Extreme Weather Part II

Businesses Impacted by Variability

Entrepreneurs are optimistic and determined but nothing can dampen their spirit like an event outside their control. Extreme weather is a prime example.

Many disasters pose a risk – fire, data breach, supply chain disruptions – but increasing variability in extreme weather events has recently had a greater impact on businesses.

Eleven weather events caused at least $1 billion in losses in 2012ⁱ, which was also the warmest year in the United States since recordkeeping started in 1895ⁱⁱ. Natural disasters in the United States accounted for more than half of 2012 global economic losses, according to the Impact Forecasting annual catastrophe studyⁱⁱⁱ. Two events, Storm Sandy and a yearlong drought, accounted for two-thirds of all 2012 insurance losses globally and nearly half of all global economic losses for the year^iv.

In October 2012, Storm Sandy devastated the east coast with heavy winds and storm surges that flooded major cities and shorelines while dumping record snow in West Virginia and knocking out power as far away as Cleveland, Ohio.

The Hartford’s Small Business Pulse Survey: Storm Sandy^v found that 71 percent of businesses experienced a power outage and more than half reported a loss of sales or revenue. Many had to close for a week or more following the storm.

Not even six months later, in February 2013, while many in the Northeast were still trying to recover from Storm Sandy, a massive blizzard struck, dumping more than 3 feet of snow in some areas, causing widespread power outages and travel bans in some states. At the same time, a tornado^vi , believed to have reached three-quarters of a mile in diameter at times, wrecked hundreds of homes and businesses in Mississippi and Alabama.

Prepare

Following these storms, there is a heightened awareness of the value of insurance coverage. Small business owners can work with their Insurance agents to assess how potential changes to their businesses may impact their insurance needs.

“You’re dealing with people’s livelihood every day,” said Thomas W. Connor, president of Connor & Gallagher Insurance Services, Inc. in Lisle, Illinois. “Without insurance, if something happens, you’re out of business. We want to be there to make sure it doesn’t go away.”

More than half of small business owners don’t have a disaster plan in place.^vii. This presents an opportunity for them to work with their insurance agent to help make their business more resilient. Start by focusing on these key areas:

• Each region of the country faces different threats from Mother Nature. In some cases, there are measures that can be taken to reduce or eliminate exposure. A structural engineer or community building or zoning offices can identify ways to help shore up a facility against the effects of earthquakes, high winds, flood and fire.
• Make sure there are protective systems in place. For example, an emergency generator can provide power during outages. Surge protectors can prevent damage to electronic equipment. Storm shutters can protect glass from flying debris under windy conditions.
• Back up computer data – regularly. This is a critical risk management step that most small business owners overlook at their peril. Fact is, of those companies that experience a catastrophic data loss, 43% never reopen and 51% close within two years . Computer backup should be part of daily operations and copies of files should be stored at an offsite location. It can make the difference in a business’ survival should a catastrophe occur.
• Develop a business continuity plan. A business continuity plan identifies the specific steps a business will take to return to operation after a disaster. It requires time and effort, but in the long run, it can help reduce loss, save lives and speed a business’ recovery.

Learn more about Loss Control at thehartford.com/losscontrol

Protect

Small business owners are taking advantage of the slower economy by working to position their businesses for future success, according to The Hartford’s 2012 Small Business Success Study. Tools like The Hartford’s Business Insurance Coverage Checkup can be useful in helping small business clients identify changes in their business that could impact the type and amount of insurance needed to help recover after a serious loss.

A business interruption can be devastating to a small business and having the right coverage based on the specific needs of the business can mean the difference between getting back on their feet in days, versus weeks, months or even years.

“When a client has a serious property loss, the most important thing that people need to understand is that the indirect loss of income is usually by far a more serious loss than the direct property loss,” added independent agent Joe Bishop of MBI Company Group in North Haven, Connecticut. “The income protection actually protects the ability of the small business to maintain and continue their business at a time when everything else has gone wrong.”

The easy-to-use Coverage Checkup will help you evaluate your need for business liability, property, workers’ compensation and commercial auto, as well as optional coverages you should consider purchasing like Off Premises Utility Services, Data Breach, and more. “An optional coverage like Off Premises Utility Services is not necessarily a coverage that a small business will come looking for,” said Bishop. “But they expect it to be there after the loss takes place.”

Storm Sandy underscored the need for additional education around coverage for flooding. It is important for small business clients to review what is included in a typical property insurance policy and identify where coverage gaps may exist. The typical business owner’s policy does not include flood coverage. Commercial flood insurance may be purchased as a separate policy through the National Flood Insurance Program and does not include business income coverage.

Prevail

While weather like Storm Sandy made many headlines, it does not always take a headline-making storm to interrupt the day of a small business. When a summertime storm rolled through, Mueller a suburban Chicago-based accounting firm, lost power for 30 hours and was unable to continue normal operations. Like many accounting firms, Mueller bills by the hour, and had 80 employees unable to work as a result of this storm.

Fortunately, Mueller was protected by The Hartford’s Spectrum® Business Owner’s Policy.

“Through The Hartford, we carry our business interruption insurance,” said Mueller’s Debora Galchick. “They understand our business. The whole process went very smoothly.”

Their insurance agent, Thomas W. Connor, president of Connor & Gallagher Insurance Services, offered optional Off-Premises Utility Services – Direct Damage and Business Income Extension For Off Premises Utility Services to Mueller. “When I present The Hartford to somebody, it’s because it is a fit,” said Connor. “It’s because of the service they provide and how they stand behind the product they sell.” The Hartford policy provided coverage for lost income and the extra expense of getting a generator, which allowed Mueller to get up and running during the power outage.

“What Tom Connor and The Hartford did for us was remarkable,” said Galchick. “Nobody expects to have to use their insurance, but it is there. With the things I do on a day-to-day basis, to have something go smoothly is a wonderful thing.”

This article contains general descriptions of coverages that may be provided and does not include all of the terms of the policy. Coverages may vary by state and may not be available to all businesses. In the event of a loss, the terms of the policy will control.

i: National Climatic Data Center, “Preliminary Info on 2012 U.S. Billion-Dollar Extreme
Weather/Climate Events”, December 20, 2012
ii: National Climatic Data Center, “State of the Climate.” As accessed on March 8, 2013
iii, iv: Aon Benfield and Impact Forecasting. “U.S. natural disasters account for more than half of 2012 global economic losses, according to Impact Forecasting annual catastrophe study” January 24, 2013
v: The Hartford, “Small Business Owners Hit Hard by Sandy Outages, The Hartford Finds,” March 19, 2013

vi: Symantec's 2011 SMB Disaster Preparedness Survey

viii: University of Texas Center for Research on Information Systems, as cited in “Impact on U.S. Small Business of Natural and Man-Made Disasters,” Hewlett Packard Development Company, L.P., 2007