Adjusters Internat ional Disaster Recovery Consulting Disaster Recovery Planning: Preparation is Key to Survival By John W. Marini Chief Operating Officer & Vice President Adjusters International EDITOR ’ S NOTE Making sure the right insurance program is in place to protect your organization after a disaster may not be enough to survive in today’s business world. A vital ingredient to recovery is a comprehensive and well-tested disaster recovery plan. Given the rise in the number and scope of recent disasters, it has become increasingly important to establish a plan that will allow you to get back in business in the shortest time possible. This issue of Adjusting Today briefly explains the basics of disaster recovery planning, coupled with interesting facts and statistics about the impact of natural and man-made disasters in the world in which we reside and conduct business. We hope you will find this material helpful in improving your organization’s disaster preparedness. —Sheila E. Salvatore, Editor A hotel under construction could not open in time when part of the structure was destroyed by a tornado delaying its completion. When an off-premises transformer was destroyed, an office complex without backup power became untenable. A facility damaged by earthquake could not be immediately repaired because of the devastation and shortage of workers. A shopping mall damaged by Hurricane Katrina could not operate for some time because of the shortage of building materials.
An explosion of a steam boiler in a high-rise building caused civil authorities to close surrounding streets. Occupants of neighboring businesses could not operate for weeks. A business that leases transponder space on its space satellite is required to cancel its contracts when the satellite malfunctions. What are the common denominators in these scenarios? First, the disaster was not anticipated. Second, each business had not focused well enough on its disaster planning. As professional loss consultants, we have assisted thousands of companies and organizations that suffered losses resulting from natural and man-made disasters. Some recover, some do not. Those who anticipate what could happen—and thoroughly plan for it—stand a much better chance of surviving. The chances of a full and expedient recovery are greatly improved when a comprehensive disaster recovery plan is in place. Such a plan should fully integrate insurance, technology, emergencyresponse and business-recovery components. Natural Disasters are Becoming More Frequent The intent of this article is to heighten your awareness of the need for disaster recovery planning. That need is dramatized most clearly by listening to the experts themselves: • “One catastrophe modeling company predicts that catastrophe losses will double every decade or so due to growing residential and commercial density and more expensive buildings.” (Insurance Information Institute) • “Tornado losses of $1 billion and higher are becoming more frequent.” (A.M. Best, April 2008) • “About 5,000 quakes can be felt each year, with some 400 capable of causing damage to the interior of buildings and 20 causing structural damage.” (Insurance Information Institute) The following examples demonstrate that man-made disasters, too, can have an impact felt far beyond the premises: • Faulty soil work to a newly constructed ethanol plant causes physical damage to the plant of The chances of a full and expedient recovery are greatly improved when a comprehensive disaster recovery plan is in place. 2 ADJUSTINGTODAY. COM A D J U S T I N G T O D A Y
$5 million and $3 million in loss of business income. • Wildfires in California, deliberately set, caused extensive destruction of property, many injuries and deaths, which also disrupted numerous businesses —with a toll into the millions of dollars. • A bridge collapses because of faulty design, harsh weather and the use of salt over the years, causing deaths, injuries and major disruption to businesses totaling into the millions of dollars. How Well are You Prepared? If a major disaster were to occur, how prepared would your organization be? Test your level of preparedness by answering these questions: • Do you have a disaster plan in place? • If you have a plan, when was the last time it was tested? Updated? • Have you completed a thorough risk assessment? • Have you thought out all the potential “what if” scenarios? • How often and thoroughly is your insurance program reviewed and tailored to your specific exposures? • Do you fully understand your potential legal liabilities? Test your level of preparedness. Fewer than 20 percent of all Americans have a flood insurance policy. A standard homeowners insurance policy will not cover flood-related damages. ADJUSTERS INTERNAT IONAL . COM 3 A D J U S T I N G T O D A Y
