Are you ready if disaster strikes your business?
Well, the Mayans were wrong. The predicted apocalypse didn’t happen December 21, and we’re all still here.
One bullet dodged.
But are you and your business ready for a real disaster? Could you safely evacuate if a raging wildfire worked its way to your doorstep? What would you do if an earthquake (remember 1989’s Loma Prieta) destroyed your inventory? How would you recover from severe flooding (the Napa and Russian Rivers are in our own backyards)? Finally, with all due apologies to Fleetwood Mac, would the landslide bring you down?
Life in California is one big reality show and our four seasons—earthquakes, wildfires, floods and landslides—provide ample fodder for exciting scripts and screenplays. But unlike the Mayan prediction, which was based on unscientific interpretation of assumed facts, we all knowit’s just a matter of time before something adverse will happen either to your company or to a vendor upon which you rely. Copious amounts of voodoo offer no protection. But strategic planning, regular emergency preparedness practice and adequate insurance coverage do.
Think like a Boy Scout
Debra Costa, vice president of Heffernan Insurance Brokers in Petaluma, says businesses should embrace the motto of the Boy Scouts: “Be Prepared.” Or, as legendary football coach Vince Lombardi once said, “The best defense is a good offense.”
Tony Lembo is the founder and president of SafetyMax Corporation, which is headquartered in San Francisco but serves clients throughout the North Bay, across the nation and around the world. According to Lembo, written emergency plans that let employers and employees respond in situations ranging from fires and earthquakes to medical emergencies and severe storms are required for all businesses with 10 or more employees under Occupational Safety and Health Administration (OSHA) code. However, Lembo says, his company generally doesn’t hear from companies until they amass about 100 employees. “When they get to that size, awareness grows and they begin to understand they need to protect their company and their employees. Unfortunately, their awareness usually stems from an incident that occurred and that they mishandled,” Lembo says.
According to Stan Naylor, technical director for risk services and solutions for Fireman’s Fund Insurance Company, which is headquartered in Novato, small businesses are particularly vulnerable. “A survey conducted by the Ad Council found that 62 percent of small businesses have no emergency plan in place. The best resource is a straightforward plan that assesses dangers and has written instructions as to what should be done in an emergency—how employees are kept safe, how to respond and how to communicate not only with employees and staff, but with vendors and customers,” Naylor says.
SafetyMax works with its clients to put together such plans, train employees and make sure they have the equipment and supplies to do the job if an emergency should arise. Lembo recommends small businesses “start with a basic plan that detailed procedures can be added to over time. It’s important to get that basic plan together and share it with everyone.”
Companies can start their emergency preparedness plan by assessing their exposures to risk based on what’s known about their facility’s hazards and exposures to loss, such as older construction or being in a flood zone. To help, templates are readily available online. Travelers Insurance Company has an excellent Risk Control Business Continuity Sample Plan on its website, and the Federal Emergency Management Agency (FEMA) maintains websites with a wide array of emergency preparedness, mitigation, response and recovery information at www.fema.gov and www.ready.gov. The Insurance Institute for Business and Home Safety also has excellent resources online. Businesses can also enlist support from their insurance brokers, who obviously have “skin in the game” when it comes to emergency preparedness and mitigating risk.
The basics
So what should your written emergency plan include?
“Start by forming an emergency response team,” says Costa. “These are the people who’ll be the first responders in a company.”
“These are your leaders,” Lembo says. “They’ll need additional training, because the other employees will look to them for guidance as to what they need to do in an emergency.”
Members of a company’s emergency response team should develop a formal, written emergency plan with several overarching goals. Foremost among these is protecting employees from injury. Additionally, exposures such as loss of income due to a disaster, protecting the company’s property and resources, and maintaining the company’s ability to stay in business should be contemplated.
“A survey by the Insurance Information Institute found that up to 40 percent of businesses affected by a natural or human-caused disaster don’t reopen their doors,” Naylor says, “so business continuity is sometimes overlooked, but it’s very important.”
Once the team is in place, it should undertake a threat assessment: What disasters could possibly happen?
In the North Bay, earthquakes happen with great regularity, although most are fairly small and do little damage. But let’s not forget Loma Prieta and other rock ’em, sock ’em knocks that have done considerable harm.
