Takeaways for businesses

In the wake of catastrophic events like Katrina, businesses have learned that resilience is not optional — it’s essential.

By embracing Katrina’s lessons — chiefly, to strengthen risk management strategies through data-driven insights, proactive planning, and robust insurance program oversight — companies can better safeguard their operations, assets, and people against the unpredictable forces of natural disasters.

Data & analytics

Katrina put a spotlight on aging infrastructure. New Orleans’ civil authorities were aware the city’s levees were vulnerable well before Katrina — reservations were expressed after flooding from Hurricane Betsy in 1965 — but no one foresaw the magnitude of devastation that resulted when those levees failed in 2005.

Infrastructure improvements and community defenses against natural catastrophes typically take federal, state, and local governments many years to implement. While businesses should continue to encourage those actions, they should not wait for those to bear fruit.

Instead, organizations can work with their risk management and insurance partners to gain a clear understanding of their catastrophe exposure. The more data an organization has on its property exposures, the more predictable catastrophe models and other analytical tools will be, and the better positioned businesses will be to balance risk mitigation investments with risk appetites and financial resources.

Through data and analytics, businesses can identify vulnerabilities and make informed decisions about investments to mitigate and/or transfer risks. One promising area of opportunity is peril-specific, location-based exposure analysis. Improvements in building codes have helped reduce damage from hurricane-force winds in certain areas, such as Florida’s Miami-Dade County. But not every location has the same needs.

For example, a Midwestern manufacturing plant might be exposed to severe convective storms and hail, and the plant could install a roof designed to withstand expected hail and high winds in the region. It may also need to be reinforced to survive a tornado.

Planning, preparedness, & responsiveness

Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.” Hurricane Katrina and similar disasters have underscored just how vital planning and preparedness truly are.

It's far better for an organization to prepare in advance rather than scramble in the midst of chaos. Having a well-thought-out contingency plan before disaster hits is more effective than trying to piece together limited resources during a crisis and hoping for the best.

Smart businesses take the time to plan for every potential threat — be it hurricanes, floods, earthquakes, wildfires, or extreme weather — ensuring resilience no matter what comes their way. And given recent headcount reductions at the Federal Emergency Management Agency — which FEMA employees, in a recent letter to Congress, said have erased valuable government reforms enacted in Katrina's wake — the stakes are even higher for businesses.

Preparation and recovery are critical in every emergency response plan. When a disaster such as a hurricane hits, professional and personal lives become hectic. Questions arise about contingencies, including:

  • Where will employees go if they’re unable to live in their homes for a time?
  • How will the business handle production?
  • Can operations be conducted at one or more alternate locations in an unaffected area?
  • Can merchandise and/or materials needed for production be relocated?
  • If multiple sites are affected, how will the business prioritize protecting its employees and properties?

Businesses should devote time and resources to answering these questions and planning for emergencies and business continuity. And organizations should pursue risk improvements and crisis response planning as enthusiastically as they pursue sales and growth opportunities.

A good way to build a culture of risk mitigation in any organization is to discuss those plans with executive leadership and translate the impact of exposures into financial metrics, such as dollars or earnings per share. This will often be an eye-opening experience.

Disaster response checklist

Organizations preparing disaster and emergency response plans should consider how they can best safeguard their people and property through actions before, during and after the event. Overpreparation is not possible when havoc strikes. Discussing risk scenarios and developing response plans with qualified advisors is recommended.

Elements to consider include:

  • Utility contacts. Who are the providers of water, electricity, natural gas, telecommunications and other utilities in the affected area? Having a list of contacts is helpful to maintain site safety and minimize downtime.
  • List of employees. Who is onsite or residing in the disaster area? Maintaining an up-to-date list of employees is critical for communications and safety. Phone “trees” and call lists should have backups and alternates in case some people’s communication channels are unavailable.
  • Local protective measures. What steps can organizations take to protect properties from damage? Various products and systems exist for defending buildings from flying debris, floods and water intrusion, from storm shutters to quickly deployable barriers capable of withstanding storm surge and floodwater.
  • Restoration contractors. Lining up restoration services before a disaster can accelerate cleanup and recovery after a flood or storm.
  • Training. Fire drills keep building occupants familiar with routes to safely exit. Frequent disaster response training is important in catastrophe-exposed locations, so everyone understands protocols for shutting down operations and evacuating.

Insurance program management

Katrina and other events demonstrate how important it is that businesses continually monitor and update their insurance programs. Specifically, insurance buyers should prioritize:

  • Limit sufficiency. The magnitude and causes of property loss in Katrina caught many policyholders by surprise. When insurance limits are insufficient for an organization’s exposure, unfunded loss can mean the difference between survival and permanent closure. Therefore, it’s critical to understand the loss exposure and find solutions that align with the organization’s resources and risk tolerance.
  • Risk mitigation. Commercial insurers generally require property owners to have risk mitigation in place, especially in the lower layers of a property insurance program. Even small investments in risk mitigation, made over time, improve an organization’s marketability with insurers. Being able to point to steps that mitigate loss exposure makes for a much better submission in coverage discussions. Low-frequency, high-severity events do happen, and might not occur for decades, but readiness and forward thinking are qualities that underwriters like to see in accounts.
  • Concurrent coverage terms. Shared and layered insurance programs may involve many policies with differing terms, conditions, sublimits and deductibles. Definitions of loss occurrences may conflict with the policyholder’s expectations. To avoid difficult claims and prevent gaps, it’s important to work with an experienced risk advisor to negotiate with insurers and achieve concurrent terms.
  • Claim review. Businesses can benefit from reviewing the outcome of claims on their policies, to determine whether the policies performed to expectations. Many organizations overlook this once a claim is paid.
  • Understanding your policy. It’s essential that risk professionals are familiar with policy wording and the basis risk they and their organizations are agreeing to. Particular attention should be given to:

The definition of “occurrence.”

Percentage deductibles and how they apply.

Where definitions of “surge” and “tsunami” reside.

Language regarding “area-wide impact” and its effect on time element coverage.

Valuation clauses that might limit coverage.

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