• Are you in compliance with all regulations? • Do you have a recovery team with a designated leader in place to respond to a disaster? • Do you have an adequate business continuity plan in place if your electronic information systems fail? If your answers to these questions leave you with any degree of uncertainty, you need to improve your preparedness and limit your vulnerability to future disasters. A commitment to developing and regularly updating your disaster recovery plan is vital to a full recovery. How is a Disaster Recovery Plan Developed? Because every organization needs a unique plan, the planning process can vary greatly. However, the following brief outline developed by the Federal Emergency Management Agency (FEMA), which is included in their Emergency Management Guide for Business and Industry, provides an understanding of the fundamentals. For more detailed information you may wish to obtain a copy of the guide by visiting FEMA’s Web site at www.fema.gov. Step One— Establish a Planning Team • Appoint the chief executive or facility manager as leader. If a major disaster were to occur, how prepared would your organization be? 4 ADJUSTINGTODAY. COM A D J U S T I N G T O D A Y
• Obtain input from all functional areas. • Promote a free flow of ideas. • Issue a mission statement for the plan. • Establish a schedule and budget. Step Two— Analyze Capabilities and Hazards • Review internal plans and policies—evacuation plan, fire protection plan, hazardous materials, etc. • Meet with outside groups— government agencies, community organizations, emergency management office, utilities, etc. • Identify codes and regulations —environmental, fire, seismic, safety codes, etc. • Identify critical products, services and operations. • Identify internal resources and capabilities—personnel, equipment, facilities, organiza- tional, backup systems. • Identify external resources— emergency medical services, local and state police, contractors, etc. (formal agreements may be necessary). • Review insurance. • Conduct a vulnerability analysis: - Within facility - Within community - Historical—earthquakes, hurricanes, tornadoes - Geographic—proximity to flood plains, airports - Technological— process or system failure - Human error (largest cause of workplace emergencies) Step Three— Establish the Plan • Detail emergency response procedures. Step Four— Implement the Plan • Integrate into company operations. • Conduct training. • Evaluate and modify the plan. Post-Disaster Considerations • Direction and control—the emergency management group is to be led by the emergency director, who is in charge of all aspects. • Life safety—first priority. • Property protection—essential to restoring operations. • Community outreach—your relationship with the community will influence your ability to protect personnel and property, and return to normal. • Recovery and restoration—to keep people employed and the organization running. • Administration and logistics— maintain complete and accurate records. You can hope that your business or organization never suffers a disaster that would interrupt or threaten its prosperity. But you can be sure that if disaster does strike, a full and timely recovery will depend on your ability to deal with the unexpected. I hope that I have stimulated your thinking about how to be better prepared by encouraging you to give careful consideration to the importance of organized disaster planning. You are encouraged to consider all areas, especially those unique to your organization. However, regardless of your organization’s individual needs, technology will likely play a major role in your plan development and recovery effort. Therefore, it is also important that you make a business continuity plan (BCP) dealing with technology issues a focal point of your overall strategy. The following chart provides some Web sites that may be referred to for information to enhance any disaster planning program. ADJUSTERS INTERNAT IONAL . COM 5 A D J U S T I N G T O D A Y
