How to ensure your company is ready for the next Hurricane Sandy

Neil Harrison, AGRC, group managing director, Risk Control, Claims & Engineering, Aon Risk Solutions

Ron O’Neill, senior claims consultant, Aon Risk Solutions

Learning how to deal with disaster during a crisis is not a good idea. Hurricane Sandy’s aftermath reminds employers of the importance of insurance, disaster planning and claim preparation.

“Always at a time like this, organizations who were not affected need to take a step back and ask themselves, ‘What if?’” says Neil Harrison, AGRC, group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions.

Smart Business spoke with Harrison and Ron O’Neill, senior claim consultant at Aon Risk Solutions, about best practices business owners can use to ride out any disaster.

How did Hurricane Sandy affect the insurance industry?

With an event like Sandy, the insurance industry plays a role in business specific and general economic recovery. Brokers and insurance companies expect to be judged on their performance and response. With a significant amount of claims, there is a lot of resource pressure. Resource scale and leverage become key, and operational efficiency is a prerequisite for success.

It’s too early to comment on the longer-term impacts of insurance pricing or coverage availability. With these events, everybody has an opinion, but nobody knows at this early stage. Property damage, business interruption and contingent business interruption all create the overall cost. Also, just because a company is based in Detroit or somewhere out of Sandy’s way doesn’t mean businesses didn’t have customers, suppliers or vendors affected.

How should you handle an insurance policy?

The first step is ensuring you’ve got the right insurance coverage — the terms, the conditions in place, definitions of perils — and that you understand items such as limits and exclusions. Business owners should aim to have claims preparation coverage on the property cover. Then you can engage an expert for accounting work critical to quantifying and making the claim, and, generally, the process runs more smoothly.

Also ensure the values at risk — asset values and business interruption values — are understood and accurate. Too often, an organization has a claim and is underinsured or overinsured. A best practice is having an external expert work with you on assessing values during your policy renewal process. The business interruption is particularly important because it’s complicated to work out in post-loss panic mode. Since the recession, everybody has different values at risk, but organizations may have continued to index link their values or sums insured.

Beyond insurance, what can businesses do to respond well to disasters?

Organizations that have responded well are those with business continuity plans that are well defined, kept up to date, frequently tested and broad. The plans cover not just the direct issues of building damage but also employee safety and welfare issues, supplier issues, customer issues, etc.

Insurance is an outcome, in many ways, of business continuity. Take a broad look at the business, plan for every eventuality, make sure everyone knows what to do and have restoration firms on contract, as well as access to alternative power.

How should a business submit claims if it suffers damage?

When a significant incident hits, the company has some responsibility to mitigate the damage and cost. Much of it is common sense, but that’s easier to apply when it’s written down with clear responsibilities. Make sure that you:

• Report the loss to a broker or insurer immediately and there are clear lines of communication.

• Take immediate action to minimize loss.

• Keep documents, invoices or receipts, which become part of the insurance claim.

• Take photographs of the damage.

• Engage an external expert, if needed. When a business is in trouble mode, it’s all about recovery. Outside expertise allows you to talk to customers, suppliers and staff, while the expert handles the tactical, and somewhat more mundane, issues.

It’s important to have continuity planning, follow insurance best practices, consider a claim preparation clause and ensure common sense is applied after a loss. Disaster response, claim response and claim preparation are specialist technical disciplines, and businesses find investments in these areas have a positive return.

Neil Harrison, AGRC, is group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. Reach him at [email protected]

Ron O’Neill is a senior claim consultant at Aon Risk Solutions. Reach him at (248) 936-5243 or [email protected]

For information from the Aon Situation Room, Post-Tropical Sandy, including videos on claim steps and business interruption, visit http://insight.aon.com/?elqPURLPage=3422 For an archived webinar on Post-Tropical Sandy, visit http://www.visualwebcaster.com/event.asp?id=90768.

Insights Risk Management is brought to you by Aon Risk Solutions

How to ensure your company is ready for the next Hurricane Sandy

Neil Harrison, AGRC, Group managing director, Risk Control, Claims & Engineering, Aon Risk Solutions

Roland Laury, CFPS, Senior risk consultant, Aon Risk Solutions

Learning how to deal with disaster during a crisis is probably not the right way to go. In the aftermath of Hurricane Sandy, employers are reminded of the importance of insurance, disaster planning and claim preparation.