Every North Bay business should have an earthquake plan, Costa says, particularly those in the wine industry since there’s high vulnerability to loss (with tanks, barrels and bottles all filled with often irreplaceable liquid). A good first step is to identify objects that can fall, bend or break during the force of an earthquake, such as tanks, barrels and cased good inventory. “Don’t put your most expensive Cabernet in a tank that’s not secured. Evaluate your equipment to make sure it’s in good working order and stabilized properly,” she says. “And invest in cradle-style barrel racks or seismic sound rack systems.”
And while earthquakes are foremost on the mind of most businesses in the North Bay, plans should also be in place in case of fire, flood, medical emergencies and human-caused disasters (this includes CPR training). Costa reports that, with the rash of on-campus shootings in recent years, local schools have started “doing lockdown drills for shooters and all the crazy things that can happen. A mock situation of this sort is stressful to kids, but necessary,” she says. Since “going postal” could also happen in the workplace, employers are advised to consider such drills as well. “You can purchase insurance to protect against predictable type losses, but it’s the things you can’t predict that can matter or devastate the most,” she says.
Once threat assessment is established, the response team should identify critical functions that will require priority attention. Compile a list of all functions necessary to stay in business and critical timeframes to restore them. Impact on revenue should be part of this analysis.
The next step for the team is to complete a business impact analysis and establish additional priorities beyond “mission critical.” After that, a business continuity plan should be written to provide recovery plans to support the business’ needs. This includes crisis management, employee and customer communications, mitigation strategies, alternate site requirements, recovery management and site-specific checklists.
“Two immediate concerns are loss of power and communication,” Naylor says. David Cohen, product director for property insurance with Fireman’s Fund, notes that while just about everyone relies on a cell phone these days, “cell phone networks can be overwhelmed quickly in emergencies, so businesses really need land lines as a backup.” He also recommends that emergency plans incorporate texting as a means of communicating with employees and vendors.
One particular area of disaster planning Lembo sees as lacking is with businesses that lease office or production space. “A lot of these businesses want to rely on their landlord to provide emergency response procedures in their buildings—and some actually do an excellent job. But others do absolutely nothing. It’s really the company’s responsibility to provide for its own safety. If you’ve ever rented an apartment, you know what it’s like. You have to take matters into your own hands. Landlords typically do the minimal because they don’t want to spend the money,” Lembo explains.
SafetyMax recommends tenants secure whatever building emergency plans exist from their landlords and incorporate them into site-specific versions for every business location, while customizing them for their own business.
“It’s a good idea to evaluate the landlord’s plan and ask questions: ‘When was the last time it was updated?’ ‘Who did the update?’ ‘How many people have been trained?’ ‘What about the other tenants in the building?’ We had one customer in a multi-tenant, five-story building, where the lower floors had a completely different evacuation plan than our customer, who was on the upper floors. It was a disaster waiting to happen,” Lembo says.
Practice makes perfect
While having a plan is the first and most important step in being prepared for an emergency, it’s not the end game. Once the emergency plan is written, it needs to be tested and employees need to be trained. The first priority should be to train the leadership team and then hold regular practice sessions for employees.
“It’s also important to make your disaster readiness plan immediately available to all employees,” Lembo says. “Write a pamphlet that’s given to each new employee the first day they show up to work. Make it available on the company intranet,” Lembo says, or, if you have one, post it on the old-fashioned employee bulletin board.
A plan doesn’t do much good if employees aren’t walked through the paces on a fairly regular basis, Naylor says. “Once you get a plan, test it. Tabletop exercises consisting of a team review of specific scenarios with appropriate responses and actual emergency drills are necessary. Whatever you do, make sure your plan is tested, assessed and updated on a regular basis,” Naylor urges. “Additionally, after an actual event, a review of the plan’s effectiveness is essential: What worked well and what opportunities are there for improvement?
“Names, phone numbers and addresses of employees should be updated. Representatives of vendors who are critical to business resumption should be contacted and updated. Any changes to the plan should be made and communicated to the business’ emergency response team,” says Naylor.
Off-site storage inventories should be validated. Alternate supplier agreements should be reviewed. “This is vitally important,” Naylor says. Not only must a business be aware of its own known threats, it also needs to be aware of threats to its vendors. “Any firm that’s heavily dependent on one vendor or one customer can run into issues if that vendor or customer suffers an emergency. You need to have backup suppliers. It’s more difficult if it’s a major supplier, but businesses should make every effort to not be overexposed,” Naylor explains. Vendors should be contacted to make sure they have equipment and materials in case of an emergency.
