June 1 marks the beginning of South Florida’s hurricane season, which means it’s time to revisit your business’s coverage.
“So many people will under-insure thinking that it is only hurricane season six months out of the year,” says Bill Roversi, senior vice president of Royal Marine Insurance Group (RMIG). “A lot of people take that risk because CAT premium tends to be more than just your standard property and casualty premium. Let’s say it costs $100,000 to insure your building. If you’re in a hurricane-prone environment, closer to the ocean, 60 percent of that might be just CAT-attributable.”
Smart Business spoke with Roversi about what should be on every business owner’s pre-hurricane season checklist.
How should companies prepare for hurricane season?
The most important precaution businesses should take going into hurricane season is to read and understand their policy. I can’t stress this strongly enough. If there are exclusions, which all policies are going to have, understand what those exclusions are and how they might affect you. Start there in determining your CAT plan. If there are parts of it that you don’t understand, pick up the phone and call your agent. He or she will be able to explain any parts you don’t understand.
As far as what to look for, business owners should particularly double-check that the values they have are current. Often, owners will take out a policy for their property, then it stays at a certain level for who knows how long, and nobody ever thinks about changing anything. Well, particularly now, depending on where you are in the world, a lot of values have seriously depreciated. So a building that might have been worth $10 million four years ago during the real estate boom might be worth 20 or 25 percent less than that today. By the same token, owners might have a building that is 10 years old that is worth twice as much today. In any event, they just need to make sure the values are current with the market.
What common mistake are business owners making?
Most people have no idea what a co-insurance clause is, but it can be a killer. Let’s say somebody has a plant that physically is worth $10 million. But the ownership figures that even if the plant gets hit by a hurricane that it is not going to demolish the whole place. So the owners decide that they are only going to insure the plant for $5 million. Almost all property policies have a co-insurance clause. So if you have a claim, it’s deemed that you underinsured the building by 50 percent. So your claim is paid less 50 percent.
If you have $1 million of damage on that $10 million property that you insured for $5 million, you are going to get $500,000 not $1 million. You need to make sure the value is proper and not one you arbitrarily chose just to keep rates down.
What can companies do to reduce weather-related losses?
Companies can have hurricane drills and quiz their staff on what they need to do. Provide a list, by department, of what people are supposed to do in preparation. If you have all of that down in a procedures manual, it is so much simpler than people trying to scurry around when a hurricane actually comes. Still, most people do not take the time and trouble to actually make a hurricane guide or a catastrophe plan.
In the yacht market, for example, you are required as part of your insurance to submit a hurricane plan. You have to know what you plan to do if a hurricane comes, and put it down in black and white. If it turns out you didn’t do any of those things, it’s much harder to get your claim paid.
Are there insurance products available that cover financial losses a company incurs by the threat of a storm?
A standard windstorm policy requires physical loss of damage to trigger the policy. Many South Floridians know all to well that during an average hurricane season we may not receive a direct hit but are subject to several warnings and evacuations. Organizations such as hotels, retail stores, restaurants, marinas, casinos and manufacturers that lose revenue due to a mandatory evacuation would benefit from looking into evacuation coverage, where policyholders receive a pre-determined value for a full day of evacuation. The coverage can also protect local government expenditures, as municipalities often face higher personnel and emergency administrative costs when the county is required to evacuate.
Another interesting coverage was designed to cover windstorm deductibles, business interruption and hurricane-related extra expenses when a hurricane arrives within a predetermined number of miles of an insured location, even if there is no physical damage to the insured property. This fills the gaps in current property and business interruption policies.
Another very active year is predicted for the 2009 season. Take the time now to consult with your agent and don’t forget to also review your homeowner’s policy.
Does submitting a hurricane plan help in other areas of the business?
If I’m going to an underwriter to write a manufacturing plan, and the company I represent already has in place a hurricane preparation guide and staff drills, I guarantee you its premium is going to be less than the business down the street that doesn’t. It just shows that they are good, astute, competent business people who are prepared for emergencies. All any agent wants to be able to do for clients is to show them in as positive a light as possible to the underwriters at the insurance company.
The business owner can really show that he or she is competent and intelligent by having preparations for not just hurricanes, but fire and other catastrophes. If you have contingency plans for most of these things, it really shows underwriters that you are on top of the program.
Bill Roversi is a senior vice president for Royal Marine Insurance Group. Reach him at (305) 477-3755.