Best Planning for the Worst.
Different businesses face different issues. This makes it difficult to suggest one set of “best practice” standards for forward-thinking companies dedicated to properly preparing themselves for the catastrophic (CAT) events that are on the rise in terms of frequency and impact. Last year saw a record-setting 14 weather-driven events in the U.S. that each caused at least $1 billion in losses, according to the Insurance Information Institute. While there may be no one right way to ready a business for a CAT event, there are many steps that should be taken to help minimize any potential impact.
“The first thing you should do is create and implement a business continuity plan,” says Mike Cincinelli, National Catastrophe Team Manager, Zurich in North America Property Claims. Cincinelli has been with Zurich since 2004 and helped create the team he manages. “You should update and review that plan at least annually. And finally, you need to practice or test that plan as needed.”
His Zurich colleague, Gerald Kissner, Vice President, Zurich in North America Property Claims, emphasizes the importance of having operational people in the room when the continuity plan is developed and enacted. A risk manager (or whoever else might be designated to draw up the plan) working alone often may not be privy to nuances that operational individuals know.
“Business continuity planning is not just an exercise done in a vacuum,” says Kissner, who has been with Zurich for 15 years and serves on the Property Claim Subcommittee of the American Insurance Association. “You want the buy-in up front, so that everyone knows what their role is, and you get true identification as to what your weaknesses and exposures are from the process.”
Kissner adds that few companies have the resources to respond to a CAT event with only internal resources. While some have strong plans around their IT structure, most businesses need external resources such as mitigation vendors and contractors to help restore damaged property. For example, initial calls to a roofer to shore up a roof so that operations can be maintained are not, Kissner and other Zurich specialists emphasize, calls that a business wants to make right after a tornado has blown through town.
“If you don’t have a formal agreement with, say, a building company, you can go from customer number one to customer number 20 in a heartbeat during a CAT,” says David Mahoney, who has more than two decades of business interruption consulting experience, and is Accounting Unit Manager, Zurich in North America Property Claims. “Or, worse, in small countries, resources can suddenly become woefully short for entire industries involved in CATs. If you don’t have some kind of connection through, for example, an insurance carrier that can bring resources to bear on the situation, you’re behind the eight-ball.”
Pre-loss agreements and mitigation programs aligned with a business’ needs are foundations of a business continuity plan, but they shouldn’t create a false sense of security. Zurich’s specialists have found that regularly scheduled updating (especially in the case of major changes in the business, such as new acquisitions) and testing of the plan by businesses are too often overlooked.
Testing can entail something as reinforcing the importance of the plan by calling relevant people in the phone tree to make sure they have the plan accessible. The goal is to have any “uh oh” moments—the surprise of an overlooked detail as who will provide access to your building post-CAT—happen in testing, not in reality.
“Every test is different, just like every business continuity plan,” says Mahoney. “The important factor is that you have to be attentive to the plan, you have to develop a workable plan, and you have to have everyone pulling together implementing the plan.”