Making the Most out of a Crisis

CALGARY, ALBERTA, CANADA—Suppose your company experiences a major hurricane, tornado or fire: Property is destroyed and your business is stalled, meaning customers are left waiting. But there are buildings to be rebuilt and equipment to be replaced, and the claims process hasn’t even started. This is when the risk manager’s skills at placing the company’s insurance coverage and negotiating for the best payout can not only demonstrate their true value, but can put the company back on course, according to experts here at RIMS Canada’s annual conference.

“When there’s a serious property loss, this is the time for the risk manager to shine, because up until then it’s about premium, premium, premium,” Tom Parsons, manager of risk management at Fairmont Raffles Hotels International in Toronto said during a RIMS Canada Conference session. “Up until a serious loss occurs, I don’t think you feel the impact that you can give back to the company. Because what we do is buy insurance, so it has to work. It is what you helped craft and build into your policy through the years. You have created a policy that is robust, and that is going to cover everything—you hope.”

Among the examples cited was a soft drink bottling plant flooded with eight feet of water following a hurricane. While the company’s high-speed bottling equipment was damaged and would need to be replaced, explained Jeffrey Phillips, managing director in PwC’s U.S. forensic advisory practice, the issue was that floodwaters were highly contaminated due to a number of chicken and hog farms in the area. As a result, the company determined that the building could not be used for any type of food processing and would need to be demolished. The insurer, however, argued that the walls could be sealed, containing any contaminants. The company had found a competitor to do some of the bottling, but it wasn’t enough to fill their orders, Phillips said.

Because delivery of the new bottling equipment was slated to take months, there was also a large business interruption period being covered, he said. This is when innovation came into play. The bottling company was able to show the insurer that buying another plant rather than rebuilding would put them back in business sooner, cutting back on their losses. The insurer agreed and sent them a check. As a result, the company purchased a larger facility in a better location.

“They were up and running in six months—the business interruption had stopped,” he said. The better location also meant reduced shipping costs and the company gained market share. Because the company was able to make the case to its insurer, both came out ahead in the long run.

Phillips recommended that companies negotiating after a crisis “communicate, communicate, communicate” with their insurers.

They should also get their insurers to sign off on major contracts such as scope of work, rates and overhead and discuss changes to operations or facilities with the adjustment team and agree on scope of property damage repair or replacement whenever possible.

Insurers will typically push to return the facility to pre-loss condition, “unless you can prove the changes will save them money,” he added. “Insurers will not be creative for you, they don’t know your business or your goals.”

Still Time for Last Minute Hurricane Preparations

Hurricane Joaquin is threatening to hammer the East Coast this weekend. Joaquin reached Category 3 status late Wednesday and is expected to strengthen to a Category 4 on Thursday. Even if the storm veers from the East Coast, it is still expected to bring strong winds, pounding surf, heavy rain and flash flooding.

Joaquin track

While it may be late to start contingency planning, there is still plenty that can be done to minimize damage to property. For example, rooftops can be checked and needed repairs made, and fuel tanks and generators can be readied.

Zurich offers these tips for protecting commercial property. They are broken down into “easy actions” 48 hours from landfall and “tough actions”  36 hours from landfall.

Zurich preparation

Easy actions – 48 hours from landfall

About two days before a hurricane is expected to affect your location, begin implementing the easy actions. Easy actions include:

  • Review the hurricane emergency action plan with all involved personnel
  • Check building roofs. Make repairs to coverings and flashing as time allows
  • Remove all loose items from the roof, secure equipment doors and covers, and remove debris
  • Verify roof drains are clear of trash and other obstructions
  • Fill fuel tanks serving emergency generators and other vital services

Verify dewatering pumps are in service and working.

  • Verify outside storm drains and catch basins are clean
  • Remove debris from outdoor areas that may become “missiles”
  • Remove loose, outdoor, inactive equipment
  • Back up computer data
  • For healthcare, verify 96 hours of supplies are on hand
  • For manufacturing:
    • Ship out as much stock as possible
    • Verify all stock is skidded at least 4 inches above the floor
  • For new construction projects:
    • Remove loose equipment
    • Secure and protect material storage
    • Temporarily brace new construction
    • Secure roofing and items on the roof
  • For heavy industry (chemical and petrochemical):
    • Inventory tanks and vessels with enough material to secure them against the forces of buoyancy should they be exposed to flooding, surface water runoff or storm surge.
    • Maintain contact with suppliers of pipeline delivered materials. Those suppliers may also be making shutdown preparations.
    • Verify you will have the necessary supplies to safely shut down your process. This is especially important for processes such as olefins units, which take several days to bring down. Natural gas and oxygen are just two pipeline supplied materials to consider.
    • Verify compressed air supplies needed for control purposes.
    • Remove any accumulated rain water from storage tank spill containment areas.
    • Allow time for Emergency Response Team members who will remain on site to go home and take care of their personal needs. Based upon your specific needs, add to the list of easy actions, as these are just general concepts and every facility has its own requirements.

