By Kevin D. Smith, CPCU, ARM
From the June 2018 Issue
In a matter of 24 hours, a natural disaster can inflict widespread destruction to cities, states, and entire regions. In 2017, natural disasters in the United States cost $306 billion in damages—a new record, according to Moody’s Analytics. And 86% of that cost came from just three storms: Hurricanes Harvey, Maria, and Irma. As we expect severe weather to become even more prevalent amid our changing climate, what can facility executives do to reduce risk?
Unfortunately, and obviously, there is nothing we can do to prevent natural disasters. However, there are several steps that facility leaders can take to help minimize financial loss.
Evaluate your plan for coverage gaps and sublimits. Work closely with your insurance broker to make sure your policies provide the appropriate, up-to-date limits and deductibles, and consider any coverage gaps that should be addressed. Detailed catastrophe modeling of your properties can provide guidance on exposures to loss from storms to ensure you are adequately protected. You should review your policy’s sublimits, which set coverage limits for certain scenarios, so you know what to expect if damage is sustained. For example, even if your facility has a $200 million blanket property limit, you may only have a $1 million sublimit to cover flood-related damages.
Make a list of emergency vendors. This should include all vendors that might be needed in the aftermath of a fire, flood, wind storm, significant power outage, and any other disasters that are specific to the facility’s region. This list should include professionals preferred by the insurance carrier, as that can assist with the smooth, rapid processing of claims and damage documentation. By creating this list in advance, you can also pre-negotiate rates and availability guarantees, helping to save time and money after a disaster.
Prepare files. Don’t forget about your intellectual assets. Plan to print all important information before a disaster strikes or ensure they are properly backed up as part of an IT disaster recovery plan. Severe weather often results in power outages and other service disruptions that last longer than anticipated, and key files—such as property records and facilities plans—should be safely stored and readily available.
Document the damage. As soon as it is safe to re-enter the property, all damage should be described in detail and recorded with photos or videos. Facility managers should also take a full inventory of damaged materials, as this documentation will be important throughout the claims process. It’s important to note that most claims require you to immediately notify the carrier of damage, and provide the documented “proof of loss” within a specific time frame. Finally, as you inspect the property, try to save important pieces of building material or architecture from the debris to help in the restoration process.
Communicate. With the inspection complete, managers should communicate the status of the facility with occupants and workers, alerting them to any potential dangers or concerns as soon as possible.
Move forward with emergency repairs. Here’s the good news: There’s no need to wait for insurance adjusters and restoration companies to evaluate the property in person. Facility managers can hire remediation and restoration companies directly for essential repairs and emergency cleaning, and can work with contractors to begin estimating the extent of the needed repairs. Handling these initiatives directly will save you time, while meeting the requirements of many policies to prevent damage from escalating. Taking action such as covering an exposed roof, securing doors and windows, removing water, and drying out any affected areas can greatly lessen the potential impact of further deterioration. Be sure to keep the receipts from any cleanup services, as these can typically be submitted to your insurance carrier. It’s best to not rush into any significant structural or permanent repairs that may be required, and coordinate closely with your insurance broker.
Consider a forensic accounting service. In a large-loss situation, it can be extremely helpful to have a professional service oversee the documentation process and confirm that all insured expenses are recovered. Your insurance broker can recommend a firm for forensic accounting. Detailed invoices must be accurately maintained for all vendors, whether they are a recommended remediation company or your own trusted contractor. This information should include purchase orders with unit prices and total materials, replacement payments, and labor costs including time sheets, wages, and overtime expenses. The more detail provided, the better off your business will be.
Taking these steps before and after a natural disaster will be critical in reducing your risk and alleviating financial losses. Your insurance broker will help ensure you have sufficient limits available and identify specific proactive and reactive steps to reduce your facility’s vulnerability to weather damage.
Although the frequency and intensity of severe weather incidents will likely rise in the years to come, your vulnerability doesn’t have to increase, too. With a comprehensive disaster recovery plan and the right insurance policies, you can be prepared to address damage quickly and return to business as usual.
Smith is a managing director at Graham Company, one of the country’s largest insurance brokers. With offices in Philadelphia, Washington, DC, and New York City, the firm provides a full spectrum of products including property & casualty, employee benefits, surety, and personal lines.
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