The 2019 hurricane season has arrived, prompting all organizations to ask the question, “How would we recover from a catastrophic event?” The impacts of both Hurricanes Irma and Michael serve as examples of potential exposures, emphasizing the importance of disaster preparedness. Hurricane Michael caused the evacuation of more than 30 healthcare facilities due to physical damage and loss of power. Hurricane Irma caused power outages to more than 200 Florida hospitals and nursing homes, while roughly 50 hospitals operated off backup power.
Disaster preparedness planning can reduce the risk of significant financial losses. This process pin points actions critical to minimize the overall damage following a tragic disaster.
Understanding Your Company’s Risks
The risks faced by organizations are constantly changing. As operations change, the risks change and need to be evaluated on a regular basis. Similarly, exposures previously considered low risk may now be considered high risk.
Financial Recovery and Disaster Preparedness
Critical steps for incorporating financial recovery into your disaster recovery plan include the following:
• Plan for the unexpected.
• Understand how, and to what degree, your company could deliver services in the event of a major shut-down of operations.
• Know your claim(s) team. This team should include internal representatives from risk management, operations / production, accounting / finance and other areas as appropriate. The team may also include external members such as forensic accountants and coverage counsel.
• Assess required cash reserves and/or access to credit during a major shutdown while awaiting recovery through insurance.
• Outline key areas of insurance coverage. Knowing what your policy covers can influence your disaster recovery plan.
Insurance Coverage and Your Risks
Insurance provides a financial vehicle for the transfer of those risks that cannot be eliminated or fully mitigated. Companies transfer these risks by purchasing insurance with the expectation that any related losses will be partially or fully covered. Some of the key actions to take regarding your insurance coverage include the following:
• Review your existing policy to understand types of coverage, limits, sublimits, deductibles, waiting periods, co-insurance requirements, etc.
– Windstorm deductibles are often 5% of your insured value. In certain cases, this can equate to a shutdown of approximately 18-20 days before coverage responds.
• Assess your business interruption values.
• Extend your period of indemnity where appropriate and cost effective.
Required Actions Subsequent to a Loss
Following a catastrophic loss, an organization must take actions to protect and/or replace its property as well as, focus on steps to continue or reestablish services / operations. Areas to consider in this process include the following:
1. Notify the broker / insurer.
2. Assemble your claim(s) team that will oversee the entire claim(s) process and should develop a project plan early in the process.
3. Protect key assets.
4. React quickly and gather information related to the loss.
5. Track and properly classify all costs (property damage, extra expense, etc.).
6. Document all substantive meetings and discussions with the claim(s) team, the insurer and its representatives.
7. Develop estimates as soon as possible. This will help the insurer set reserves and manage internal expectations.
8. Request advances from the insurer early and often throughout the claim(s) process.
9. Take actions where feasible to mitigate the loss.
a. Temporary locations.
b. Outsourcing / Make-up of lost services.
c. Reduce continuing costs where possible.
Summary
All organizations are constantly exposed to the potential impacts from catastrophic events due to the increased frequency of natural disasters. Setting the framework for your organization’s disaster preparedness can significantly mitigate your overall financial impact. Your insurance recovery can be expedited and maximized by having a recently tested and functioning disaster recovery plan. Integrating financial preparedness into your disaster recovery plan can help ensure the stability of your business – the difference between significant financial loss and significant recovery.
