The ins and outs of insuring businesses against disasters
By Josh Helmuth - Posted Aug 7, 2017 at 2:01 AM
So your home is prepared for a hurricane or tropical storm. Great! Be proud you have checked the boxes — proper preparation pays off. But what about your business?
As a reformed Florida surfer, I can tell you that the best (and biggest) waves occur during hurricane season from June 1 to Nov. 30. In other words, right now — surf’s up and you should be ready for it.
For your business, two areas to focus on are insurance strategy and business continuity planning. Insurance will take care of paying you back after the storm hits and business continuity planning will make sure that the business can operate following a loss.
Pre-storm is the time to review insurance policies to make sure they are written for your specific business needs. It’s critical to realize that once a warning is issued, insurance companies will shut down underwriting and binding of insurance. At that point, it’s too late to buy or change a policy.
Most issues with business insurance policies stem from how the contracts are written — what is included/excluded:
- Replacement cost versus actual cash value policy assignment: Cost to replace/reconstruct your buildings will be depreciated if actual cash value is listed.
- Coinsurance percentage: How does this apply to your current reconstruction value? Avoid penalties with a current insurance appraisal.
- Business interruption/extra expense: Make certain that the correct calculation method is used and contingent business interruption is added if suppliers are important to your operations.
- Building ordinance and law: Building codes change regularly. Who will pay for reconstruction updates to meet the current code? Coverage for such updates is probably not automatically included in your policy.
- Flood: Coverage for rising waters/storm surge is not typically covered unless your business has separate flood insurance. However, primary limits of flood insurance may not be enough to insure the full replacement cost of your building.
Insuring owned property of your business is only one aspect of disaster planning. Best practices for business owners include a business continuity plan, which defines continuity of critical operations following a hurricane disaster. The plan includes such considerations as: how prepared are you for a disaster, what are your critical functions, are the critical parts of your business able to function in the event of a catastrophe and how will your business operate until it is up and running again?
Communicating the strategy to employees is vital to the plan’s success. Most plans involve transferring equipment and inventory, specifics for protecting buildings and records and provisions for employee availability to help with preparations, including who will do what before and after the storm hits.
There are some great information sources to assist with building a building continuity plan, but the plan must be specific to your business. One resource can be found at http://www.lykesinsurance.com/blog/blog-details/lykes-blog/2016/06/30/planning-for-the-unthinkable, in which Lykes executive vice president Mark Webb explains how to customize a plan by describing the five phases of business continuity strategy: Initiation, Business Impact Analysis, Recovery Strategies, Implementation and Testing/Monitoring.
Proactive business owners will plan for adequate coverage as well as hurricane/disaster recovery to ensure their business will continue to operate after the storm. Once those boxes are checked off and a strategy is in place, get back to work! Or better yet, go grab a surfboard and hang 10.
Josh Helmuth is risk adviser in the Sarasota office of Lykes Insurance, a Florida-based commercial insurance firm.
LINK TO ORIGINAL ARTICLE