by G. Martin Irons, CPCU, CIC, ARM, Vice President – Technical Development Department
Planning for disaster recovery is one of those topics that business owners agree is a good idea, but often worry where they will get the money to pay for it. One of the advantages of formalizing your disaster recovery plan is that it allows you to design your insurance program to provide the funds needed for your disaster recovery. Purchasing Property Insurance to protect your buildings and business property is only half of the protection a business needs in the event of a disaster. Consider these examples:
The property manager for a mid-sized building suffered a fire that damaged two floors, including the elevator shaft. He was forced to shut down the building for three months while it was being repaired. The property manager received over $2 million for the loss of rents.
On December 11, 1995, a fire in Methuen, Mass., destroyed the Malden Textile Mills. Much to the astonishment of its workers, the president of Malden Mills promised to keep his 3,000 employees on the company payroll for 30 days while the mill was being rebuilt. Was the president filled with Christmas goodwill towards his employees or did the company just have a well-designed disaster recovery insurance program?
The building of a long term care provider was damaged in a fire, and the organization had to evacuate all of its patients and rent bed space from other facilities. The long term care provider received over $1.5 million for this extra expense to continue its operations.
A well-designed disaster recovery insurance program can provide the necessary funding for these scenarios through the following coverage provisions:
Developing a written disaster recovery plan is a good business strategy. However, many organizations fail to integrate the needs outlined in their disaster recovery plan with the potential funding from their insurance program. Designing your plan is step one, but don’t forget step two – meet with your insurance broker to design your disaster recovery funding plan.
The type of business you operate will dictate the type of exposures you will have and the shape of your policy coverages. For example, a manufacturing operation will have different exposures than a petroleum distributor, who will have to prepare for the possibility of damaged underground oil tanks and the resulting environmental implications. Your insurance broker should be able to assist you in conducting an exposure analysis of your property, operations and supply chain risks. This is often referred to as “enterprise risk management.”
Investing the time to complete a thorough disaster recovery plan for your organization is worth the effort. As Ben Franklin said, “An ounce of prevention is worth a pound of cure.” However, even the best-designed plan will not succeed without the necessary funding. Therefore, be sure to work with your insurance broker to design the most appropriate disaster recovery funding plan for your business.