Filed Under:Agent Broker, Commercial Business

Be Prepared

Disaster recovery planning presents an opportunity to help customers prepare for the worst.

Operating a business can leave little time to plan for something that may never happen. But 2011—which ended in a record year for natural disasters—serves as a powerful reminder that there is much at risk and businesses cannot afford to be unprepared.

Last year, catastrophes hitting the U.S. resulted in more than $32 billion in claims for the insurance industry, of which a large portion was paid to businesses. Disasters can do more than cause property damage—they can disrupt operations through a power outage or data breach. That spells big trouble for a company’s reputation and bottom line. 

Despite that, many businesses still don’t take disaster planning very seriously. 

A recent survey commissioned by The Hanover Insurance Group reports that 63 percent of business owners surveyed said it was “not very” or “not at all likely” that their business would experience a disaster such as a flood, hurricane, tornado or any other incident causing loss of use. With these results, it is not surprising that only 41 percent reported having written plans in place to maintain their businesses in the event of a catastrophe.

Moreover, while 51 percent of businesses surveyed reported being concerned with the privacy and security of their business records, more than four out of five don’t have any protection against it.

For the independent agent, these statistics demonstrate an important opportunity to use their expertise to provide service and professional advice to business customers regarding the risks they face. 

Effective business continuity planning combined with customized coverages provide valuable defenses against disasters. Agents who help customers identify and plan for these risks are delivering unique value and differentiating themselves in the market.

Business Continuity Planning

When disaster strikes, a business comes screeching to a halt for days, weeks or even months. We see the best agents and carriers working together to not only provide excellent insurance coverage advice, but also offering value-added services to their business clients. This includes building effective business continuity plans. Prepared businesses that undergo a disaster recover better and show more loyalty to those agents who advised and protected them ahead of time. 

Related: Read the article "NATO Summit Has Chicago-Area Risk Managers Tuning-up Disaster Plans" by Mark E. Ruquet.

When building a strong business continuity plan, agents and carriers work with a customer to:
  • Anticipate the types of events or threats a business may face including fire, hurricanes, ice storms, floods, data breach and vandalism
  • Assess all of the business’ assets—including a building or office, inventory and intangibles 
  • Review protection already in place against potential threats (such as how to evacuate in the event of a fire) and assess current systems, including network firewalls, security cameras and sump pumps 
  • Determine areas of potential business impact they would face post-disaster, such as employee impact, financial impact and legal impact.

Next, agents may want to work further with their business customers to build a plan for recovering following a crisis. Below are the top 10 key items:

  1. An overview of assets and potential threats to the business.
  2. List of key employees/job functions, and back-ups in the event they are unavailable.
  3. List of employees who can function in their roles from a remote location.
  4. Critical paperwork stored in a safe place. This may include legal documents such as articles of incorporation, banking information, employee information, etc. 
  5. List of key external contacts and vendors, which include an insurance agent, important suppliers, attorneys and consultants.
  6. Plans for essential equipment and services. Whether items like computers or access to the Web, businesses should understand what they need to function in a crisis. 
  7. Back-up of digital data. The plan should include back-up of important digital files outside of the business area in the event that company hardware is destroyed or inaccessible. 
  8. Alternate site options. The plan should spell out a plan for establishing operations at an alternative location if a building is unusable.
  9. Step-by-step communication plan. How will the crisis team be notified? How will employees be communicated to? In what order? 
  10. Step-by-step recovery outline. The plan should include a clear outline of business recovery, including a timeline and estimated costs.

To bring this all together, communicate and practice.

The Right Insurance

Offering sound advice to protect businesses from disaster is as important as advising a customer on building a business continuity plan. While traditional property insurance covers buildings or equipment, business interruption insurance offers a life preserver for a business when a disaster hits.

Related: Read the article "Producers Identify Manufacturing Clients’ Biggest Coverage Concerns" by Bonnie Cavanaugh.

If a business is destroyed or otherwise unusable, business interruption compensates for income lost. The coverage includes compensation for operating expenses and profits that may have been generated during the disaster—based on existing records. An organization should be advised to obtain enough of this coverage that it will have time to rebuild, relocate or restart. 

While some business owners’ or commercial package policies offer expenses and loss of net income, they may not cover income interruptions for offsite damages, such as utility company failure or a problem with a key supplier. 

Another important coverage to consider offering a business customer is extra expense insurance. 

Extra expense insurance will pay a business a reasonable amount of money in excess of normal operational expenses in order to help fuel the speed of the organization’s recovery. 

Related: Read the article "Emerging Demand: Second-Tier Supply Chain Cover" by Bonnie Cavanaugh.

If a flood damages a business office and its equipment, cleaning and repair may take 6 months. During that time, the business owner wants to continue operations to minimize the loss of customers. This requires renting a temporary location, furnishing that location, installing a phone system and notifying customers to the new location. Because these costs are in excess of normal expenses, they only are covered if the business has extra expense insurance. 

Agents also may want to offer their customers emergency event response policies. Coverage for emergency communications, such as public relations, minimizes the financial impact of a disaster while mitigating the reputational risk the business might face post-disaster. This also includes post emergency event expenses if medical treatments, counseling or funeral arrangements are needed. 

Agents should consider other unique coverages for risks experienced by specific industries, such as technology, manufacturing, or educational providers. Carrier’s loss control units are an excellent source of industry specific information. 

Convincing the customer

The best defense against disaster is to plan in advance. The best agents, in their roles as consultants, point to the facts and recent history to demonstrate the increased likeliness of a catastrophe. 

Agents who have developed their expertise and help business owners understand the importance of a business continuity plan, combined with the right coverage, create greater value and have more opportunities for their agency over time. 

Without this important two-pronged protection approach, many businesses will find it difficult to recover should they face a disaster striking their operation. 

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