Did you know that the Federal Emergency Management Agency (FEMA) estimates that about 40% of small businesses will unfortunately never reopen after a disaster? From flood waters, property damage, power loss and business interruption, coping with the aftermath of a powerful storm could be very troublesome. Therefore, during the Atlantic hurricane season, which officially runs from June through November 30, real estate business owners and managers must take a multi-pronged approach to safety. First come crisis communications, management and business continuity planning; then come back-up efforts with the proper insurance coverage.
Combined associated losses for the 2018 and 2019 seasons totaled in excess of $136 billion, according to the National Oceanic and Atmospheric Administration (NOAA). For the 2020 season, NOAA forecasts activity well above average. By early August, the 2020 hurricane season was already record-breaking, including Hurricane Isaias, which we felt the wrath of across the Northeast. This was the season’s ninth named storm, making it the earliest in a year we have ever reached that number. It was also the fifth storm of the season to make landfall. [Updated Editor’s Note: As of October 10, the Atlantic had seen 25 named storms, according to the National Hurricane Center.]
While businesses have no control over the weather, taking the proper steps before a hurricane can lessen the impact. Generally speaking, the three main goals of any disaster management plan are to manage the business during the crisis, resume normal operations as quickly as possible and recover losses when it is over. By taking these goals into account when surveying the most critical areas of the business, companies can determine what steps they need to take to be fully prepared for hurricane season and beyond.
Having a crisis communications, management and business continuity plan in place will help ensure employee stability in the workplace. Pre-determined employee notification channels will be critical to disseminating information should the need arise. Business owners and managers should have employee contact information at their fingertips, while also establishing a toll-free hotline number or social media site that can facilitate ongoing communication during a storm.
Similarly, understanding individual risk is key to necessary business continuity planning. Try isolating the business risk first. Is it wind, power outage or hurricane damage? Will your business be down for a week, a day or a month? Review your business assets and make sure the most critical operations have built-in redundancy or are covered by insurance.
Coverage for When It Strikes
Losses are not always completely avoidable. Even businesses with the proper plans in place can suffer a setback from a storm. Unfortunately, according to the Munich Re NatCatService, “as little as 28% of the $5.2 billion in economic losses from natural catastrophes were insured over the period 1980-2019 due to gaps in coverage.”
It’s important to examine your insurance policies (and any potential gaps in coverage) in advance with your professional advisor, as there are a variety of policies to help coastal and non-coastal businesses recover from an event — each involving a different aspect of the restoration. It’s important to realize that all businesses in hurricane zones are at risk no matter where they are located.
Business Income Coverage
Review your business income coverage limits, which include loss of income as a result of an event, to ensure they are sufficient. Extra expense coverage often accompanies business income coverage for necessary costs, such as having to relocate your business operations to a temporary location as a result of storm-related damage.
Business Interruption
Go through a potential business interruption to determine the estimated monthly costs for both loss of income and extra expenses. How long will it take you to get your business up and running again? How much can you afford to lose? Base insurance coverage needs on identified risks to ensure that any business interruption will be covered to the greatest extent possible.
Flood Coverage
It’s important to understand that most business property policies exclude flood coverage. In addition, businesses typically buy minimum flood coverage limits, but don’t consider that floods can come from even minor storms or no storm at all.
Examine Deductibles
What type of deductible do you have on property coverage — a percentage or flat deductible? A calendar year or occurrence deductible? If your business has a lot of locations, occurrence or percentage deductibles could potentially be more costly. Additionally, many policies will have lower deductibles for wind and hail events than for a named storm.
Escalated Cybercrime Exposures
As recently illustrated at the start of the COVID-19 pandemic, phishing and email scams that include malware are known to increase post-disaster, when companies are more vulnerable to cyber intrusion and attack. Consider cyber liability coverage if you do not already have a policy in place.
Hurricanes can pose a major challenge for any business, especially those with multiple properties. By taking the appropriate steps ahead of time and working with the proper experts, real estate companies can help to ensure that they can weather any storm. Review your policy with an experienced insurance advisor now to ensure that you have the coverages and policy limits that you need to be adequately protected before a storm strikes.
Visit HUB’s dedicated Hurricane Resource Center for timely updates and preparedness resources.
Frank DeLucia serves as senior vice president of HUB International Northeast, a leading full-service global insurance brokerage. He can be reached by phone at 212-338-2395 or at frank.delucia@hubinternational.com. For more information, visit hubinternational.com.
