More Than 40% of Businesses Don’t Bounce Back After a Natural Disaster
We are in the peak of tornado season, lasting typically from March through early July. As of May, Missouri has experienced 16 confirmed tornadoes varying from light to significant damage. How would your business do in the aftermath of such a disaster?
According to the U.S. Department of Labor, more than 40 percent of businesses never reopen following a natural disaster. Even if your property isn’t damaged, your business may still suffer a loss if customers or suppliers are unable to do business with you. For instance, this past winter, extreme winter storms caused many businesses to close due to snowy and icy conditions. The more an organization can plan for how to deal with such incidents, the better off it will be. A business continuity and disaster recovery plan can help a business continue to function and bounce back from a disaster more easily, while appropriate insurance can help mitigate risk.
Business Continuity vs. Disaster Recovery
The focus of a business continuity plan is to create a backup that mimics the critical business processes a company has in place and the tools needed to support those processes. The business identifies what those critical processes are. For instance, an insurance company needs not only its processing systems, but also space for its associates to work and communicate with clients, as well as reference materials for policy management, underwriting and claims management, which are outside the IT infrastructure. A communication plan also is needed to provide appropriate information and reassurances to stakeholders, clients and employees. Without such provisions for these supporting functions, the company may be unable to serve its current and prospective clients.
A disaster recovery plan focuses on the IT services that support the business and helps design preventive controls, contingency plans, emergency mode operations and recovery procedures. Only about half of U.S. businesses have a disaster recovery program that enables IT systems to be up and running within an acceptable timeframe after a disaster. The speed and ease with which a company can shift to the alternate IT site really comes into play during a disaster. Historically, half of companies experiencing a major computer outage have been forced to close within five years.
Protect Against Losses
It also pays to have insurance in place to cover losses. Making sure that insurance financing is set up correctly will allow your business to both stay afloat in a time of crisis and bounce back. Typically, natural disasters are covered under property insurance. Business insurance policies also contain sublimits. For example, if you have $100 million in insurance coverage, the sublimit might be $25 million for a flood. Policies carry different sublimits, and a company planning to use insurance to cover these disasters needs to be aware of them.
Making an insurance claim can be overwhelming, particularly in tough circumstances. Losses are often difficult to evaluate and reimbursement may be complex to understand. Insurance policies often cover accounting fees for loss adjustment expenses, so an insurance claim review may not cost a dime for the insured. An independent review can help with claim submittal and representation, business interruption loss evaluation, settlement review, policy review and more.
An independent insurance consultant who understands both the insurance coverage issues and the accounting for business interruption can help answer any questions upfront and conduct an analysis of a company’s needs to assure the purchase of appropriate insurance. There have been many court cases involving inadequate insurance — they’re expensive to bring and hard to win. It’s better to get it right before disaster strikes.
To contact Bill Goddard to review your insurance policy before a disaster occurs, use the adjacent form "Schedule a Meeting: Bill."