How a business continuity plan and the right insurance can save your business Featured

8:00pm EDT April 25, 2010

Disaster can strike a business at any time, making it critical that a company have the right insurance.

But you can’t just buy a policy and forget about it. You need to stay on top of your policies and make sure that you know them inside and out, says Anthony V. Palumbo, Director, Client Services at Aon Risk Services Central Inc.

“When it comes to the insurance policies you have on your business, you should review them carefully and understand exactly what is covered and what is not in the event of a disaster,” says Palumbo. “This is important because, if a loss should occur, you will need to know whether or not you can make a successful claim. It may be a good idea to re-evaluate your current coverage to make sure that you have adequate protection.”

Smart Business spoke with Palumbo about how to implement a business continuity plan and how having the right insurance in place can help minimize the damage to your business in a disaster.

In case of a disaster, how can a business avoid interruption and stay up and running?

You can greatly diminish the possibility of an extended business interruption event by having a comprehensive and tested business continuity plan. Such a plan can encompass an entire company or just one critical location or aspect of the business.

This allows an organization to proactively respond to a loss event, prioritizing and directing internal and external resources to ensure quick recovery and continued operations.

When a company is faced with a catastrophic event such as a hurricane or a widespread flood, a rush to secure resources typically follows. Having a comprehensive business continuity plan in place can provide a competitive and strategic advantage that places your company in a position of strength, well ahead of other companies, at a time when everyone is clamoring for limited resources.

By having a strategic plan in place, you have already identified and quantified potential vulnerabilities to your operations, completed an impact analysis, analyzed your potential supply chain and logistic weaknesses, and completed business interruption assessments, both upstream and downstream. This head start will help conserve your client base as well as your market share.

How soon after an incident should claim preparation begin?

Once the loss event takes place, you should take immediate action, including, but not limited to, focusing on employee and visitor safety, property preservation, notifying your broker and insurance carrier, conducting an assessment of physical damage and identification of affected operations, including customers, suppliers and any other critical business functions.

Your broker can help you organize and design protocols to respond to claims. This includes identifying any external resources, emergency responders and/or experts that may be needed.

Your broker should be at the loss site immediately to assist with the coordination of the response and recovery efforts and should spearhead each aspect of the claim preparation. Your broker should also interface with the insurance company throughout the process.

With its insurance carrier, a company should request advance payments as it completes and documents portions of its claim. These advances will allow an organization to collect insurance proceeds prior to the final submission of the overall claim, thus fostering a quick repair or replacement of critical equipment, as well as providing funds to cover expenses incurred as a result of the loss.

Claim preparation involving property damage can seem simple, but the evaluation of certain types of property can be complex. Claim preparation for loss events involving business interruption and loss of revenue may take a great deal of time and effort.

Your broker should be able to negotiate a final settlement to ensure that your insurance covers what it was intended to and all applicable policy terms and conditions are analyzed and considered prior to the final payment.

When does the relief process begin?

It begins immediately upon notifying the carrier of the loss event. The process from initial notification to claim settlement will vary depending on the size and complexity of the loss. Losses involving significant property damage, business interruption or extra expense can sometimes take more than a year to resolve. Advance payments are commonplace and should be obtained as frequently as portions of the claim can be submitted to the insurers in order to get money flowing.

The key is to make certain that your company and broker are driving the claims process and analyzing and documenting each component of the claim that is covered by your insurance program.

How often should a company’s business continuity plan be reviewed?

At a minimum, plans should be tested annually, and by that I mean fully exercised and tested. This exercise can be coordinated by your business continuity plan specialist, by someone designated as the ‘owner’ of the plan within your organization, or a combination of both.

Another method is to do what is referred to as a tabletop exercise, which is a scaled-down test of your business continuity plan that can be performed by identifying critical pieces or components of that plan that you want to prioritize from a testing perspective.

Anthony V. Palumbo is Director, Client Services at Aon Risk Services Central Inc. Reach him at (314) 854-0724.