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Opinion: Build a plan to effectively respond to disasters

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We just completed National Preparedness month in September, but how many businesses are truly prepared if disaster strikes?

The Insurance Information Institute reports up to 40 percent of businesses affected by natural or human-caused disaster never reopen. Customers expect delivery of products and services on time. Even the disruption from a key supplier can create havoc. The importance of having a plan is evident, yet nearly two-thirds do not have an emergency plan in place, according to a recent Ad Council survey.  

Do plans work?

In 1993, terrorists attacked the World Trade Center for the first time. Financial services company Morgan Stanley took four hours to evacuate its employees. On Sept. 11, 2001, 3,800 workers were able to evacuate the World Trade Center in 45 minutes, saving many lives. Although 13 Morgan Stanley employees tragically lost their lives in the attack, many more could have died if the company had not improved and practiced its plan.  

New Orleans-based Compucast Interactive is thankful they had a emergency plan in place, especially when Hurricane Katrina blew through the city in 2005. Compucast had a plan and secured dedicated servers outside New Orleans. Due to its emergency planning, Compucast became a shining example by continuing to provide Web and Internet services for clients, nonprofits and other businesses. They were one of the few Web providers still online and were even able to create a free job search site to help businesses and potential employees find each other.

Having a plan, knowing what to do and communicating effectively can mean the difference between sustaining your business operations or becoming an unfortunate statistic. Emerging risks such as cyber attacks and reputational damage make having a plan that much more critical.

Because the process associated with disaster or contingency planning can be overwhelming, many businesses fail to get started or put off planning. Doing just a few simple, important things will help a great deal and implementing them will be a vast improvement over being unprepared.

A good disaster recovery planning effort should involve an analysis of the organization’s business processes, information technology infrastructure, data backup, resources, continuity requirements and disaster prevention methods. The basic plan steps are:
    •    data collection;
    •    plan development and testing; and
    •    monitoring and maintenance.

The 2007 ice storm taught our company a valuable lesson: Communication and technology were extremely important to continuing to serve our clients. Developing updated lists of land and cellphone numbers, emails and emergency contacts for employees, clients and vendors became a focus once we understood the consequences of not having access to them.

Access to the IT system and the alternate power supply also was identified as critical. Setting up a redundant backup in the cloud, wiring for a generator and subscribing to a service to provide computers, phones, power and a mobile trailer became a part of our plan.

Every business is different, but understanding key threats and collecting some data associated with those threats will get you started. Make sure you commit the plan to a written document. This should document the details of how your company would respond to an event. Building diagrams and safety procedures, emergency contacts, employee vendor and customer lists, contingency plans for supplies, IT and facilities are all important aspects of the plan.

Although every business should go through a risk and insurance coverage analysis, a key coverage should be reviewed right now. The coverage that most companies fail to adequately address is the loss of income and extra expenses incurred after a significant loss. This type of coverage pays for the loss of revenue, continuing expenses, payroll and extra expenses incurred as a result of a covered loss. Most underestimate the time and financial burden of a significant loss and don’t have the insurance coverage necessary to help them financially weather the loss.

Frankly, it’s not the replacement of property that devastates a business; it’s the lack of revenue to sustain itself while it recovers from the event. If you rely on one or two key customers or suppliers, you may want to consider purchasing contingent business income coverage. This will replace revenue or provide expense coverage if this key partner is impacted by disaster.

Certainly, insurance can be used to help protect the business financially. Unfortunately, it does not cover all losses and it will not replace customers and suppliers. Investing some time in developing a plan will be invaluable if an unexpected event - large or small - impacts your business.

Richard Ollis is CEO of Ollis/Akers/Arney, an employee-owned independent insurance and business advisory firm. He can be reached at richard.ollis@ollisaa.com.

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