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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.
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.
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.”
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.
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.
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.”
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.
To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.
“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.
In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.
This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.
The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.
According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”
They also should bring together key stakeholders and specify end goals.
Jason J. Hogg, CEO, Aon Cyber Solutions
With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.
“Collaboration is key — you have to take silos down and work in a cross-functional manner.”
This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.
“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”
People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.
“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”
Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.
“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.
Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.
“You need to plan for every type of threat that’s out there,” he added.
Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”
“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions
Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.
“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”
For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.
Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.
That includes access to a pool of attorneys who can guide company executives in creating a plan.
“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:
“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.
With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”
How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.
Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.
“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.
“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”
Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.
David Legassick, head of life sciences, tech and cyber, CNA Hardy
“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.
However, getting board buy-in or buy-in from the C-suite is not always easy.
“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.
“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”
“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.
“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.
“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.
Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.
He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.
Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.
One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.
Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.
“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &
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