Some structures pose an environmental risk following a fire.
When disaster hits, what’s the best way to minimize damage caused by water, fire, mold or hazardous chemicals — and to get a business operation back up and running?
Any business owner faced with an emergency call needs an emergency plan — or at least a list of phone numbers of whom to call first, said Randy Geving, co-founder of Six and Geving Insurance.
“Report the incident as soon as possible to your insurance company,” he said, adding that smaller “disasters” are handled most efficiently by calling the insurer’s 1-800 number or by filing a report on the Internet. A call to a local agent will also speed the process.
“Some people just let the water from a broken pipe just sit there in their basement overnight or try to clean it up themselves — and then call their agent after the fact. The process could have been simplified if they called us — or their insurer — first. We can have adjusters on the scene anywhere in a few hours — and they can authorize getting a restoration company or plumber to start work right away.”
Another tip: Take photos or video of the damage right away. Visual information can later be used not only by the adjuster, but in the case of a fire or chemical clean-up, by the fire department, environmental, public health or other emergency responders.
Following a disruption of business due to a disaster, large or small, it’s also important to document all expenses. Careful record-keeping is a must.
Failure to account for losses can ultimately affect the insurance company’s ability to compensate an owner for destroyed property, and more importantly, for “business interruption.”
All losses, after all, are not obvious.
“If your employees have to work extra time to help clean up, if you have to lease a temporary storage unit for inventory or if your computer system is destroyed, take the time to write everything down,” he said, adding that as a property and casualty insurance agent as many as 20 percent of his 3,400 clients experience an unforeseen accident or catastrophic event every five years.
He points out that a landlord, perhaps the owner of a retail strip center that catches fire, derives revenue from leasing the property. The owner will suffer revenue losses when tenants can’t pay the monthly rent because they’ve had to shut down temporarily or permanently.
“The tenant may lose his inventory, his ability to operate, but the landlord has losses too. Both groups should have solid policies with business interruption insurance provisions in effect.”
Fortunately business interruption endorsements are found in almost 100 percent of property and casualty insurance policies.
“It’s almost a case of having to sign off on it if you don’t want it,” Geving said.
Such coverage allows the victims of a fire, for example, to move to temporary quarters if it takes six months to rebuild at the original location. And while many owners may have a policy that covers fire, the same insurance plan doesn’t necessarily cover a back-up location.
“Ninety-percent of businesses that don’t get re-opened right away will fail, their customers move on,” he said. “A good risk management strategy is to have a plan in place if the worst happens so you can retain your customer base. Once you lose them, they’re hard to recapture.”
Geving’s estimates are backed up by Donna Childs, author of “Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses.”
She said that 90 percent of the businesses that didn’t open within five days after the 1993 World Trade Center bombing were out of business within one year.
Her own experience working for a company located in lower Manhattan on Sept. 11, 2001, and lessons learned from that experience caused her to develop a “roadmap” that includes preparation, response and recovery strategies for small business survival following catastrophic incidents.
She acknowledges that few catastrophic events rise to the level of a 9/11 or Hurricane Katrina. More often owners deal with human error, equipment failure, third-party failure (e-mail or Internet connection), environmental hazards, fire and other disasters occur than with terrorism-linked destruction or sabotage.
She stressed the importance of pre-work, analyzing business operations, so that when an unforeseen event occurs, adequate thought has been given to “what if.”
Such preparation includes everything from buying the right insurance that’s designed to cover unanticipated rather than anticipated losses to backing up key IT and data and developing back-up financial strategies for business survival, including adequate financial reserves.
More than one in four businesses will experience a significant crisis in any year.
- Of those businesses that experience a disaster and have no emergency plan, 43 percent never re-open.
- Of those that re-open, only 29 percent are operating two years later.
Sources: Community Insights magazine and KPMG Risk Advisory Services (2005), and The Hartford’s Guide to Emergency Preparedness Planning (2002).