By now you have heard the term El Niño used so much you may be numb as to how it might impact your business in the coming months. The Weather Channel reports the strongest El Niño on record will continue to influence weather through March of this year. We have seen above normal temperatures interrupted by large snowstorms and massive snow accumulation; recent Winter Storm Jonas, which hit heaviest in the Northeast, with its impact stretching through the mid-Atlantic region, the South and the Ohio Valley, is now in the record books for snow accumulation in many areas, and preliminary estimates say the storm, including damage costs from flooding, caused an estimated $1 billion in losses. In the Midwest, we have already seen record flooding and additional projections for heavy snowfall in the coming weeks. In the West, the El Niño could bring flooding, mudslides and other weather-related incidents due to heavy rain after a prolonged drought.
At Vericlaim, part of the Sedgwick family of companies, our veteran team has years of combined experience dealing with losses from every kind of weather event possible. We make it our business to help you prepare and deal with a natural disaster from a catastrophic claim perspective.
I recently shared at a conference that the two things a business must do to be prepared for weather-related events are to have a business continuity plan and review the insured values and scope of coverage. We are seeing volatile weather in the news every day. Volatile weather obviously has a significant impact on claims activity, but it also ultimately has a near-term impact on coverage and pricing. Twenty or thirty years ago, if you were insuring ten properties and 100,000 employees, you faced one set of business challenges. Today, with the growth of emerging markets and the expansion of the global supply chain, the equation has changed. For instance, now if you see flooding overseas, such as in Thailand a few years ago, that isolated regional weather event becomes a major risk and economic event in the U.S. A major wakeup call for the U.S. has been in realizing how worldwide weather events impact the supply chain and risk contingency planning.
So what should you do today to prepare for these new crisis events related to weather volatility? Plan, plan, plan, prepare, prepare, prepare – in our experience, there is no level of preparedness that is too much. As well-prepared as many risk management departments are, it is rare to encounter companies that are over-prepared in this regard and far more common to find those that have not prepared enough. When you sit down and plan today, you are planning for a different set of variables than businesses were in the recent past.
I see two major areas where companies are generally under-prepared:
- The action plans are too high-level, and don’t address a broad enough or deep enough set of possible disaster circumstances
- Almost everyone underestimates the value of the physical and economic assets they are protecting
Replacing a plant or building, bringing thousands of employees back to business or addressing a major supply chain interruption is often accompanied by a systematic understatement of values. In some cases, this problem is caused by a lack of in-depth planning that adversely impacts the ability to mitigate damages and losses. In other cases, the cause is as simple as getting poor estimates of the true economic loss of a potential contingency (not enough coverage) or coverage that is too narrow, particularly as it relates to contingent business interruption. Whether the result of a direct event or a contingent weather or catastrophic event, it is imperative that the risk management community spends more time thinking about how to get back in business after a major loss event and the true economic costs of doing so.
How often should you update your business continuity plan based on our changing world?
I don’t think employers need to have a set time frame for this activity. More important is to update your business continuity plan once really well, and then reevaluate anytime you see material change in either the risk environment or the profile of the assets that are being protected, both physical and economic.
What is the biggest mistake made in continuity planning?
Many businesses forget to think contingencies. It is easy to think, “If a hurricane hits my building, what will I do?” What many employers don’t think about is, for instance, “What if a hurricane disrupts a transportation hub that affects one of my key suppliers?” Bring a risk professional to the table and a strong partner to help you think through all the possibilities – specific perils and scenarios, not just generic, common issues. And the risk profiles differ greatly for employers across vertical markets; business risks for a retailer are drastically different from those of a financial institution, manufacturer or distributor.
I will close by saying again – get a business continuity plan in place. If you don’t make any other resolutions for 2016, make this your focus and do it sooner rather than later. Getting a plan in place will save you time, money and worry when – and not if – that event happens to yours or another business.
What questions do you have about business continuity planning? We have a seasoned group of colleagues who can answer those questions and give you the guidance to get your plan in place. Remember plan, plan, plan and prepare, prepare, prepare and make 2016 your year to be ready.
CEO, Vericlaim, a Sedgwick company