2222222222

Sponsored Content by AIG

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.

SponsoredContent
BrandStudioLogo

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

More from Risk & Insurance

Risk Management

The Profession: Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?

Advertisement




I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?

Advertisement




Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?

Advertisement




A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]