Some say one should never let a good crisis go to waste, and that’s certainly the case for commercial insurers trying to convince clients big and small to upgrade their coverage and risk-management efforts in the wake of Superstorm Sandy.
The lessons of that monster storm hit home for me, quite literally, one year ago, on Oct. 29, 2012.
Sandy turned my sleepy Brooklyn community of Sheepshead Bay upside down, and life still hasn’t gotten entirely back to normal. Other areas were hit far harder by Sandy, to be sure. But for someone like me, whose only flooding experience in decades had been a backed-up sewer (despite living just a mile from a bay and the Atlantic Ocean beyond), seeing my co-op apartment building’s first floor filled with three feet of saltwater was an experience I never want to repeat.
Our business district took the brunt of the damage. In the days following the storm, shell-shocked storeowners tossed ruined furniture, fixtures, and inventory into huge piles on their curbs, which quickly began to resemble the makeshift barricades from Les Miserables. A few were spared such grueling cleanup duties because they had been wiped out so completely it looked as if someone had intentionally gutted their stores.
Even those who made it through the storm with manageable damages were crippled by power outages that often lasted weeks. I can still vividly recall the deafening roar and sickening smell of portable gasoline generators on the sidewalks, keeping the lights on for the lucky few able to get their hands on such equipment.
Such scenes played out across the region, yet bigger businesses had their own challenges, with many employees unable to commute for days or even weeks due to transportation system damages or power outages at home. Even those who could manage the commute were often left with nowhere to go as many office compounds, manufacturing facilities, retailers, and other commercial properties were badly damaged and/or in the dark. And cellphone service was often interrupted when towers were damaged or lost power, making mobile communication spotty at best and working from home problematic.
What lessons have we learned? Based on our experience with Sandy, how might the insurance industry help commercial policyholders mitigate losses and manage claims more effectively? (We’ll leave homeowners and their unique problems for another blog.)
One is that companies cannot necessarily expect their white collar employees to simply work from home after their business is incapacitated in a catastrophe the size of Sandy, so big it impacts the telecommuter’s property as well. Companies may want to explore the potential for outsourcing certain functions to temporary staff outside of a disaster area if local recovery efforts lag. And for key personnel, alternative sources of communication — perhaps satellite phones — might be a wise investment.
Meanwhile, companies hopefully had enough foresight to back up their critical data not just outside their own properties, but somewhere beyond their state or even their region. If not, they unfortunately may have learned the hard way that an event as massive as Sandy can negate the security of redundant systems if off-site storage turns out to be too close to home.
By the same logic, firms that rely on vendors for critical services and supplies also need to be aware of their respective disaster recovery plans, as well as have alternative sources lined up so insureds are not left high and dry after a catastrophe.
Business contingency plans are not just for large firms with professional risk managers. Small- and mid-sized businesses can better mitigate their risks as well, taking into account the same factors as their larger counterparts. That means paying closer attention to data backup, while lining up emergency contractors, alternative facilities, and suppliers to get up and running as quickly as possible.
Helping put together such disaster recovery plans might be one way for independent agents to differentiate themselves and offer added value to policyholders.
But first things first — commercial buyers should reassess their insurance, particularly to make sure they have business interruption coverage that compensates them for lost revenue, additional expenses, and loss of a key supplier after a catastrophe.
They should also be reminded by their agent and carrier that most standard business policies do not cover flood-related losses. And even if they have federal flood coverage, it can be fairly limited, opening the door to sales of excess insurance.
Superstorm Sandy continues to be a potential game-changer for insurers as well as their agents and brokers in terms of emphasizing the importance of adequate coverage and proactive loss control. At the very least, if insurers and their intermediaries do their jobs thoroughly, clients should not be able to plausibly claim that no one ever warned them something like this might happen.