Preparing for a major loss event — an earthquake, a significant data breach, a devastating fire — requires companies to take a broader view of the potential impact from a total-risk standpoint, whether damages affect property, employees or multiple areas of a company.
“In any major loss event, and an earthquake is a particularly good example, inadequate insurance protection can obviously create significant problems for the affected company, including the end of a business if the event is bad enough,” says Andy Barrengos, partner and senior vice president of Woodruff-Sawyer & Co.
“However, poor planning for such an event will almost certainly create immediate and long-term problems for a business, even if the event is smaller in scale. While some people look at insurance as a solution to most large loss events, there are more encompassing measures to consider as part of a broadened risk perspective.”
Smart Business spoke with Barrengos about expanding the mindset companies have so they look beyond individual risk issues and think more broadly about the enterprise impact of a catastrophic event.
Why should companies take a wide-ranging view when considering the impact of a catastrophe?
Companies should look at their risk differently because the event can cause a variety of damages across all aspects of a business. Instead of a bottom-up approach, think of how a major loss could seriously affect the company’s ability to do business.
What is a tangible example of a wide-ranging view of risk?
Consider an earthquake in California. The possibility of this event is not in question, it’s unfortunately a matter of when, not if, one occurs.
Many businesses focus on the potential property loss following an earthquake. However, the potential impact to employees is far greater. While employees injured at work in an earthquake are insured under their employers’ workers’ compensation coverage, employers need to plan for this risk more broadly.
This includes having emergency response plans that are practiced in advance to ensure employees are as insulated from significant injury as possible, and making sure the building(s) occupied are retrofitted if at all possible.
The emergency response plan should also account for employees’ needs in the hours and days following the event. Most will be trying to get home. They may not be able to reach family and loved ones and could become quite upset.
Following the immediate employee issues, companies need practiced disaster recovery plans to mitigate the impact of the event on it and its customers in the near and long term.
This includes back-up sites for critical data and processes as well as alternate production (if applicable) to enable a speedy return to pre-loss work levels.
Disaster recovery isn’t about insurance, but the broader need to plan for the event and its impact across the entire business. Doing this effectively will bring tangible, long-term benefits to the company beyond insurance recoveries.
Employees will appreciate the concern and help provided by their employers. Customers will value the quick return to business and the company will enhance its reputation overall.
Does this approach also apply to a different kind of major loss, such as a data breach?
Absolutely. Many companies immediately focus on the liability they may face following a data breach and specifically the possibility of lawsuits from third parties for failure to protect the breached information. While this is an important risk to plan for, the most immediate issue is the required response and associated expenses following the breach.
Though lawsuits may or may not be filed, a company must have a plan it can trigger immediately to: conduct forensic analyses to determine what actually occurred and who was affected; notify affected individuals; provide credit monitoring and identity theft services; and work with the appropriate authorities, including regulatory agencies in some cases.
There is no substitute for a sound plan in order to minimize a company’s financial and reputational risk, and to protect both its employees and customers. By taking into account the overall impact an incident could have and planning accordingly, a company is acting responsibly — and is better prepared — for the long term. ●
Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.
