How to prepare for business interruptions

Criminal activity and natural disasters are dangers that can strike an organization at any time. To prepare for the unexpected, you should review your security and disaster readiness plans to help minimize the impact of any potentially threatening situation. You should also ensure that you have the proper insurance coverage to protect against loss of income and other expenses not covered by property insurance.

Without prior planning and protection, you leave your company open to financial disaster, especially if you are forced to close operations for any length of time. In addition, without a proper plan to cope with a disaster situation, your organization may face lawsuits from clients, vendors, or employees claiming negligence.

11 facility security tips

It is important to take action before a disaster occurs to assess your facility security and make improvements, if necessary. Though not all security threats can be avoided, some situations can be prevented with appropriate preparation by following these 11 steps:

1. Advise management and employees to report any suspicious persons or activity in or around the facility.
2. Establish and follow visitor control procedures, including those involving mandatory sign-ins, name badges, escorts, and orientation.
3. Survey locks, fences, exterior lights, and other physical security devices to ensure that they are in place where needed and in proper operating condition. Establish a monthly inspection of your security perimeter and key protective features of your facility.
4. Pay special attention to areas where you are storing explosive, flammable, or toxic chemicals. These areas should be properly secured and inventoried, with limited hands-on contact of these materials when possible.
5. Evaluate critical locations in your facility for proper security, including the electric, telephone, and gas units; building entrances; transformers; outside storage units; and computer rooms.
6. If your facility has a security/fire alarm system, be sure it is operating properly and that key personnel know how to arm/disarm it.
7. Make sure that fire-suppression systems are regularly inspected and maintained. Also, be sure that a sufficient number of trusted personnel know how to activate, operate, and shut them down.
8. Install closed-circuit television. It can serve as an excellent crime deterrent and can help solve crimes when equipped with a recorder.
9. Review your procedures for issuing facility keys and access cards. At a minimum, keep lists of who has been issued keys/cards and have a procedure for handling a situation when a troubled employee is terminated without returning them.
10. Discuss security with your local police department. Police departments are often very willing to provide information and support to businesses and industries.
11. Have your local fire department conduct a preplanned visit to your building. While there, department personnel can identify potential hazards and plan fire-suppression priorities.

9 disaster-response tips

In addition to taking steps to prevent a disaster, employers should be prepared in case one occurs by doing the following:

1. Keep copies of insurance policies and other critical documents in a safe and accessible location (e.g., a fireproof safe).
2. Evaluate which disasters are most likely to occur in your area, remembering to include the possibility of terrorist activity. Be sure you are prepared for all the risks you identify.
3. Develop a disaster-recovery or business-continuity plan. If you already have one, make sure that it is up to date. You may consider identifying backups for essential operations, supply chains, personnel, business functions, data processes, and communication channels.
4. Review your policy for off-site backup of electronic data-processing records. Ideally, these records should be backed up and transmitted or sent off-site on a daily basis.
5. Have telephone call lists available (including home and cell phone numbers) for all key personnel so required staff members can be contacted during nonworking hours from any location.
6. Review procedures for notifying employees that your facility is closed. Remind employees that they should never attempt to enter areas that are closed by police or other emergency responders.
7. Consider establishing an alternate method for your phone service if the switchboard becomes unusable (e.g., forwarding incoming calls to a cell phone or remote number).
8. Regularly review real estate listings in your area to identify available properties that will accommodate your business needs should you need to relocate as a result of a disaster.
9. Regularly check available emergency supplies such as flashlights, batteries, emergency generators/fuel, patching materials such as plastic sheeting, wooden two-by-fours, duct tape, spare fire extinguishers, first-aid kits, etc. If you anticipate that any personnel would stay at the facility during or following an emergency, consider stockpiling food and water for their use.

Are you prepared to handle expense not covered by property insurance?

If a fire caused the facility to be temporarily unusable, what would you do next? Ideally, you would move to a temporary location while your permanent place of business was being repaired. Yet traditional property insurance does not cover this move or a loss of income when a business must temporarily close. By adding business interruption coverage (also referred to as business income coverage) to your property insurance policy, you can minimize the harm done to your business.

What is included in a business interruption insurance policy?

• Compensation for lost income if you must vacate your premises as a result of disaster-related damage covered under a property insurance policy.
• Coverage for the profits that would have been earned based on previous financial records had the disaster not occurred.
• Coverage for operating expenses, such as utilities, which must be paid even though business temporarily ceased.
• Coverage for expenses of operating in a temporary location while repairs to the permanent location are completed.

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Considerations for business interruption insurance

Business interruption insurance cannot be purchased on its own; it must be added to a property insurance policy or included in a business owner’s insurance policy. Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally the business must be closed for several days before coverage begins, and it does not pay for those days retroactively.

Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business, and how easily the business could function at an alternate location on a temporary basis.

What is extra expense insurance?

Extra expense insurance is also a viable way to cover the amount needed to avoid having to shut down a business while the permanent location is being repaired. This coverage reimburses for expenses that arise on top of normal business expenses but that are not covered by business interruption insurance. Depending on the disaster, extra expense insurance may be sufficient to provide financial relief.

Insurance experts estimate that business interruption insurance is one of the most, if not the most, valuable types of coverage available, yet business owners often overlook it. Since property insurance only covers the cost of physical loss or damage and the contents of a business in the event of a disaster, business interruption coverage is invaluable when it comes to covering the loss of income while the permanent business location is being repaired.

Thomas Boudreau is a vice president and the Property Casualty Practice Group leader at Associated Financial Group.

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