Though hurricanes get most of the headlines, inland disasters far outnumber hurricanes. And businesses across the United States are affected, sometimes irreparably.
It can be tempting to discount the danger to your own business. After all, these often are dubbed one-in-100-year events. Still, data indicate that hurricanes that move inland, severe convective storms, floods, wildfires and blizzards wreak havoc on counties across the nation every year.
Since Jan. 1, 2014, there have been 1,442 federal disaster declarations, according to the Federal Emergency Management Agency. And no states were spared. Topping the list are:
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Wildfires (529)
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Severe storms (266)
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Other events, including chemical spills, dam and levee breaches, volcanic eruptions, and droughts (169)
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Tropical storms (167)
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Floods (165)
Kentucky has been hit hard. Eight of the nine top counties receiving federal disaster declarations since 2011 are there, with each county having more than a dozen declarations during that time. And Louisiana has the highest per capita cost per federally declared disaster. According to a disaster declaration atlas created by Rebuild by Design, 90% of U.S. counties have had a recent disaster declaration.
With inland disasters so prevalent, your business should have a written and practiced response and recovery plan.
Mitigate your risk
There are multiple ways to reduce your business’s risk of financial loss due to a disaster. They generally fall into three categories: prevention, insurance and recovery. Each of them deserves its own dedicated plan that you should review each year. Your insurance agent or broker can offer advice and resources to get you started and keep you on track.
Risk mitigation begins with an assessment of your structures, contents, geographic footprint and partners. You need to determine how vulnerable you are to wind, floods, wildfires and other perils. Remember to assess your supply chain, including utilities.
Once you’ve made your determinations, consider prevention and loss mitigation preparations. Those typically include things like storing crucial data in the cloud, keeping plywood and sandbags on hand for emergency use, establishing an evacuation plan, and having a generator or some other backup power source.
Property maintenance is part of risk mitigation, so eliminate or minimize any fire hazards. Make sure your building envelopes are properly sealed and any structural weaknesses are repaired. Remember, lack of maintenance can hurt your ability to recover payments in an insurance claim.
Proper insurance is crucial to recovering from a disaster. You need property insurance as well as business interruption insurance. Business interruption insurance responds even if your building isn’t damaged. It can cover utility outages, government-imposed road closures and even damage to your suppliers. Your insurance professional can advise you on the details so you can select the right policy for your loss exposures.
Commercial property insurance does not cover flooding, so you would need a separate flood policy. You can get this through the National Flood Insurance Program or a private insurer. Flood insurance covers physical losses caused by flooding. The NFIP defines flooding as “an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.”
If your business operates in a high-risk flood zone, you may be required to carry flood insurance. But even if you’re not in one of these zones, you may still want protection. Over 40% of NFIP claims are paid to policyholders outside high-risk areas. You can check your flood risk at floodsmart.gov under “Who is at risk?”
Flood insurance has separate coverage for buildings and their contents, and the policies are only triggered by the definition of flooding shared above. Your insurance professional can explain which separate policies or endorsements you would need to cover any excluded scenarios.
Comprehensive commercial auto insurance covers damage caused by flooding and other weather-related events, like hail. Most commercial comprehensive auto policies cover flood-related mold, rust, corrosion and cosmetic issues, as well as repairs needed for your engine, electrical system and transmission. If you don’t carry comprehensive coverage, your business vehicles are probably not insured against natural or human-made disasters.
Recovering from a disaster is more than just receiving an insurance check. You may need months or even years to rebuild your structures, repair or replace your machinery, restart your operations and reconnect with your clientele. In fact, it might take months or years to fully process your claim if there is a widespread disaster. You may need to find new clients if your old ones were destroyed or they replaced you as a supplier. And speaking of suppliers, your company may need to find temporary or new sources of inputs for your operations if your traditional partners went out of business.
Internally, you have some issues to consider as well. Would you have the resources to keep employees on the payroll during a disaster-based shutdown, or would you have to hire new staff after you recover? Also think about your advertising and networking budget so you can make sure customers know you are back in business. And consider your options if you can’t return to your premises. Thinking about alternative locations for your business now will help you make the move if necessary.
With inland disasters so prevalent, business sustainability requires a thorough plan for prevention, income protection and operational recovery. Once you have a response plan, practice it yearly, Even if it’s just in a tabletop exercise, your team will be able to think everything through before a real event. Taking the right steps now may save your company and your employees later.
