Northern California and specifically Sonoma and Napa Counties have experienced the worst wildfires in the history of California. Most of these fires began around Oct. 8, 2017, during night with extremely high winds, that knocked power lines out in hills and sparked many fires that burned for almost 10 days.
The manpower to fight these multiple and widespread fires was not available. The local teams of firemen and police could only handle evacuations and saving lives, until more help arrived from all over the United States, including Canada.
Close to 9,000 structures (homes, out buildings, businesses, etc.) were burned to the ground along with 150,000 acres from all the fires in Northern California. The current death toll stands at 43 with more than a dozen people still missing.
During times like this the insurance industry needs to demonstrate that it is a leader. 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. This is especially a problem if limits are not high enough and if replacement cost coverage is not purchased.
In the case of the California fires if businesses were not burned or had smoke damage, they likely needed business interruption coverage. The fires impacted tourism and the ability to access many businesses because some areas had road closures for seven to 10 days. Businesses and individuals often had no power leading to food storage and supply disasters for grocery stores, restaurants, and the like.
Overall losses from worldwide natural catastrophes in 2016 totaled $175 billion, up from $103 billion in 2015. Only 30 percent, or about $50 billion was insured, according to Munich Re. In the United States, natural disasters in 2016 totaled $23.8 billion, up from the $16.1 billion total for 2015. The 10-year absence of a major U.S. hurricane making landfall ended in 2017 with hurricanes Harvey and Irma, both of which caused substantial damage. Severe thunderstorms are typically the most frequent natural disaster.
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 recover. 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.
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 regularly scheduled tasks and drills. Finally, the business needs to have the proper insurance.
The plan 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; and
- Maps of alternate routes to the office, emergency office or rally point and offsite storage location.
Things to Consider
There are a lot of things to consider when developing a plan.
First, what are assets and resources that the agency must have to continue to function? Human resources are at the top of the list.
Second, the information that is collected and stored should be in various media.
Third, the list should include the actual equipment, furniture and facilities.
Next, a general assessment must be made of the most likely disaster scenarios.
Every business (including your clients) should have a disaster preparation and recovery plan.
Situations such as floods, earthquakes, fires and storms are what usually come to mind. However, businesses now face disasters such as energy blackouts and computer viruses, as well. 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 will less likely cause the loss of employees. An earthquake or storm can impact employees, equipment, facilities and possibly the information assets.
Problems such as blackouts, ransomware and computer viruses have a relatively high probability of occurring and should have the most comprehensive plan. An earthquake, flood or fire has a lower probable risk and the problems they create are highly variable. Plans for these types of disasters need to be flexible and should contain less detail.
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?
In the case of the California wildfires, many insurance agencies in Napa and Sonoma Counties were without power for almost a week. What can the agency do if the office is shut down and the producers and staff cannot access the files or answer the phones?
In the case of the wildfires, back-up generators had to be brought in and because of evacuations, some offices could not be accessed at all. Employees had to go elsewhere to gain internet access, like coffee shops, etc. In some cases, agency employees had to have claimants call the carriers direct, but were often afraid of the lack of customer support and service from the agency in the clients’ hour of need.
There are various sources that a business owner can use to develop an effective disaster plan. A good place to start is with government organizations such as the Federal Emergency Management Administration (FEMA).
There are also many private firms that offer advice and support. Some insurance associations have planning guides as well. Keep in mind that assisting clients with their disaster plan (after the agency completes its own) will give the firm a value-added service it can advertise.
Even if a formal written plan is not drafted, each business owner 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. Cloud-based agency management systems are the best approach.
For those agencies that have their agency management systems on computers, not cloud-based technology, the data should be backed up into the cloud using an online backup service. Manual backups are no longer necessary with cloud-based systems, and are not recommends because of human failure to perform them daily.
What steps will the agency take in the case of a blackout, computer virus or ransomware?
Hardcopies of client names and numbers should be available, so that some business can still be handled. Non-computer work can still be done in the absence of a working electronic database.
Most agencies still have some of their client’s information stored in paper files. What is being done to protect these files? Does the agency have fireproof file cabinets and are they closed every night? If the agency is paperless and there is no internet, how can the agency access client information?
Determine how clients and carriers can contact the agency after the disaster. Today with the internet and easy access to offsite voicemail, this problem has been mitigated. The real issue is informing every one 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 employees what they should do during major disasters such as fires, 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 also consider keeping a list of backup or temporary employees that could be available to help handle the workload during a large local disaster. For example, if disaster strikes and the agency experiences an enormous spike in workload, perhaps family or friends can pitch in to help handle the claims and other work that needs to be done.
Finally, the business must have the proper insurance in place. This is good advice for an insurance agency as well as the agency’s clients. An agency owner must take and utilize the same advice it offers its clients regarding insurance. Review the current coverage for gaps. Check out the availability of business interruption coverage.
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. An agency owner spends much of their lives building up their business. Spend the time necessary to develop a plan to fully recover from a possible disaster.
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