“Always at a time like this, organizations who were not affected need to take a step back and ask themselves, ‘What if?’” says Neil Harrison, group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. “We are spending a lot of time talking to organizations and helping them to say, ‘OK, what if it was us? Would we have been ready? Were we prepared?’”

Smart Business spoke with Harrison and Roland Laury, CFPS, senior risk consultant at Aon Risk Solutions, about some best practices business owners can use to help them ride out any disaster.

How did Hurricane Sandy affect the overall insurance industry?

An event like Sandy gives the insurance industry an opportunity to demonstrate why it exists. Too often, businesses look at insurance purely as a cost, but the industry is playing a role in business specific and general economic recovery. From the perspective of brokers and insurance companies, they expect to be judged in terms of their performance and how they respond to clients. There is a lot of resource pressure, as the number of claims is significant, so already busy staff is suddenly taking on increased workloads. Resource scale and leverage become key, and operational efficiency is a prerequisite for success.

It’s too early for anyone to comment on the longer-term impacts of insurance pricing or coverage availability for individual businesses or industry segments. When these events happen, almost everybody has an opinion of the cost, and those opinions vary widely. The reality is nobody knows at this early stage. Property damage, business interruption and contingent business interruption all come together to create the overall cost. In addition, just because an organization is based in St. Louis or somewhere not in Sandy’s way doesn’t mean businesses didn’t have customers, suppliers or vendors who were affected. This may indirectly affect them in terms of business interruption or contingent business interruption.

What should business owners know about their insurance policy for an event like Sandy?

There are some key things that organizations should look at. The first step is making sure you’ve got the right insurance coverage — the terms, the conditions in place, definitions of perils — for this kind of event and that you understand it. Business owners need to understand limits and exclusions. They should aim to have claims preparation coverage on the property cover, meaning there’s the opportunity to engage an expert for some of the accounting work critical to quantifying and making the claim. With this coverage in place, and with a relevant expert engaged, generally speaking, a claim is better prepared and the process runs more smoothly.

Linked to that is the need to make sure that the values at risk — asset values and business interruption values — are well understood and accurate. Too often, an organization has a claim and then is found to be underinsured or overinsured. A best practice is having an external expert work with you on assessing those values during your policy renewal process. The business interruption is particularly important because it’s far more complicated to work out in post-loss panic mode. If you think about the economy since 2008, everybody has different values at risk now than they did then. Organizations may have just continued to index link their values or sums insured.

Looking beyond insurance, what can businesses do to respond well to disasters?

The organizations that have responded well are those with business continuity plans which are well defined, kept up to date, frequently tested and broad. The plans cover not just the direct issues of building damage but also employee safety and welfare issues, supplier issues, customer issues, etc. There’s no alternative to investing the time, and probably some money, in a far-reaching business continuity plan because it gives the balance sheet the best protection possible.

Insurance is an outcome in many ways of business continuity. Take a broad look at the business, plan for every eventuality, make sure everyone knows what to do when an incident happens, have restoration firms on contract so you’re first in queue when an incident happens, and have access to generators or additional alternative power.

How can a business best submit claims if it does suffer damage?

When a significant incident hits, the company has some responsibility to mitigate the damage and the cost of the loss. Much of it is common sense, but common sense is easier to apply when it’s written down and people know what they are responsible for. Make sure that:

  • Everyone knows to report the loss to a broker or insurer immediately and there are clear lines of communication.
  • Immediate action is taken to minimize loss.
  • You keep the documents, invoices or receipts for any vendors brought in for restoration or to provide alternative power, etc. Later, this will become a part of the insurance claim.
  • You take photographs of the damage. It’s surprising how many people get everything repaired and then try to make the insurance claim without proof.
  • You engage an external expert, if needed. Sometimes when a business is in trouble mode, it’s all about recovery. Outside expertise allows the business leader to talk to customers and suppliers and deal with staff, while the expert handles the more tactical, and somewhat more mundane, issues.

It’s important for businesses to have continuity planning, follow best practices for insurance, consider a claim preparation clause and ensure common sense is applied when a loss occurs. Recognize that disaster response, claim response and claim preparation are specialist technical disciplines, and many organizations find that their investments in those areas have a positive return.

Neil Harrison is the group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. Reach him at (312) 381-5660 or [email protected]

Roland Laury, CFPS, is a senior risk consultant with Aon Risk Solutions. Reach him at (314) 719-5120 or [email protected]

Insights Risk Management is brought to you by Aon Risk Solutions

Storm Sandy knocks industrial output in October

WASHINGTON, Fri Nov 16, 2012 – Industrial output unexpectedly fell in October as superstorm Sandy disrupted production, but the underlying tone remained consistent with slowing manufacturing activity.

