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September 18, 2018

The Small Business Hurricane Survival Guide

Disaster preparation is the first step in disaster recovery

By Prentice McIntosh, vice-president risk management, Stephens Insurance

Hurricane Florence, the slow-moving and catastrophic storm that is wreaking havoc in the Carolinas, is a stark reminder that we are still in the throes of hurricane season. It’s also a reminder of how unpredictable the weather is. In August, the National Oceanic and Atmospheric Administration (NOAA) lowered its predictions for the Atlantic hurricane season, which officially ends November 30. Then came Florence. The storm’s 112 mph winds and 10 trillion gallons of rain in North Carolina alone could mean as much as $170 billion in total economic losses, according to analytics firm CoreLogic.

For small businesses, the impact of natural disasters can be especially devastating. Almost all – 96% – experience a loss in revenue, according to a recent Visa survey. Last year, some 7,000 small business jobs were lost in September, mostly related to hurricanes. The same Visa survey found it would take an average of more than $850,000 for a small business to rebuild following a natural disaster. According to FEMA, 40 percent of small businesses in disaster-affected areas never reopen. But a disaster preparation plan, which takes into account what you need to do before disaster, during the crisis, and after, can help you get back to business sooner. Here are the nine things you need to consider:

Review Your Plan
First, do you have a disaster plan? If so, has it been updated to take into account any major changes to your business since you created the plan, such as an acquisition or a divesture? As you build, review, or revise your plan, consider assigning different team members responsibility for different aspects of that plan and make sure they each know the role they need to play.

Get Specific
So you have a plan – great. That's step one. But you also need to do a tabletop drill because there are a lot of things you’ll learn when you’re going through the drill that you wouldn’t have thought of before. When a disaster hits, you’ll be one of a number of businesses that are competing for finite resources. Let’s say you know you’d need a warehouse to divert inventory to. Do you have one identified? This exercise will also let you know if people understand their roles and where the gaps are in your plan.

Communication
Your plan needs to be communicated ahead of time so people understand their roles and how post-storm communication will occur. Ensure that employees’ contact information is up-to-date and includes more than one method of reaching them (phone, personal email, an “in case of emergency” person). Also make sure that you have a plan for communicating with local authorities as well as with your insurance carrier and adjusters.

Identify What's at Stake
Look at all the areas of your business that could be affected – not just the physical assets and operations. There’s IT, HR, marketing, and all the other people who help your business run day-to-day. Your goal of course is to minimize disruption or loss to every area. Could you operate out of a different facility, or is your business location-specific? Every business has different priorities, so make sure you know what yours are.

Assess Your Coverage
Just as each business will have different priorities, each need customized coverage. Work with your insurer’s loss control and risk management groups to determine how you can best mitigate, avoid, or finance risk. Bear in mind that insured losses last year from Hurricanes Harvey, Irma, and Maria were in excess of $100 billion – while total losses were in excess of $200 billion.

One type of coverage that is often overlooked is business interruption insurance, which covers lost income for the period that you’re unable to operate in the event of property loss or damage. This kind of coverage can help you retain key personnel by covering their salaries while the business is down.

Will You Stay or Will You Go?
Whether or not to evacuate may be a personal decision, and one that you might only be able to make at the time. If you know that there is a possibility that you won’t evacuate, you need to think beyond the obvious, such as food and water and a way to communicate. For example, a generator won’t do you any good if you don’t have fuel for it.

Documentation
After the storm, it’s critical that you be able to report damage as quickly, accurately, and comprehensively as possible. Mobile phones have changed the ability to capture and report circumstances. In advance of a hurricane or other natural disaster, if possible, hold a meeting to discuss procedures for reporting and mitigating loss, as well as the kind of documentation that will be needed in the event of a claim.

Proper documentation will be important not only for insurance purposes, but for vendors, suppliers, water extractors, and anyone else whose help you’ll need to get back in business.

Identify Alternatives
If you’re lucky, you won’t be in the direct path of a major storm. The same may not be true for your suppliers and vendors. Transit disruptions, power failures, and other after-effects can have a trickle down effect. So part of your disaster recovery plan should be identification of key suppliers, an understanding of their disaster plans, and lining up possible alternatives.

Examine Your Ecosystem
Your suppliers, vendors, customers, and service providers – such as your insurer – are all part of your business’s ecosystem. The health of each affects everyone else’s. Are your ecosystem partners healthy? Do you feel like they’re your partners? Do you know the right people to talk to? Keep those relationships alive so you don’t get lost in the shuffle and end up at the bottom of their lists when it comes time to deal with the aftermath.

Preparing for a disaster is the first step in recovery. If you’re fortunate enough not to have been affected by a storm, these steps still can be useful in gaining a better understanding of potential vulnerabilities in your business that you can address before a crisis hits.

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