Focus on what counts

The Effects of Natural Disasters on Business Operations

October 20, 2015
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As seen in The Legal Intelligencer

In early October, the threat of Hurricane Joaquin making landfall on the East Coast was on the minds of many. For most of the East Coast, Joaquin had little impact. The devastation in the Carolinas, however, is a reminder of how powerful natural disasters can be and how overwhelming these events are to individuals, businesses and communities at large. The effects of these types of events are often multi-faceted, time-consuming and wide-ranging. As a result, recovery is expensive.

This recent event reminded me of when Hurricane Sandy impacted the East Coast. It is hard to believe that it has been almost three years since Sandy caused widespread devastation to areas in New Jersey, Pennsylvania and New York. Many of my clients' business operations were impaired as a result of the storm. The level of disruption and recovery time varied for clients depending on what caused their specific impairment. Regardless of the level of damage incurred or time needed to recover, the common theme from clients is that recovering from Sandy was frustrating and time-consuming. In fact, as we approach the anniversary, it is startling to realize that many businesses are still working through claims related to Sandy.

You may be wondering why these matters are still pending and how we can be approaching a three-year anniversary with these issues still unresolved. The answers to these questions are related to Sandy itself. First, the impact of Sandy was wide-ranging—the storm impacted many businesses and industries in a densely populated area. The sheer volume of people who experienced losses related to Sandy increased the timeframe needed to resolve claims.

Second, the complexity of understanding the financial impacts of Sandy on a large number of businesses, along with the intricacy of financial systems and information, increased the time needed to understand Sandy's impact. The process was further complicated as businesses were pulled in many directions—working on recovery while working on documenting and understanding the financial impacts of Sandy stretched business resources. Further, business records were often damaged—adding another layer of complexity to the process. This financial complexity of the businesses that were damaged by Sandy linked with Sandy's widespread impact created the perfect storm for extended claim resolution.

As I look back on the work that I have done, several things stand out to me. First, it is critical for a business to understand the impact a major natural or man-made disaster will have on its operations. This applies not only to a storm, but would hold true for any event that would impact operations (i.e. fire, flood, collapse). Business owners and managers need to understand the key drivers of their business and what impact these types of occurrences will have. Many of the losses I worked on in relation to Sandy had complex issues which had to be analyzed and explained. These included multiple locations that were financially impacted, with varying causes of interruption and unique business drivers. Businesses that were able to explain these issues generally had a more efficient and productive process.

I also noted that well-documented claims experienced increased efficiency and resolution. Business owners and managers must be aware of what books, records and documents are available that assist in documenting the loss. This goes hand in hand with understanding the impact to the business. If there are document limitations, including if documents have been damaged/destroyed, a business needs to be prepared to explain these limitations and consider alternative support.

The complexities discussed above have made resolving insurance claims more difficult. As evidenced by the Sandy claims still in existence, resolution can be a long-term process. While Joaquin passed our area by, it is a good time to remember that natural and other disasters are a risk area for all types of business. A business can manage this risk by having a plan in place to deal with these events. Further, if a loss occurs, as a business you want to be prepared to be proactive—both in documenting any losses as well as restarting operations. Consider revisiting your business plan now when there isn't a crisis.

Reprinted with permission from the October 20, 2015 issue of The Legal Intelligencer. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.