Natural disasters and man-made catastrophes cost a record amount in 2017, racking up a whopping US$337 billion (£259 billion) bill globally and costing the insurance industry US$144 billion ($111 billion).
But even a small-scale weather event can turn into a full-blown crisis, causing disruption and loss for a business; UK insurers are all too familiar with escape of water claims, for example.
Insurance Business spoke to Arnold Mascali (pictured), president of Procor Solutions + Consulting, about how businesses can build resilience and respond to risk and disruption – crucial advice that clients will turn to their brokers for.
Mascali, who has 30 years of industry experience, was previously managing director of Aon’s Global Property Risk Consulting group and a member of the broker’s Global Risk Consulting US Operations Board. In that role, he managed the response to some of the largest property and business interruption claims in history, arising out of catastrophes such as the September 11th terrorist attacks, and Hurricanes Katrina and Ike.
IB: How can businesses quantify business interruption?
AM: Protecting a business’s income stream is one of the most important risk management responsibilities for any company. While business interruption (BI) insurance affords some protection, it does not provide complete relief and claims can be complex.
A well-prepared business owner or risk manager can avoid protracted delays in resolving BI claims by completing a business interruption valuation prior to any event. The valuation would consider probable and foreseeable interruptions, as well as the predicted period in which the business would be impacted. With timing in mind, you can make reasonable, financial projections and estimate the amount of income that could be lost. You should also consider extra expenses that are likely to be incurred in a full or partial shutdown of operation.
Your valuation and methodology can then be used to purchase the right amount of business interruption coverage, and will also help any claims to be resolved as quickly as possible.
IB: What are the key players when it comes to understanding your disaster plan as a business?
AM: Stakeholders vary by organisation, but typically include finance, risk management, facilities, and procurement. When it comes to disaster planning, you should aim to unite all stakeholders and avoid ‘silo driven’ plans. You don’t want each stakeholder to have its own plan based on its own priorities, without considering how it may interact with other parts of the organisation.
Additionally, disaster response information should be easily available to all employees and team leaders should be trained on how to support and reinforce the organisation’s commitment to the plan.
IB: What are some surprising areas that financial impact stems from in the case of a weather event or disaster, and how should businesses prepare?
AM: A frequently overlooked reason for income losses is failure to consider how disasters impact your employees. Business owners and risk managers tend to focus on the company itself and omit any planning around the impact that employees may face. Consider this: if a weather event damages a manufacturing facility, it may also have caused damage to the surrounding areas, where employees live. If those employees are displaced or need to relocate, there could be a significant impact on the organisation as well.
Some companies are creating ‘Employee Disaster Recovery Programs’ to assist employees with insurance-related matters by providing current information on where they can find relief. These programs can help support your most valuable assets while helping them return to normalcy, and work with a clearer focus.
IB: How can businesses become more elastic pre-event, and how can that help them bounce back faster?
AM: Elasticity in disaster planning means to think outside of the organisation. When disaster strikes, outside vendors or suppliers may not prove as reliable as anticipated, or your company may be placed at a lower priority when it comes to emergency responders.
Restoration companies are in high demand following catastrophes and having a pre-event contract with a reputable firm can make all the difference. A simple way to ensure a timely response is to have a pre-existing business relationship in place with a restoration contractor that ensures they respond to all events for the company, no matter the size or complexity.