Industrial production contracted 0.4 percent last month after a 0.2 percent increase in September, the Federal Reserve said on Friday.

The Fed said the storm, which tore through the East Coast at the end of October, is estimated to have reduced the rate of change in output by nearly 1 percentage point. It cut the output of utilities, chemicals, food, transportation equipment, and computers and electronic products, the Fed said.

Economists had expected a 0.2 percent gain in industrial output last month. The storm is estimated have caused $50 billion in damage.

Aside from the storm’s impact, the trend in industrial production is biased towards weakness as fears over higher taxes and sharp cuts in government spending deter businesses from ramping up production and capital investment.

Cooling global demand is also crimping output.

The so-called fiscal cliff could drain about $600 billion from the economy early next year unless Congress agrees on an orderly plan to cut rising budget deficits.

“The big thing that stands out are the declines in business equipment, machineries and construction supplies. When you see that kind of weakness, you can’t really attribute it to the storm,” said Christopher Low, chief economist at FTN Financial in New York.

“It’s a pattern of weakness that has happened in the past three months. The most likely explanation is the weakness in capital equipment orders, which could be attributed to caution about the fiscal cliff and its possible impact on the economy.”

Moody’s sees Sandy hit to casinos, benefit to retailers

NEW YORK, Tue Nov 6, 2012 – Superstorm Sandy will slash earnings at New Jersey casinos and benefit home repair and discount retailers but have limited impact on other sectors and is unlikely to trigger credit downgrades, credit agency Moody’s Investors Service said.

While potential credit downgrades exist, no rating actions were taken after Hurricane Irene flooded parts of the U.S. Northeast last year and no ratings have been put on review for downgrade or negative ratings after Sandy, Moody’s told investors on Tuesday.

Such actions were taken after Katrina in 2005, one of the deadliest and most destructive hurricanes to ever slam the United States. To the best of Moody’s knowledge, large natural disasters do not result in payment defaults, with the exception of one non-rated transportation issue after Katrina.

“Even for the hardest hit areas (by Sandy), we don’t expect to observe any payment default by our issues barring any significant change in federal policy regarding FEMA and emergency aid,” said Gail Sussman, a managing director at Moody’s.

FEMA is the Federal Emergency Management Agency. Sandy has killed at least 113 people in the United States and Canada and knocked out power to millions of people. It has swamped seaside towns and inundated New York City’s streets and subway tunnels.

Verizon sees ‘significant’ impact from Sandy on fourth-quarter results

NEW YORK, Fri Nov 2, 2012 – Verizon Communications Inc. said it expected fourth-quarter results to be hurt significantly due to superstorm Sandy and that it could not estimate the impact at this time.

The provider of telephone, Internet and television services said it was directing its resources to restore communications services to affected customers, “which may take some time.”

Verizon may take up to two weeks to restore telecommunication services for some of its customers, a top executive told Reuters on Thursday.

U.S. airlines cancel flights, hotels book up before hurricane

NEW YORK, Mon Oct 29, 2012 –  Hurricane Sandy will likely cause financial headaches for U.S. airlines that canceled more than 7,000 flights to and from the Northeast corridor on Sunday.

Hotels in the region were busy handling cancellations for guests who could not get to destinations in the Northeast, extending stays for guests who could not leave town, and booking rooms for people who left their homes.

Airlines started cancelling flights in the U.S. Northeast region Sunday evening as cities from Washington D.C. to Boston braced for floods and high winds from the hurricane, which was expected to make landfall in the next few days.

According to Flightaware.com, more than 7,100 flights had been canceled by 9 p.m. on Sunday due to Sandy. Airlines waived fees for people who have to change travel plans because of the grounded flights.

In New York City, the timing of flight cancellations like US Airways, was determined by the city’s decision to start shutting down its mass transit systems at 7 p.m. as passengers would have no way to get to and from the airport.

U.S. Airways said it would likely have to cancel close to 2,000 flights because of the storm, starting at 7 p.m. Sunday. The airline said it expects to resume flights on Tuesday, but noted that flooding and the storm’s duration could cause additional delays.

The airline also said it would move planes from the hurricane zone to try to avoid damage. Repositioning those planes after the weather clears could cause additional delays.

Transportation consultant George Hamlin estimated that Sandy could cost the industry hundreds of millions of dollars.