Putting a crisis plan in place to deal with a catastrophe is not enough–the program must be regularly tested, revised and treated as a “living document,” risk management experts advised during a recent webinar.
During “Coverage and Continuity In A Crisis: Disaster Preparedness, Mitigation and Management,” sponsored by Zurich, National Underwriter and American Agent & Broker, experts warned that when dealing with any disaster, the first thing a company needs is a recovery plan. In a poll taken of those attending the webinar, more than 50 percent said their company has a catastrophe plan in place.
However, more than 60 percent of those who have taken such a step said they have not revised their plan or conducted drills within the past 12 months.
That, said Calvin “Cal” Beyer, vice president and head of manufacturing for Zurich North America Commercial, is a mistake. He said one of the essential best practices to deal with a crisis and its aftermath is to treat the disaster plan “as a living document.”
He noted that the more time a company spends planning for recovery from a disaster, the less time it spends in the recovery stage.
Effective planning also helps to reduce business disruption, he noted. “It not only allows you to keep the business going but also keeps the customer happy,” Mr. Beyer observed.
Citing disaster statistics, Arnold Mascali, managing principal with Reliance Services Group and former managing director of Aon's Global Rapid Response practice, said the number and value of disasters has been increasing since the 1980s, warning risk managers that a catastrophe hitting an unprepared organization can exacerbate down time and losses.
Indeed, in general, companies that are unprepared suffer two fates from a catastrophe: either they lose income or go out of business, said Mr. Mascali.
While many may believe that their greatest fear of loss could come from hurricanes, tornados or fires, in fact there are other events more likely to cause catastrophic loss, he noted. Among the top causes are accidents, production problems and labor unavailability or shortages.
Stressing the need for communication, Mr. Mascali said that after a catastrophe, many corporate policyholders may find gaps in their insurance coverage. A prime reason for this, he said, is misunderstanding caused by miscommunication between the insured and insurer.
The areas of misunderstanding are usually in terms and conditions, as well as value of the risk, causing the event to be underinsured. Risk managers, he said, need to “make certain that the value is what it costs to replace the property in your insurance plan.”
An important aspect of any program to deal with a catastrophe is business interruption insurance, according to Mr. Mascali. He added that risk managers need to understand the period of indemnification.
A business interruption policy only covers the period it should take to get a business operational again–not the additional time it takes to make additional renovations to a property that was not part of the original structure, he noted.
Risk managers should also have in place an extended period of indemnity coverage from the time a business begins operations again until it reaches a previous level of revenue generation, he advised.
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