Tough actions – 36 hours from landfall

At 36 hours before anticipated landfall, time will be limited. Make sure you will have the staff needed to complete all of the tough actions, and leave plenty of time to evacuate personnel who will not be remaining on site (reference jurisdiction and/or authority’s announcements and requirements). The tough actions may include:

  • Protecting or relocating vital business records
  • Removing all loose outdoor storage or equipment
  • Anchoring portable buildings or trailers to the ground
  • Securing outdoor storage or equipment that cannot be moved
  • Installing manual protection systems (such as shutters, plywood covers and flood gates)
  • Raising critical equipment off floors (such as PC towers)
  • Moving critical equipment from basement and other below-ground areas
  • Covering critical stock and equipment with waterproof tarpaulins
  • Initiating an orderly shutdown of production equipment and systems that rely upon normal power
  • Turning off fuel gas services
  • Turning off non-essential electrical systems
  • Verifying all fire protection systems are in service (such as water supplies, fire pumps, sprinklers, fire alarms and special extinguishing systems)
  • For manufacturing:
    • Stopping incoming shipments of raw materials that will be exposed to damage
  • For heavy industry (chemical and petrochemical):
    • Removing and securing cable tray covers and controlling wiring radiant barriers. These are features that frequently become wind-borne debris when exposed to high winds.
    • Removing or securing scaffolding

Add to the list based upon your specific needs.

Tough-tough actions

There can be a few tough actions that take so long to complete they need to be started during the easy action period. Exceptional discipline will be required to make the decision to implement these very tough actions. These actions may include:

  • Setting up flood barriers at all first floor doors and entrances
  • Temporarily closing up buildings under construction to avoid entry of wind-driven rain
  • Installing manual shutters on multi-story buildings
  • For manufacturing, shutting down processes that will be exposed to damage
  • For heavy industry (chemical and petrochemical), shutting down processes that take several days to bring to a safe shutdown (such as olefins units)

It is absolutely essential to recognize when you have a tough-tough action. The overall plan must recognize their existence. And, the needed guidance and authority must be provided to those who will be charged with making the decision.

Building a Better Continuity Plan for Hurricane Season

According to the Federal Emergency Management Agency, 40% of businesses do not reopen after a disaster and another 25% fail within one year. As September is not only the beginning of hurricane season, but also National Preparedness Month, the Insurance Information Institute and the Insurance Institute for Business & Home Safety have released a new infographic highlighting some of the crucial steps businesses should be taking to fortify against natural disasters.

“Businesses that plan for a disaster have the best chance of surviving, and that starts with identifying the potential risks,” said Loretta Worters, a vice president with the I.I.I. “Large businesses have risk managers, but small business owners have to be their own risk managers and, working with their insurance professional, determine the right type and amount of insurance to be able to recover from a disaster.”

“It is also critical for small business owners to create and/or update their business continuity plan and work with employees so they are prepared for the potential effects of a disaster,” said Gail Moraton, business resiliency manager at IBHS. “Taking time to do this now will save money and time later.”

hurricane preparedness business continuity

FM Global Teaches Explosive Safety Lessons

FM Global Fire Hazard Lab

This week, I ventured up to West Glocester, Rhode Island, home of the coolest place any insurance broker, insurance client, or risk management journalist can visit: the FM Global Research Campus.

Hurricane Force Wind Simulation

Because FM Global is intently focused on prevention of loss as the chief means of minimizing claims, the company maintains a 1,600-acre campus dedicated to property loss prevention scientific research. The biggest center of its kind, the research center features some of the most advanced technology to conduct research on fire, natural hazards, electrical hazards, and hydraulics. Here, experts can recreate clients’ warehouse conditions to test whether existing suppression practices would be sufficient in the event of a massive fire, for example. Fabricated hail or seven-foot 2x4s are shot from a cannon-like instrument at plywood, windows, or roofing to test whether these materials can withstand debris that goes flying in hurricane-strength winds. Hydraulic, mechanical and environmental tests are conducted on components of fire protection systems, like sprinklers, to ensure effectiveness overall and under the specific conditions clients face. Further, in cases where there were not sufficient loss prevention solutions, the company’s scientists and engineers have even designed and patented new, more effective sprinklers and other loss prevention technology, the rights to which are released so anyone can manufacture these improved safety measures.

Fire is the leading cause of loss in every calendar year, and watching a pile of plastic pallets ignite into a 60-foot fire while you feel the radiant heat through the glass of the lab’s observation deck is a powerful reality check for anyone evaluating risk exposure in their facility. As you watch the pallets melt, forming a plastic pool that also catches fire and spreads, you see the fire double in size every 45 seconds. If your strategy is primarily to rely on the local fire station, the researchers note, a minimal response time, assuming decent proximity, no traffic or inclement weather, and full staffing, would probably be at least five to 10 minutes. It only took seven minutes for their sample fire to reach almost three stories high, flickering around the edges of the massive ceiling-mounted calorimeter (which measures heat and the particles and smoke released).

One of the most striking demonstrations comes in the form of a dust explosion. Whether released through product manufacturing, a byproduct of processing, or simply lazy housekeeping, a wide variety of dusts can fill the air in many facilities. Flour, sugar, metal dust, wood and resin are all highly flammable and exceptionally common. To cause an explosion, you simply need a few conditions: fuel (the dust), oxygen, ignition, suspension (in other words, the dust has not settled, increasing the surface area), and a confined space (ie. inside the facility, the dust stays in the environment). What happens then? Check out the video below for a slow-motion look at the explosion that results from just a hard hat full of phenolic resin.