While this article was being written, Southern California was still on fire. Thousands of homes were burned to the ground along with hundreds of thousands of acres of forests. This is one of the key times that the insurance industry needs to demonstrate that it is a leader for our society. The question is, as insurance agents, do we “walk the talk?” Are insurance agents and brokers prepared for disasters any more than the average business?
The main purpose of insurance is to provide financial support to the policyholder in the case of some problem or disaster. A building burns down and the insurance policy provides the money to rebuild the facility. Property is stolen and insurance reimburses the owner. The weakness is that insurance does not guarantee that the business or homeowner will recover or be made whole again.
Natural disasters in the United States during 2002 caused an estimated $5.8 billion in insured losses (compared to $28 billion in 2001 for insured losses). Uninsured losses are several times the insured losses. The lack of major earthquakes and a relatively moderate cyclone season, combined with the general absence of losses in heavily populated areas, made 2002 a comparatively inexpensive year. The 10-year average is $11.5 billion in insured losses per the Insurance Services Office.
Each year businesses and individuals are impacted by disasters. However, a disaster does not have to be widespread to paralyze an agency. Every business (including your clients) should have a Disaster Preparation and Recovery Plan. The better the plan, the better the chance the business will quickly recovery. Unfortunately, many businesses are not prepared in the face of a disaster. Besides creating their own Disaster Plan, insurance agents and brokers that educate their clients in this matter will gain the competitive edge.
Developing the plan
The survival of a business depends upon having a written customized plan with documented procedures developed and reviewed with all of the staff. Part of the plan needs to include regular scheduled tasks and drills. Finally, the business needs to have the proper insurance.
When the plan is complete it should have:
• Employee and catastrophe team duties and responsibilities.
• Emergency response and operation procedures.
• List of suppliers and vendors for backup equipment, repair services, insurance companies and organizations to be contacted.
• Maps of alternate routes to office, emergency office or rally point and offsite storage location.
There are a lot of things to consider when developing a plan. First, what are the assets and resources that the agency must have to continue to function? Human resources are on the top of the list. Second is the information collected and stored in various media. Third are the actual equipment, furniture and facilities.
Next, a general assessment must be made of the most likely disaster scenarios. Situations such as floods, earthquakes, fires and storms are what usually come to mind. We are now faced with energy blackouts and computer viruses. A disaster could also be the sudden death of key employees.
The impact on the agency’s resources and assets by each of the probable disaster scenarios must be analyzed. A flood or a fire can destroy equipment and information assets, but less likely causes the loss of employees. An earthquake or storm can impact employees, equipment, facilities and possibly the information assets.
Problems such as blackouts and computer viruses have a relatively high probability and should have the most comprehensive plan. An earthquake or a fire is a lower probable risk and the problems they create are highly variable. Plans for these types of disasters need to be flexible and less detailed.
Also, some disasters will impact just the agency, such as the loss of key employees or a fire, while a storm, flood or earthquake will have a wide impact. In the case of the former disasters, the agency will have its typical workload, while the latter scenarios will mean a major increase in workload activity. Is the agency prepared to handle 10 or 20 times the calls with less staff and non-functioning equipment?
There are various sources that a business owner can tap to develop an effective disaster plan. A good place to start is with government organizations such as the Federal Emergency Management Administration (FEMA). Many private firms also offer advice and support. Some of the insurance associations have planning guides as well. Assisting clients with their own disaster plan (after the agency completes its own) will give the firm a “value-added service” it can advertise about.
Even if a formal written plan is not drafted, business owners should still take the time to review and think about disaster preparation and recovery. For the typical agency a disaster plan often starts with one main thing—backing up data. Despite the daily vigilance of backing up the data, there are often a few cracks that can prove all the effort useless.
• Is the backup data stored offsite?
• Is there more than one person with access to the backup data?
• Has a successful recovery of the backup data ever been tested?
• Does the business have immediate access to a computer that can be used to recover the data?
• Is the backup system tested after each major upgrading of the system?
What steps will the agency take in the case of a blackout or computer virus? Hardcopies of client names and numbers should be available, so that some business can be handled in the absence of a working electronic database.
Most agencies still have much, if not the vast majority of their client’s information stored in paper files. What is being done to protect these files? Does the agency have fireproof files and are they closed every night?
How can clients and carriers contact the agency after a disaster? With the Internet and easy access to offsite voicemail, this problem has been mitigated, but everyone must be informed of the contact alternatives.
Without the staff in place, there would be no work done. Management needs to make sure that each employee follows the agency’s workflow procedure so that there is consistency from desk to desk. That way if one employee dies or even quits suddenly, another employee can pick up where the former employee left off with little interruption.
It is also important that management discuss with the employees what they should do during major disasters such as storms and earthquakes. Who should they contact and is there an offsite meeting place? What should the agency do to contact the employee’s family if the disaster strikes during work?
Management should consider keeping a list of backup or temporary employees that may be available to help handle the workload during a large local disaster. For example, if some disaster strikes and the agency experiences an enormous spike in the workload, perhaps family or friends can help handle claims and other work.
Finally, the business must have the proper insurance in place. This is good advice for an insurance agency, as well as for the agency’s clients. Review the current coverage for gaps. Check out the availability of business interruption coverage.
Be proactive, not reactive
Humans are usually motivated into action only when faced with an actual event or significant threat. Needless to say, it is better to be proactive rather than reactive. Agency owners spend much of their lives building up their business; it only makes sense to spend some time developing a plan to recover from a possible disaster.
Bill Schoeffler and Catherine Oak are partners in the international consulting firm Oak & Associates based in Northern California. For more information, call (707) 935-6565, or
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