Even with the proper insurance coverage, recovering from a disaster can be difficult for businesses that have not thoroughly prepared for the rebuilding process. Disaster plans and insurance money may not be enough to save a company that hasn’t tested its ability to address a crisis.
“Yes, there’s insurance to protect against a disaster, but what happens after the catastrophe occurs? It’s great to have a written plan in place, but if you don’t do a trial run or an audit of the plan, how do you know it’s going to work?” says Derek M. Hoch, president of Leverity Insurance Group.
Smart Business spoke with Hoch about the basics of disaster recovery and how insurance supplements the planning process.
What is often overlooked in terms of disaster planning?
Both business owners and key employees can become complacent because there is a plan in writing; they assume it will automatically work. Employees read the plan, understand their role, then over time there is no refresher about what they specifically need to do in that job function if a disaster were to occur.
From an insurance aspect, it’s easy enough to get monetary relief and rebuild if you insure the building structure and business personal property. What often gets overlooked is business interruption, or business income coverage. This is a major component in any businesses risk management program. It represents the economic loss, the potential loss of key employees, ongoing payroll and utility expenses, as well as any extra expenses that you normally wouldn’t have if the disaster didn’t occur. There are a lot of variables that business owners do not think about until after a disaster, and those costs are often overlooked and underinsured.
The problem with business interruption insurance is that it’s a difficult number to determine. There are business income worksheets and calculations that can be made, but it’s not a static number like replacing a building, which has a specific dollar amount.
What is necessary, once the written plan is in place?
Companies will put the plan in writing and explain it to employees, but never conduct a test because they don’t want the disruption to their business for a half or full day. A catastrophic event could occur at any moment. You may need to shut the business down in order to:
- Test the facilities.
- Make sure employees relay the proper information to the correct people or authorities.
- Confirm anything done off-site to back up systems is in place, and you’re not losing valuable information and data that would compromise the sustainability of the operation.
Companies don’t want to disrupt their businesses. What they don’t realize is that one day off to test their plan could potentially save them thousands or even millions of dollars.
Why is it vital to reopen quickly, and what can businesses do to speed up the process?
Unless you’re in a niche industry, planning for a disaster is vital because you will have competitors able to come in and supply your customers when you are shut down. This is the equivalent of business death, because the longer it takes, the more customers and employees will go elsewhere.
Your insurance broker/risk manager should sit down with you and — just as you do regarding the physical structure and assuring adequate coverage — walk you through the potential disasters that could happen and help formulate what necessary steps to take to ensure sustainability. It’s really a team approach, asking open-ended questions and letting the business owner talk about their business, so a plan can be instituted. This plan will complement the other forms of insurance coverage you purchase to protect the rest of your business.
You can try to prepare for everything, but having a plan in place and practicing it at least annually can help get you back up and running earlier in the event of a disaster. ●
Insights Business Insurance is brought to you by Leverity Insurance Group