As hurricanes approach, many businesses vulnerable regardless of size, location
Hurricane activity is expected to be above average again this year, but your business doesn't have to be based in Florida to be vulnerable.
Every state east of the Mississippi River, in fact, has at one time experienced the strong winds and heavy rainfall of a hurricane or tropical storm. In September 1999, communities all along the East Coast felt the wrath of Hurricane Floyd well after it was downgraded to a tropical storm.
Last year, four major hurricanes made landfall in the United States, making 2004 one of the busiest years on record for hurricanes.
Disaster planning should always be a priority for risk managers, not just at the onset of a category 5 storm. Even if it is unlikely that a hurricane will affect your company, businesses large and small should still prepare for the worst.
Catastrophes can put even a well-run business in jeopardy. Disaster recovery experts, in fact, have estimated that some 80 percent of businesses without well-conceived and tested contingency plans fail within two years of a major disaster.
Catastrophes are not limited to hurricanes, floods, storms and earthquakes. A business also can be devastated by power outages, fires, accidents in neighboring buildings or even terrorist attacks.
When it comes to recovery, a business that makes disaster planning a priority can bounce back quickly. Within minutes of the terrorist attacks of Sept. 11, 2001, for example, it was widely reported that Merrill Lynch and Co., which was located in the World Financial Center (directly across from where the World Trade Center towers stood), successfully evacuated employees from its headquarters.
Critical management functions were routed to the firm's New Jersey command center. By Sept. 17, Merrill Lynch had its 8,000 displaced employees back at work in alternative facilities. The financial firm's director of contingency planning cites extensive testing and upgrading of the company's contingency plans as critical to getting the firm back to business as usual so quickly.
While the term disaster planning was popular in technology circles in the 1990s, preserving data and information technology capabilities are now only part of a plan that should address every critical area of a business.
A good disaster plan is a blueprint of how a business will respond in a disaster and what steps it will take to protect itself and its people. To plan well, a business needs intimate understanding of its operations, customers, vendors and geographic territory. A bonus is that the knowledge-management gains are likely to prove valuable in running the business every day.
While often seen as a large corporation issue, no business is too small for disaster planning. Even a small retail operation or professional firm should have a response plan in case it is shut down by events outside its control.
The larger and more complex a business grows, however, the more critical such planning becomes. Management's failure to plan for a publicly traded company could easily become a liability issue for the business and its top executives.
Building a successful disaster plan does not have to be costly, but commitment by top management is required to make it work and to allocate the time and resources to see it through. The highest levels of the company need to make the plan a priority and ensure that it has support throughout the business.
Management also must test the plan and keep it up to date. The disaster plan should remain an agenda item in management meetings as it needs to grow and change with the company.
Businesses such as banks and brokerages that need to be operational right away will face higher expenses for alternate locations, replacement equipment and data back-up than businesses where recovery time may not be as critical.
For all businesses, the costs of developing and implementing a disaster plan need to be weighed against the very real risk of failure should disaster strike with no plan in place.
Risk managers can enlist the help of their brokers to develop a solid disaster recovery program as part of a business continuity strategy that includes adequate business interruption insurance. Insurance carriers with expertise in business continuity planning also can help with the process.
In addition, a strong plan in place can be a bonus for an organization looking to purchase business interruption or extra expense insurance.
While businesses can seek to reduce and prevent losses, events beyond a company's control can still force it to shut down. When disaster strikes, the survival of a business can easily depend on how it responds to the unexpected. Those companies that know how they will respond when a catastrophe strikes stand a much better chance of recovering.
Steven R. Pozzi, managing director and senior vice president, Chubb & Son, and chief underwriting officer for Chubb's Commercial Insurance business unit, is based in the company's Whitehouse Station, N.J., office. He can be reached at spozzi@chubb.com.
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While often seen as a large corporation issue, no business is too small for disaster planning. Even a small retail operation or professional firm should have a response plan in case it is shut down by events outside its control.
Pullquote:
"Building a successful disaster plan does not have to be costly, but commitment by top management is required."
Steven R. Pozzi, SVP, Chubb
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