Facts and Figures The following are some important and interesting facts and figures having to do with 2008 catastrophe losses: • Although there were fewer “loss-producing” events in 2008 than in the previous year, the impact of natural disasters was higher. • More than 220,000 people died in events like cyclones, earthquakes and flooding, the most since 2004, the year of the Asian tsunami. • Overall global losses totaled about $200 billion, with uninsured losses totaling $45 billion, about 50 percent more than in 2007. • 2008 was the third most expensive year on record, after 1995, when the Kobe earthquake struck Japan; and 2005, the year of Hurricane Katrina in the United States. • The most expensive single event in 2008 was Hurricane Ike, which brought $30 billion in losses. It was one of five major hurricanes in the North Atlantic that year, which saw a total of 16 tropical storms. • The World Meteorological Organization (WMO) figures show that 2008 was the 10th warmest year since reliable records began, meaning that the 10 warmest years on record all occurred in the past 12 years. Source: Munich Re, as reported by BBC News, December 29, 2008. Earthquake U.S. Geological Survey http://earthquake.usgs.gov/regional/neic National Earthquake Information Center http://neic.usgs.gov/neis/eqlists/eqstats.html Flood Federal Emergency Management Agency www.fema.gov U.S. Geological Survey www.usgs.gov Hurricane Federal Emergency Management Agency www.fema.gov National Climatic Data Center www.ncdc.noaa.gov/oa/ncdc.html Tornado National Weather Service www.nws.noaa.gov Tornado Alley Information www.oar.noaa.gov/spotlite/archive/spot_climatology.html Volcano U.S. Geological Survey http://volcanoes.usgs.gov www.volcanos.com www.volcanoes.com WildFires National Interagency Fire Center www.nifc.gov National Center for Public Policy Research www.nationalcenter.org Disaster PlanningWeb sites 6 ADJUSTINGTODAY. COM A D J U S T I N G T O D A Y
You can be sure that if disaster does strike, a full and timely recovery will depend on your ability to deal with the unexpected. THE 10 MOST COSTLY CATASTROPHES, UNITED STATES 1 Insured Losses in ($) Millions Rank Date Peril Dollars When Occurred In 2007 Dollars 2 1 Aug. 2005 Hurricane Katrina $41,100 $43,625 2 Aug. 1992 Hurricane Andrew 15,500 22,902 3 Sept. 2001 World Trade Center, Pentagon Terrorists Attacks 18,779 21,981 4 Jan. 1994 Northridge, CA Earthquake 12,500 17,485 5 Oct. 2005 Hurricane Wilma 10,300 10,933 6 Sept. 2008 Hurricane Ike 10,655 10,655 3 7 Aug. 2004 Hurricane Charley 7,475 8,203 8 Sept. 2004 Hurricane Ivan 7,110 7,803 9 Sept. 1989 Hurricane Hugo 4,195 7,013 10 Sept. 2005 Hurricane Rita 5,627 5,973 (1) Property coverage only. Does not include flood damage covered by the federally administered National Flood Insurance Program. (2) Adjusted to 2007 dollars by the Insurance Information Institute. (3) Estimated. Expressed in 2008 dollars. Source: Insurance Services Office Property Claim Services Unit; Insurance Information Institute ADJUSTERS INTERNAT IONAL . COM 7 A D J U S T I N G T O D A Y
CORPORATE OFF ICE 126 Business Park Drive Utica, New York 13502 1.800.382.2468 Outside U.S. (315) 797.3035 FAX: (315) 272.2054 editor@adjustingtoday.com PUBL ISHER Ronald A. Cuccaro, SPPA EDI TOR Sheila E. Salvatore WEB ADDRESSES www.adjustersinternational.com www.adjustingtoday.com ADJUSTING TODAY is published as a public service by Adjusters International, Inc. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. AT99 3016-1R PRINTED ON RECYCLED PAPER Copyright © 2009 Adjusters International, Inc. Adjusters International ® and the AI logo are registered trademarks of Adjusters International, Inc. All rights reserved. • Disaster losses along the coast of the United States are likely to escalate in the coming years, in part because of huge increases in development. It is predicted that catastrophe losses will double every decade or so due to growing residential and commercial density and the cost of rebuilding expensive properties. • The year 2008 brought one of the deadliest U.S. tornado seasons in more than a decade. The average annual number of tornado-related deaths nationally for the 10 year- period 1997-2006, was 62. Adjusting Today on the Web—www.adjustingtoday.com View our entire catalog of back issues; download PDF versions, subscribe and contact the editor. Yet more than 120 people died in U.S. tornadoes in 2008. Typically about 1,000 tornadoes occur annually, however, at least 1,600 struck the United States in 2008 during the first nine months alone, according to the National Weather Service. The number of tornadoes was on track to rival the record set in 2004, when more than 1,800 twisters were reported. • Fewer than 20 percent of all Americans have a flood insurance policy, even though 73 percent of those surveyed nationally this year by the Insurance Information Institute By John W. Marini Chief Operating Officer & Vice President Adjusters International said they are aware that a standard homeowners insurance policy will not cover them for flood-related damages. Source: Insurance Information Institute A commitment to developing and regularly updating your disaster recovery plan is vital to a full recovery.
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