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5 Reasons to Update Your Disaster Plan Now

Harvey, Irma and Maria highlighted key risks property owners may be overlooking in their crisis management plans. With another active season on the horizon, the time to prepare is now.
By: | June 1, 2018 • 6 min read

With the 2018 hurricane season underway, communities impacted by the historic 2017 season have just barely recovered. And forecasters say we may be in for a repeat.

Despite the Atlantic’s colder-than-normal temperatures during winter, scientists surmise they will warm rapidly throughout the summer. Combined with cool Pacific waters, it’s a recipe for punishing storms. Of course, early predictions are never 100-percent accurate; after all, was there any modeler who foresaw the triple threat of Harvey, Irma and Maria?

“Catastrophes are going to happen. It’s not a question of if, but when. You have to be prepared no matter what the forecast says,” said Dean Owens, AIG’s Head of Property and Special Risk Claims, U.S. and Canada.

Last year’s storms did, however, offer some lessons in crisis management. Their aftermath illuminated five critically overlooked risks that companies should consider in their response and recovery plans before disaster strikes this year.

1. Flood Control Actions May Actually Increase Flood Risk

Dean Owens, Head of Property and Special Risk Claims, U.S. and Canada

As Hurricane Harvey dumped feet of rain onto Houston residents and businesses, rapidly rising water levels placed excessive pressure on the city’s reservoir walls. The Army Corps of Engineers decided to proactively release water from the reservoirs to prevent a catastrophic collapse. Though the move mitigated larger-scale damage, it also increased flooding of thousands of structures in the immediate area.

“They were trying to be proactive, but it may have caused some damage that otherwise may not have happened,” Owens said. “Homes and businesses in the area experienced flooding as a result of flood control operations. That’s not a consequence most people would think about.”

“If you’re located downstream from a flood control project, how might that impact flooding on your property? What can you do to prevent it?”

Potential mitigation solutions could include temporary barriers that can be quickly and easily assembled. After Harvey, for example, some Houston residents implemented canvas barriers that can be easily set up around a property and keep out flood waters as high as three feet.

2. Lack of Electricity and Accessibility Hinder Repairs Indefinitely

Most crisis management plans will detail how a company can best prepare for an impending storm and prevent as much damage as possible. But not all will consider the post-storm conditions that could hinder their recovery efforts.

Access is one issue.

“On an island like Puerto Rico, logistics are a challenge. If ports and airports are damaged, how will you get resources there?” Owens said. Even in a landlocked city, roads and highways may be too flooded or debris-covered for repair crews to get through. After Hurricane Sandy in 2012, for example, vehicle restrictions made it difficult for adjusters to get into New York City.

“It was difficult to move around because of all the debris,” Owens said.

Lack of power may also present an ongoing problem. After Maria struck Puerto Rico in September, the island remained in the dark for months.

“You have to be prepared to not just weather the storm, but to deal with whatever the aftermath will be weeks or months after,” Owens said. “Make sure you have access to fuel and generators, so you can at least turn the lights on and survey your damage.”

3. High Demand Means High Prices for Labor and Materials

After any major storm, there will be a surge in demand for skilled labor, materials, and claim adjusters.

“Everyone needs a contractor, and all of the contractors need sheet rock and plywood and roof materials. That demand drives up the price of those materials, so you might be paying double what you anticipated, depending on how widespread the damage is and how quick you were in ordering those materials,” Owens said.

In a multi-storm scenario like Harvey, Irma and Maria, remediation companies and adjusters will be all the more stretched.

If a company has storage space offsite, it should consider stockpiling some materials before a storm to avoid the rush in the aftermath. It should also consider local providers who may not be under the same pressure as national firms to respond to disasters in other areas.

“Sometimes the guy around the corner can do a great job for you, and he’s right there,” Owens said.

4. Affected Workers Might Not Return Immediately

A disaster response plan should designate a chain of command and provide instruction for all employees. But a workforce dealing with damage to their own homes and the same struggles with lack of infrastructure or electricity may be unable to perform their designated duties.

“You have to think about employee care at the same time you’re trying to get your facility back up and running,” Owens said.

A crisis management plan should establish a method and timeframe for communication after a storm so employees can relay their circumstances to managers and those in charge of executing the recovery plan.

5. Disrupted Supply Chain Spells Big Business Interruption Loss

Even companies outside of hurricane-prone coastal regions need to be attuned to these risks if they have suppliers who may be affected. Sitting outside of a storm’s path can lull businesses into a false sense of security.

“If you have a sole-source supplier in a heavily-damaged region, you could potentially have a significant contingent business interruption claim,” Owens said.

Major auto companies experienced this after the Thailand floods of 2011, which inflicted heavy damage to component parts suppliers in the region. The health care industry experienced similar ripples after Hurricane Maria knocked out pharmaceutical manufacturers in Puerto Rico, where medicine constitutes the majority of exports.

“Sometimes the conversation about engaging backup suppliers doesn’t happen until the event occurs,” Owens said. “By that time the damage is done.”

Reliable and Well-Resourced Support

Even the best-laid plans, though, can fail if a company does not have the liquidity to get the supplies and labor they need to set recovery efforts in motion. Having the support of a well-resourced insurer is critical to any crisis management strategy.

After Harvey, AIG advanced $60 million in initial payments to impacted insureds within the first 30 days, and about $15 million to insureds impacted by Irma in the first 30 days.

“No matter how large the loss, we follow through on our Claims Promise. Once we agree on a damage estimate, we forward 50 percent of agreed debris removal, property damage repairs and extra expenses within seven days,” Owens said. “This supports our clients’ cash flow and business continuity.”

AIG’s roughly 500 in-house property engineers are deployed locally and work in the field with clients, ensuring a quick claim turnaround. Forensic accounting teams work with clients specifically on business interruption losses, which for some companies may be larger than their property loss.

“Some of the resources that were brought to bear for Harvey, Irma and Maria were getting stretched thin before Maria even happened, but that was not an issue for AIG,” Owens said.

“If you’re going to place your trust in a carrier, you want that carrier to be able to respond no matter how many events that you have.”

To learn more, visit https://www.aig.com/business/insurance/property.


This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.

AIG is a leading international insurance organization serving customers in more than 100 countries.

More from Risk & Insurance

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Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.


With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.


So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.


Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]