible impact a disaster will have on your employees’ ability to return to work and how customers can return to your shop or receive goods or services.

  • Assess your physical resources. Inspect the physical plant(s) and assess the impact a disaster would have on facilities. Make sure your plans conform to local building code requirements. If you own the structure that houses your business, integrate disaster protection for the building as well as the contents into your plan.

  • Connect with your business community. Even if you are not directly hit by a disaster, there is still a risk that the business could suffer significant losses due to the inability of suppliers to deliver goods or services, or a reduction in customers. Businesses should communicate with their suppliers and markets (especially if they are selling to a business as a supplier) about their disaster preparedness and recovery plans, to make sure everyone is prepared.

  • Consider the financial impact if your business shuts down as a result of a disaster. What would be the impact for a day, a week or an entire revenue period.

  • Keep duplicate records. Back up computerized data files regularly and store them off-premises. Keep copies of important records and documents in a safe deposit box and make sure they’re up-to-date.

  • Identify critical business activities and the resources needed to support them. If you cannot afford to shut down your operations, even temporarily, determine what you require to run the business at another location, and how you can get set up quickly.

  • Find alternate facilities, equipment and supplies, and locate qualified contractors. Consider a reciprocity agreement with another business. Try to get an advance commitment from at least one contractor to respond to your needs in the event of a disaster.

  • Protect computer systems and data. Data storage firms offer offsite backups of computer data that can be updated regularly via high-speed modem or through the Internet.

Review Your Insurance Plan

Make sure you have sufficient coverage to pay for the indirect costs of the disaster—the disruption to your business-as well as the cost of repair or rebuilding. “Flood” can have many connotations depending on the circumstances: from sewer backup to river overflow to rain coming through a window or snow melt coming through a damaged roof, and more. Not all “flooding” is covered by insurance. Overland flooding in low lying areas such as water overflowing from a river is never covered. It’s considered an inevitability that when you build in a flood plain, a river will eventually flood the surrounding land. Overland water that finds its way into your basement is similarly not covered. You must take steps to prevent water seapage into your building such as proper grading around your property.

Sewer back up is covered by insurance but typically is provided as an add on or endorsement to your policy.

Water leakage into your building as a result of wind damage is typically covered by insurance. For example, if a tree falls, breaks a window and rain is blown into you home, the resulting water damage is covered by insurance.

Check with your insurance provider (your agent or broker) for more information on how you can protect your property from water damage and flood including by having the appropriate and available insurance coverage.

New additions or improvements should also be reflected in your policy. This includes construction changes to a property and adding new equipment.

For a business, the costs of a disaster can extend beyond the physical damage to the premises, equipment, furniture and other business property to the potential loss of income while the premises are unusable. Your disaster recovery plan should include a detailed review of your insurance policies to ensure there are no gaps in coverage. In addition, your policy should include business interruption insurance and extra expense insurance. Even if your basic policy covers expenses and loss of net business income, it may not cover income interruptions due to damage that occurs away from your premises, such as to your key customers or suppliers or to your utility company. You can generally add this coverage to your existing policy.

Basic commercial insurance:

  • Building Coverage provides coverage up to the insured value of the building, if it is destroyed or damaged by wind/hail, or another covered cause of loss. This policy does not cover damage caused by a flood or storm surge, unless added by endorsement.

  • Business Personal Property provides coverage for contents and business inventory damaged or destroyed by wind/hail, or another covered cause of loss.

  • Tenants Improvements and Betterments provides coverage for fixtures, alterations, installations or additions made as part of the building that the insured occupies but does not own, which are acquired and made at the insured’s expense.

  • Additional Property Coverage provides coverage for items such as fences, pools, or awnings at the insured location. Coverage limits vary by type of additional property.

  • Business Income provides coverage for lost revenue and normal operating expenses if the place of business becomes uninhabitable after a loss during the time repairs are being made.

  • Extra Expense provides coverage for the extra expenses incurred, such as temporary relocation or lease of business equipment, to avoid or minimize the suspension of operations during the time that repairs are being completed to the normal place of business.

  • Ordinance or Law provides coverage to rebuild or repair the building in compliance with the most recent local building codes.

Many business owners are complacent about natural disasters until it affects their own business. Don’t wait until disaster strikes to come up with a plan. Being properly prepared can make all the difference in the recovery and survival of your business.

For more information about insuring your business and disaster preparedness, visit the I.I.I. Web site.

You can download a copy of Open for Business: A Disaster Planning Toolkit for the Small Business Owner at the Institute for Business & Home Safety/.

The I.I.I. is a nonprofit, communications organization supported by the property/casualty insurance industry.