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Preparing for Work Stoppage Events

“The future is here, it’s just not evenly distributed.”

So said author William Gibson, and his remark is certainly true regarding the benefits of internet technology in the workplace and especially its vulnerability to large-scale disasters, whether natural or man-made. Technology allows many companies whose employees have an internet connection and a computer to carry on and sustain critical operations even when they cannot physically be present at an office. But certainly, that is not true of all.

In fact, businesses in large sectors of the economy—including food and beverage, food processing, manufacturing, scientific research and aerospace, to name but a few—have neither the same flexibility nor resilience when it comes to working from home. In the event of disaster, even one whose resulting paralysis is local, exposure can be extreme. Standard business interruption coverage available from market insurers is not usually triggered unless an insured building has sustained damage.

This fact is vitally important because the critical window is 48 hours. Many events may interrupt operations for more than this length of time even though the insured location has not been damaged and coverage has not been triggered. According to FEMA, after the first critical 48 hours, customer loss can be catastrophic. As many as 40% of small businesses thus stricken never recover or reopen at all.

For this reason alone, it is important to understand what can constitute a work stoppage event. How can a company best assure its own survival under unforeseen circumstances? And more importantly, where does a captive insurance program fit into such a company’s business continuity plan?

Nature is beautiful. Also, merciless.

It has been three years since Hurricane Sandy hit the New Jersey shore. Despite having maximum winds of 115 mph (a Category 2 level), it was the second costliest storm on record in the U.S. and generated $60 billion in federal aid and over $2.4 billion in loans from the Small Business Administration.

Despite these relief efforts, it has taken the intervening three years for small businesses left in the wake of the winds and water to approach pre-Sandy revenue. The reasons? Many, including restaurant and construction business owners, found themselves having to redirect resources marked for upgrades to replacing or restoring existing equipment. Often, insurance money was slow to arrive or only partially covered losses.

The damages attributable to Hurricane Harvey in Texas and Louisiana revealed another layer of complexity. The flooding was devastating enough; southeast Texas alone experienced a new rainfall record of 51.88 inches. In addition to its direct effects on businesses in the path of Harvey’s landfall, the storm wreaked havoc on the largest U.S. oil refinery, located in Port Arthur, TX. As the greater region soon discovered, an interruption to the gas supply meant businesses operationally dependent on fuel experienced revenue losses as well.

Fire can be no less devastating. As business owners in Northern California discovered, the recent Tubbs Fire drew no distinction between restaurants, hotels, wineries and department stores. To make matters worse, even the threat of further damage was enough to disrupt or forestall the operations of employers both large and small. The affected included hospitals, schools, shopping centers, food producers and even tech companies. ‘Normal’, when it eventually makes its appearance, will have taken years to arrive.

Terrorism, epidemics and work stoppages.

While large-scale terrorism events such as 9/11 are statistically rare, and despite their enduring imagery, it is still possible to underestimate their effects. Events like these can shut down specific areas for extended periods of time, crippling businesses located with their boundaries. Additionally, national security implications can mean that companies located within or near the nation’s capital can experience road closures or loss of access that could negatively affect or even shut down operations.

Despite the virulence of the current flu season, it’s probably safe to say that we seldom think of the threat of epidemic as a similar level of threat to those already mentioned. And yet, all it would take to burst upon our collective consciousness is a single stricken passenger entering the country on an airplane. This is how pandemics start.

Recent years have been marked by instances during which dangerous viruses have resulted in quarantines. A work stoppage can be triggered by a single infected employee who, after contacting the virus, remained unaware of the fact until it had already been spread to co-workers. In fact, this very reason was enough to halt business operations in Oxford, CT recently, when the E. coli bacterium was discovered in the water supply.

Sometimes, work stoppages are exactly that. Namely, they can be brought on intentionally through the actions of union employees, whether public or private. Even in the best of these kinds of circumstances, it can often take days for an agreement to be reached and for operations to return to normal.

Anticipate, understand, plan.

Whether looking at these specific categories of events or considering other localized potentials for work stoppage due to natural disaster or social disorder, it is critically important to have a detailed, reality-based plan. Planning begins with understanding the business model and assessing potential threats and risks as well as accurately gauging the potential impacts of shutdown. Due diligence extends to researching the history of the company and its geographic footprint to examine the events that have or could affect the business. Cost and revenue loss estimates will illuminate the scope of risk exposure.

Next, a thorough analysis of the company’s standard commercial insurance policies will reveal what is covered and, more importantly, what is not. This analysis should happen each year to accommodate changes in the business. It is depressingly common for business owners to discover, even after an event of the magnitude of a Sandy or Harvey, how much insurance they do not have. Then, develop a strategy to cover the risks not insured through standard coverage. A captive program can be designed specifically to pick up the gaps and exclusions common to standard insurance policies.

Work stoppage coverage through a captive provides reimbursement for expenses incurred while the business is unable to operate, including loss of potential revenue. Coverage can include, but is not limited to, losses due to natural disasters, uninsured interruption due to off-premises events, power outages and the unavailability of staff due to illness, quarantine or inability to travel or gain access to premises due to action by civil authorities, commotion or strike.

Tick, tick, tick. 48 hours. In a major event, the hours go by in a blur. Even businesses who believe they have a robust business continuity plan should periodically search for blind spots of risk that are not covered by insurance. Mere survival is not enough. Businesses who prevail during emergency are those who already have a work stoppage recovery plan in place. A captive program can be the difference-maker in preparing for and covering the exposure and resulting damage from potentially catastrophic events.

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