How to Minimize Business Interruption During Hurricane Season

Important Considerations

There are many important considerations for businesses when reviewing their BI insurance policies during hurricane season, the most important of which are:

• Understanding what coverages are available to a business, any gaps in coverages, and how to reduce the risk associated with each exposure.
• Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally, the business must be closed for several days before coverage begins, and it does not pay for those days retroactively.
• Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business, and how easily the business could function at an alternate location on a temporary basis.
• BI insurance cannot be purchased on its own; it must be added to a Property Insurance policy or included in a Business Owner’s Insurance policy.
• Since Business Interruption coverage can differ significantly, it is important to understand the policy terms, such as exclusions, coverage limits and waiting periods. Coverage is provided for lost net income only for the duration of regaining operation. The basic property insurance coverage provides for losses caused by things such as fire and theft, with physical property and contents coverage. Business interruption is only one of several policies and associated coverages that may be responsive in the event of damages resulting from a hurricane.

Additionally, keep in mind that a waiting period deductible is sometimes used in business interruption and other in lieu of a dollar amount deductible. This designates that the insurance company provides coverage for the business interruption, for example, 72 hours after the triggering event.

Common Gaps in BI Coverage

Business Interruption insurance covers the financial damages that result from an interrupted income flow. Additional coverages are not always included. For example, extra expense, ordinance or law, flood, wind-driven rain, and off-premises liability are just a few coverages that may not be included in every BI policy.

Extra Expense insurance covers a business from expenses that may occur when normal business operations are disrupted and until it has restored to normal operations. This includes those expenses over and above normal operating expenses, reasonable and necessary, to mitigate loss and return the business to temporary or normal operations during a period of restoration.

Ordinance or law insurance covers ordinances or laws that can add 50% or more to the cost of a claim. Wind-driven Rain coverage will cover losses resulting from wind-driven rain that is propelled into a structure, where the building was not physically damaged, but rain entered from outside wind causing damage to interior. Flood is also not automatically included with coverage under a typical property policy and generally must be purchased and added by endorsement to a policy.

Off Premises Utilities Interruption typically covers losses sustained by a business as a result of utility interruption off premises due to an event like a windstorm or other peril covered by the policy. This coverage is especially critical in disaster situations where services may be unavailable for prolonged periods of time.

Best Practices

For businesses to guarantee they have the appropriate coverage in place for hurricane-related business interruption, it’s important they talk with their McGriff Agent who will know what is needed to support customization of coverages and combinations available from reputable carriers in the marketplace, along with risk transfer goals.

Ultimately, a comprehensive business continuity plan will assist in the identification of the best risk transfer insurance coverage that is needed. During the plan creation, a business continuity assessment will be completed to identify resiliency in each area of operations and determine how an organization can continue to operate at some level during and after a disaster. This plan will also support the calculation of the cost of interruptions, whether that be through the loss of sales or income, increased expenses, regulatory fines or contractual penalties, or delay of business. The methods of recovery identified in the plan can determine the amount of time and financial investments will be needed and coverage that could be needed. Additionally, this plan should include emergency preparedness and action planning that prioritizes life safety.

Minimizing the Impact

To ensure the impact of a hurricane-related business interruption event is minimal, prepare as much as possible outside of hurricane season. Following the below suggestions will help minimize potential harm to your business:

• Test the business continuity plan and make necessary changes to ensure the plan’s success.
• Establish an emergency management team. This team will own and support actions before an event and during recovery from an event. Additionally, they will monitor weather and associated threats closely.
• Anticipate documents needed to support a property loss.
• Maintain updated formal appraisals of all buildings, mortgages, and/or lease agreements.
• Maintain list of equipment and fixtures, ideally with descriptions of each with manufacturer, age, cost, installation, accessories, attachments, and modifications. Include photos or videos of operational equipment.
• Keep records of physical inventory, purchases, and sales related to materials and supplies.
• Ensure access to payroll records.
• Develop a communication system to report emergencies, warn personnel of any danger, keep families and off-duty employees informed about events happening at the facility, coordinate response actions, and stay connected with customers and suppliers.
• Identify critical contacts for employees, customers, utility providers, insurance contacts, suppliers, and equipment. If possible, identify backups for each contact.
• Establish an Emergency Action Plan that includes emergency services and/or medical response, evacuation drills, shelter in place, and employee training.
• Assemble facility maps with protection systems such as sprinklers and riser access, alarms, security systems, and the preventive maintenance plan in place to maintain and test these systems.

It’s important to also identify an alternate site for recovery. This site can be a warm site, cold site, or another physical location within the company that has capacity to continue business operations.

Additional Considerations

Remember to include technology needs in your emergency response plan! Establish a data backup for important data required to support business. Data should be backed up in a protected location off site. The technology and process development should include critical business functions, Recovery Time Objectives (RTOs), short-term plans to recover the business functions, and long-term plans to restore business to normal operating levels. Other important actions include:

• Develop a community outreach program. The outreach program should have established mutual aid agreements. A company spokesperson should be designated that will communicate media and public response according to procedures established within the program.
• Create a written strategy to shift employees whose tasks allow working from remote settings, such as a home office, or another work location. Critical functions related to procurement, logistics, and distribution should be identified to determine onsite needs.
• Establish vendor agreements to facilitate essential inventory replacement of supplies and equipment. Maintain this listing and contact when storm is advancing to ensure readiness.

Additionally, human resource management needs should be identified to include needed personnel for critical business functions, acceptable downtime, and any materials HR will need for recovering their functions. Businesses should also plan for and consider security issues that may arise during a business interruption event, whether that be cyber security or security of physical assets or employees.