Hurricane Season: Building A Plan For Your Business If Disaster Hits
There’s a storm brewing. According to statistics from the U.S. National Oceanic and Atmospheric Administration (NOAA), the 2017 Atlantic Hurricane Season may give businesses even more reason to be concerned than previous years. NOAA’s latest projections indicate the U.S. is due for above-average hurricane activity – with a strong chance of up to 19 named storms, nine hurricanes and five major (category three or higher) hurricanes – higher than the historical average of 12, six and three, respectively.
Causing around $108 billion in damage, Hurricane Katrina was the costliest hurricane in history and one of the deadliest – taking 1,833 lives in the U.S. alone. Over a decade later, the devastation caused by Katrina might not be forgotten but it might no longer be top of mind. However, complacency is not an option. With the U.S. Department of Labor estimating that 40 percent of American businesses never recover from a natural disaster, preparation is essential.
And the risk is not confined to the Atlantic and Gulf of Mexico. In 2016, hurricanes from the Pacific swept through East and Southeast Asia, causing a total of $11.3 billion in damage. The global nature of supply chains means that localized damage can quickly have far-reaching implications.
As of August 17, 2017, six named tropical storms and one hurricane – Franklin – have so far been recorded in the Atlantic basin this season. With increased hurricane activity forecast for this year, what steps can organizations take to best prepare for a large-scale event?
Hurricanes, and the flooding that frequently accompanies them, can be devastating. For businesses, experts warn that the belief that you won’t be affected is seriously misplaced. “Because there hasn’t been a major event for a long time in the U.S., people tend to be apathetic. Last year, Hurricane Matthew ‘brushed’ Florida. Had it moved inland, its impact could have been considerably worse,” says Jill Dalton, Managing Director, Property Claims Preparation, Advocacy & Valuation, Aon. “Just because a major event hasn’t happened in a while doesn’t mean that it can’t happen tomorrow. Companies who have done their homework prior to an event tend have the best outcomes.”
When disaster strikes, how prepared is your team before, during and after the event?
Although the U.S. hasn’t experienced major events over the last few years, there is no guarantee that 2017 will be the same. Organizations should use periods of calm to prepare plans to strengthen their resilience if, and when, disaster does strike.
- Develop response plans: The first tactical step in preparing response is the development and / or adherence to a business continuity management plan, which helps a company forward-think the types of threat it might face and specific details on how to best continue operations in the event of a disaster. It’s important that organizations develop and test their mitigation and emergency response plans (ERPs) ahead of time, so that key stakeholders within the organization understand exactly what their roles are during a disaster. This could mean assigning specific roles and responsibilities to individuals in the event of a disaster and clarifying communications channels so stakeholders know what to do and when.
- Understand your policies: Organizations should examine their insurance policy to understand what exactly is covered and what conditions may be attached to that cover. To avoid surprises in your claim, ensure your policy covers replacement cost for “like-kind and quality.” It also helps to develop strong relationships with third parties such as insurers, disaster response teams, and potential backup suppliers prior to an event. “You don’t want the first interaction with a partner to be during a crisis,” says Ron Hajjar, Managing Director, Claims Preparation, Aon. “It’s best to establish a relationship with them in advance, so you can call upon them at a time when you really need them to come through for you.”
Disasters can be chaotic, but if a company responds swiftly, it can ensure the safety of its assets and maintain business continuity so that it can return to normal operations quickly.
- Ensuring employee and site safety: The priority after a disaster strikes is ensuring the safety of personnel. The second is managing the crisis on the ground and beginning the recovery process so the organization returns to normal operations as quickly as possible. This tends to involve the messy, yet necessary, logistical details of simply getting claim preparation, repair and remediation teams on-site. “After Hurricane Sandy, we had clients who didn’t have essentials such as power and hot water for weeks,” says Peter Jagger, Managing Director, Claims Preparation, Aon. “Remediation companies were brought in to fix the situation so the business could continue operating.”
- Budgeting for continuity: It is also important to have the financial breathing space to conduct repairs – as contractors will need to be paid before insurance policies pay out. At the same time, employees will need to continue receiving their salary even though the company’s ability to provide billable services could be severely curtailed. “Do you have the ability to treat the workforce as a fixed expense during the outage, and for how long?” asks Dalton. “There’s probably a limit on this. It could be 30 days, or 60 days, or 90 days. This time is especially critical after a catastrophe, as you want to keep staff on your payroll so they’re ready to resume working when you open up your facility again, and not get lured into another job, which can impact recovery times.”
Once the immediate threat to facilities and operations has been contained, organizations can begin to think about long-term recovery. There are five steps to this:
- Determine the extent and scope of the loss
- Prepare estimates for repair costs
- Evaluate business interruption losses and necessary period of indemnity
- Develop a detailed claim presentation
- Assist in settlement with underwriters’ adjuster representatives
Large insurance claims can get complicated, so it’s important to do the groundwork in assessing damages and work closely with insurers and other third parties in order to avoid further difficulties down the road. “Generally speaking, in an ideal world, it’s best to align with the adjustment team on big decisions on buying and discarding assets,” says Hajjar.
The claims process can take a long time and needs to be factored into recovery and continuity plans. “Many organizations don’t understand that insurance is a contract, and there are provisions within that contract. Understandably, many just want to get back up and running, but this can lead to false expectations about what can get covered, and how long it can take for policies to pay out,” says Dalton.
While no one welcomes natural disasters, proper plans for disaster response and mitigation are vital. If organizations think clearly about what might happen, and what complications could arise, then they can start building the plans and capabilities that will let them continue functioning, rain or shine.
“Key elements that business continuity plans should incorporate include the potential operational and economic impact of such events, particularly in light of previous natural disasters. Specifically, the aftermath and losses of Hurricane Sandy in 2012 and the more recent mandatory evacuation of the Eastern seaboard during Hurricane Matthew in 2016 highlight the importance of business continuity planning and preparedness.” – Jonathan Wackrow, Executive Director, RANE
“When planning a disaster recovery or business continuity strategy, a clear understanding of the potential impact and ideal outcomes needs to be considered. For many organizations, the ability to continue to communicate with various stakeholders is vital.” – Andy Brown, Central & South General Manager, Atlas Gentech
- Markets Brace For Hurricane Season Turmoil – Bloomberg Markets, July 19, 2017
- Disaster Recovery Needs Planning And Testing – The Scotsman, April 25, 2017
- The NYC Subway Is Still Getting Ready For The Next Hurricane Sandy – Gizmodo, August 1, 2017
- How To Keep Your Supply Chain Safe In Extreme Weather – Supply Chain Digital, July 22, 2017
- How To Keep Tabs On Atlantic Hurricanes – The Economist, June 10, 2017
- Be Prepared: Disaster Response Resources – Aon