Protecting Your Business in the Age of Superstorms

 

There's an old saying from New England about the region's unpredictable climate: "If you don't like the weather, just wait a minute." But as weather continues to get more extreme in more areas, businesses can't afford to "wait a minute"--literally: according to the Department of Labor, about 40% of all businesses close for good after being struck by a natural disaster.

 

More than a year ago, New York was hit by Superstorm Sandy, the deadliest and most costly storm since Hurricane Katrina. It did damage the likes of which New York had never seen, but could very possibly see again. Business leaders have been taking lessons learned from that superstorm to prepare for the next one, wherever it might hit.

 

The single biggest lesson is that having the right kind of insurance is absolutely vital. No one had expected to see parts of downtown Manhattan underwater, but business owners who had bought flood insurance were still protected. As weather becomes less predictable, it's time to reassess the kind of protection your business might need. Ask us about the natural disaster policies that best fit the risks of your business and its location. Your agent can help you gain perspective on the possibilities and potential ramifications for your business. Of course, every business is different; we can help you come up with the right kind of solutions for you.

 

Business interruption (BI) insurance also proved its value for many businesses after the storm, covering lost income while property was replaced or repaired. For some businesses, a full recovery was made possible by BI policies with an extended period of indemnity clause, which covers losses not just during the time of repair but also during the time it takes to rebuild a customer base and get back to pre-disaster income levels.

 

While adequate BI coverage is definitely important, the businesses that came out on top after Sandy were the ones that kept the lights on, even before repairs began. By backing up vital information offsite and online, they were able to keep working in the days and weeks - or even months - after Sandy struck.

 

One of those companies was Guardian Life Insurance, which saw its Wall Street headquarters flooded with five feet of water. Repairs took over a year. During the wait, 1,600 Guardian employees moved into a few empty floors of a Goldman Sachs building across the Hudson. Others worked from home, or at cafes and libraries.

 

With these fallback locations to work in, and vital information still at hand thanks to prior planning, Guardian kept plugging along. In fact, customer feedback even showed that the company had improved. So, rather than returning to normal, the company has redesigned some of their offices for the kind of open-concept and collaboration-promoting setup of those empty floors across the Hudson, relies less on paper, and allows more work from home.

 

That may be the second-biggest lesson to learn from Superstorm Sandy--after the importance of insurance coverage, of course. If a company is not only prepared for business interruption and property damage, but also has a plan in place to keep working, adapting, and improving after disaster strikes and before repairs are completed, then even the clouds of a superstorm can have a silver lining.

 

 

When something goes wrong, damaged or lost property isn't the only price. When a company shuts down to make repairs or replace equipment, it's losing income - a loss that can really add up. That's why business interruption insurance is one of the most important kinds of coverage. Usually attached to a property policy, business interruption insurance covers income lost after property is damaged--the "interruption" is the time it takes for property to be repaired and replaced before the business can get back to making money. That interruption can cost a company as much as the damage itself, so it's a very good idea to make sure it's covered.

 

But a basic business interruption insurance policy only protects against interruptions caused by onsite damage. Offsite business interruption is often overlooked by companies choosing a policy-and that can be a big oversight.

 

Imagine a business--say a chair manufacturer. The business is well-insured, for fire, flood--you name it. They also have business interruption insurance. Then, one day, this chair manufacturer runs into a problem. The chairs are made from the best wood around, and they get it from a lumber mill not too far away. But there's been a fire at the lumber mill, and all of that high-quality wood has gone up in smoke.

 

The lumber mill, luckily, is also well-insured. The cost of rebuilding, repairs, and replacing equipment and stock is covered. Because they also have business interruption insurance, so is the lost income from not being able to sell wood. No one's happy about the fire, but thanks to these vital forms of insurance, the lumber mill's losses have been minimized.

 

But what about the chair manufacturer? Between finding a new lumber mill and waiting to get wood delivered, it takes the company three weeks to finally get back to making chairs. The company is pretty well-insured, but they soon discover that these three weeks' lost income isn't covered by their business interruption policy.

 

That's because there was no damage onsite. Disaster struck offsite, and, even though it caused big losses for the chair manufacturer, a fire at a separate company isn't covered in the policy. That's bad news, and a big loss, for our chair manufacturer.

 

That's also why there's contingent business interruption insurance. Contingent business interruption insurance covers losses that are caused by offsite problems--like a fire at the lumber mill that supplies a chair factory, a regional power outage that forces a movie theater to close, or a chemical spill that contaminates the water a restaurant needs to prepare food. An offsite problem can cause just as big an interruption - and loss of income - as an onsite problem, so it's important to be covered for both.

 

In a world that's increasing connected, no business is an island. Contingent business interruption insurance protects you from the misfortune of other companies, so if disaster strikes them, and ripples out to you, your losses are covered. No two companies' needs are alike; talk to us about the businesses and systems that your business relies on offsite, so we can help you find the best coverage for your business.