Originally published in Financial Executive International.
How you respond to a natural disaster can make a tremendous difference in how soon you get back in business and how smooth the claims process can be. Here's some advice on how to respond if you've just been hit by a hurricane or are in the path of one.
Three ferocious hurricanes just blindsided many property owners in the United States, though blindsided might be too strong a term. Financial executives, along with everyone else, had seen the weather forecasts. And natural disaster seems more common these days.
In fact, last year global natural disasters combined to cause economic losses of $210 billion, an amount 21 percent above the 16-year average of $174 billion, according to Aon Benfield. The 2016 losses were attributed to 315 separate events, compared to an average of 271. Given the realities of the climate, no one's expecting natural disasters to tail off.
So, wherever you are in the world, you could be next.
In addition to claiming lives and destroying homes, catastrophes disrupt businesses that people depend on for survival – e.g., hospitals, drug companies, communication providers, power generators, food distributors, contractors, and everyday employers who supply their staff with cash – often the only viable financial instrument in a disaster.
There are two ways hurricanes can disrupt a business:
- Directly: Wind can blow commercial property down and rip it apart. Ensuing flood can ruin raw materials, products, records, driveways, furniture, data centers and more.
- Indirectly: While your company's property may survive the direct effects of a hurricane, the storm can still cause lengthy interruptions to your business operations due to damage to: your key suppliers' and customers' operations; critical services such as electricity, fuel, water and data; and the transportation networks around you.
A hurricane strikes. What now?
How you respond to a natural disaster can make a tremendous difference in how soon you get back in business and how smooth the claims process can be. Here's some advice on how to respond if you've just been hit by a hurricane or are in the path of one:
- Consult your pre-loss plan: If you have a pre-loss plan and a dedicated internal crisis response team, congratulations. Activate the plan, trust the team, and be ready to make adjustments as conditions warrant. Some common elements in a pre-loss plan are among the next nine items.
- Check on employees: First, track down your people to ensure they're all safe. Remember that they will have been affected by the same event and may be dealing with their own crises.
- Document losses: Next, focus on ensuring everything is documented: the physical damage, the effects on your business, and the expenses you're incurring to respond and recover. Generally, you'll be thinking along two potentially overlapping tracks: property damage and business disruption. If your company is untouched but a hurricane is wreaking havoc on your partners and the community, document those costs just as meticulously as if a tree caved in your roof.
- Know your insurance policy: The property insurance policy is the main vehicle by which financial recovery for the loss will take place. Refresh your memory on the terms, conditions, processes and deadlines. Hurricanes bring wind and flooding, but sometimes these hazards are separated in an insurance contract. Make sure you understand how your policy works.
- Communicate: Contact your insurer as soon as possible. If you've chosen the right insurer, the company will be your trusted partner in last-minute prevention, damage assessment, mitigation, and recovery. Don't be reticent: A common mistake is acting in a vacuum and shutting your insurer out until you're ready to make your claim. Rather than giving you leverage, this approach makes it harder to capture all the costs you'll want to recover and can delay reimbursement. Good insurers truly want to pay clients every penny owed under the policy. The more open the process is, the better the chance of a full recovery.
- Mitigate: Do what you can to mitigate damage, both to your property and business. Address precarious conditions such as roofs or walls that are about to collapse. Restore fire protection. Talk to your insurance adjuster about creative ways you might get back into business quickly, e.g., through alternate facilities or suppliers.
- Track spending: Establish a loss control account in the company's records or general ledger. All loss expenses should be charged to this account. Retain all estimates, purchase orders, invoices, time sheets, contracts, etc. to ensure all costs are captured.
- Identify causes: Retain any piece of equipment that may be a contributing cause of loss. Tag and identify it along with time and date of the incident. This can help to prevent recurrence and can also aid in the subrogation investigation.
- Take photographs: It is true that a picture is worth a thousand words. Take as many pictures of the damage as possible. And document the repair process with pictures. This will assist in the entire claims process.
- Analyze business disruption: The goal of business interruption coverage is to do financially for your business what it would have done absent the physical damage. The process of determining what your business would have done can be complicated. Pre-loss sales, post-loss sales, and make-up capabilities all can factor in. Be prepared to work with the adjuster to come to agreement on the method by which the business interruption loss will be calculated and measured.
Following these 10 recommendations should help you jumpstart recovery in two ways.
First, you will mitigate your loss and recover more quickly. The quicker your recovery, the quicker you can get back to why you're in business in the first place. And that is good for your customers and shareholders.
Second, with everything documented and communication established, your insurer might be willing to cut you a check early in the process as an advance on your final settlement. Advance payments can and ought to be made early in the claim.
Taking steps like these amid a hurricane will help get your company back in business as soon as possible and assist you to get a full and fair settlement. There's no reason to wait until a catastrophe: It's especially smart to engage in pre-loss planning with your insurer. This can create a strong relationship that will pay dividends when the hurricane does strike.
That means before a storm even approaches, you're sitting down with your insurer and going over what will happen if a storm – or fire or earthquake or cyber attack – ever occurs. You'll discuss the insurer's role, your role, and the policy's role. You can lay out your expectations and come away with ideas on what you can do now to be resilient.
Better to plan for something that never occurs than have something occur you wish you'd planned for. Especially, when you can see it coming.
Natural hazards can strike without warning at any time, so you need to be ready. Our Natural Hazard Toolkit prepares you to deal with these forces of nature in advance and when they hit.