Cohen points out that wineries, in particular, should pay attention to this detail. “Reciprocal agreements for wineries are critical. If their own crushing facility is damaged, do they have agreements with others for backup?” he asks. If a winery uses a custom crush facility that’s disabled for any reason, is there another able to take on the business—especially since harvest and grape crushing is extremely time-sensitive?
At least once every year—and more, if possible—do a “component test” and identify a complete set of plan steps and execute them according to the plan. Schedule a drill that includes a local emergency response team, such as the fire department.
But the work doesn’t stop there. Testing and practicing should expose any shortcomings. Once assessed, updates to the plan should be made and fresh copies of the new plan should be distributed to everyone.
Run for cover(age)
Being adequately covered for an emergency is part and parcel of owning a business. “When smaller companies go public or grow significantly, investors will typically push the organization to have an emergency response plan in place,” says Lembo, “and lending institutions want proof of insurance.” All insurance resources for this story have a wide variety of policies that cover just about every possible scenario.
Fireman’s Fund lists countless suites of specialized business insurance coverage for various industries—including farms and ranches; hotels, motels and inns; wineries; and even senior living—on its website. Heffernan Insurance Brokers offers a variety of policies that cover just about every possible scenario, with full information on its website.
“In Northern California, it’s essential to have insurance for earthquakes, flooding [providing your business or your key customer or supplier is in a flood plain], landslides and fires,” says Cohen. “Wind and fire damage is usually covered in a traditional commercial insurance policy, but earthquakes and floods generally must be added by endorsement or issued on separate policies.”
Cohen also notes that a business might want to carry flood coverage even if it’s not located on a known flood plain, but its vendors or major customers are. “You want to cover loss of income if your own location didn’t suffer flood damage, but your vendor or customer did. Flood coverage is also good to have to cover any interruption of utility services should a utility company transformer explode because it was flooded,” Cohen explains. “You also want to be especially careful to have the appropriate insurance to cover power interruption if your power lines are overhead [and not buried],” he says.
Good insurance coverage is important, Costa says, because in the event of an emergency, the insurance company, in a sense, “becomes a responder.”
Heffernan specializes in niche industry groups, and Costa spends the majority of her time insuring food and wine producers, and she says one of the most popular policies, particularly among wineries, is earthquake coverage for wine inventories.
While earthquake coverage for homeowners is quite steep and often prohibitive, that’s not the case for winery inventory. “Earthquake insurance for wine inventories is relatively inexpensive, and we encourage all our winery clients to purchase it. The rates are very competitive and we’re all subject to earthquake damage,” Costa says. “We recommend each winery carve out its inventory and insure it for all perils, including flood and earthquake.
“You can lose an entire vintage and, unlike other industries, that’s an inventory that can’t be replaced.”
North Bay wineries learned a valuable lesson about inventory insurance in 2005, when an arsonist set fire to a huge wine warehouse on Mare Island in Vallejo, destroying millions of dollars of wine.
“Mare Island was a concrete bunker,” Cohen says. “It was hard to perceive it as a fire danger, but anything can happen, particularly if it involves arson. All wine inventories should be insured, whether onsite or off-site.”
“And it’s important to insure your inventory for its market value,” Naylor adds. “Make sure you know how much your stock is worth.” That way, if disaster strikes, a business will be able to protect itself from revenue loss.
Costa recommends businesses spread out their risk by having multiple locations for warehousing. “It’s the old saying, ‘Don’t put all your eggs in one basket.’ It’s just common sense to know what’s at risk, then have a plan in place in case of an emergency and insurance as a way to protect your business from financial loss,” she says.
And while insurance is oftentimes a panacea for losses incurred during an emergency, it’s also a driving factor in pushing businesses to get their ducks in a row when it comes to being prepared for disaster.
“Insurance companies perform audits of the businesses they cover,” Lembo explains. “One of the first things they want to see before they issue a policy is the business’ emergency plan. If there’s no plan, they might increase the policy premiums—or just deny coverage outright.”
Denial is not a plan
“Dread of disaster makes everyone act in the way that increases the disaster,” said British philosopher Bertrand Russell.
It’s clear that getting prepared for a disaster isn’t easy. It takes time, resources and effort, all of which are often in short supply, especially for small businesses. But it’s critical, not only for the safety of employees, but for the very livelihood of your business.
Don’t be the next disaster waiting to happen. Get ready for “the big one”—whatever it may be—now.
