When Hurricane Sandy shut down large portions of major East Coast cities last year, it took hundreds of insurance professionals off-guard and cost carriers $18.8b in claims. One year later, several industry bodies are reflecting on the lessons learned from the super storm—including some important ones for producers dealing in commercial lines.
According to a report released by the Insurance Information Institute, 25% of businesses never reopen after a major catastrophe like Hurricane Sandy. Producers can do right by their clients by ensuring even the smallest business is prepared in the event of a natural disaster.
“Business owners are busy building their businesses, but they need to invest the time and money to develop a disaster recovery and contingency plan,” said III Vice President Loretta Worters. “Having the proper insurance to help keep their business going when disaster strikes is also crucial. Every day a business is not up and running, it is losing revenue.”
Producers are vital in assisting in these areas, particularly for smaller companies that rely on insurance professionals to spot potential risks and minimize them.
“I found the most critical thing was education. A broker serves as the risk manager for businesses that aren’t large enough to have one person assigned to that role,” said Mike Tolland, who worked as a broker for 35 years before becoming a consultant with the Small Business Association.
As a de facto risk manager, producers should help clients set up a proper business contingency plan. This means advising clients to keep up-to-date records and identifying important business activities and resources that would be needed to maintain bare-bones functionality while an office is closed for repairs.
According to Insurance Institute for Business and Home Safety CEO Julie Rochman, a producer needs to help clients find alternate facilities and equipment so that a business can relocate and continue to work after a natural disaster.
“I’d say making sure a solid business contingency plan is the most important thing a broker can do for small businesses,” Rochman said. “Something like a quarter of businesses never reopen their doors after a natural disaster. They need somewhere to go in the meantime and they need to make sure their records are backed up electronically.”
Of course, making sure clients have the right coverage in place is also vital for producers. The III identified business income, extra expense, contingent business interruption, and civil authority as the most important insurance lines for businesses in a disaster-prone area.
Additionally, flood insurance needs to be purchased separately from standard business policies, which often don’t include the coverage. Because flood insurance premiums are scheduled to rise significantly in recent months, producers need to sit down with clients and determine whether coverage is worth the cost or whether the business will take a gamble.