Archive for September, 2008

Survey Reveals That Families Are At Risk

Sunday, September 28th, 2008
Do you know where your kids are?

Do you know where your kids are?

The Mailman School of Public Health of Columbia University recently released the results of an annual study on disaster preparedness that it has been conducting since the 9/11 terrorist attacks. To download and read the report, click here. The study didn’t reveal any major surprises: most Americans are not prepared for a major emergency and most parents are not aware of the disaster plans their children’s schools have in place. The survey question I found most interesting was “Which statement best characterizes what you think might happen in a disaster situation?” 57% of respondents answered that “You will work on your own to protect yourself and your family” and 13% answered “You will wait for help to arrive”. If 57% of the population accepts that you must work on your own to protect yourself and your family, then you would expect that at least 57% of the respondents would indicate that they have disaster plans in place for their families, but the number was far lower than that. It appears that people know what they have to do, but they are not all doing it. As small business owners, we can change this. Encourage your employees to put in place disaster plans for their families using the same methodology we are using for our small businesses. This will not only help your employees and their families, but it will help to secure their “buy-in” for your business disaster plan, when everyone realizes the benefits.

Meet Me at the Forbes Small Business Exchange

Friday, September 26th, 2008
Forbes Small Business Exchange

Forbes Small Business Exchange

I have joined the Small Business Exchange of as the expert on small business disaster preparedness and recovery, where I am available to answer questions from members of the Exchange. I have just answered my first three questions and look forward to helping as many small business owners as I can. The Small Business Exchange is an online community for small businesses and I have found it to be a valuable tool for meeting potential customers and sharing expertise. I am an enthusiatic reader of Forbes and a long-term subscriber to the magazine, so I hope you will join me. Other members of the Exchange offer expertise on bankruptcy issues, credit card systems, financial strategies and other important needs for small businesses. Of course, you can also communicate with me through this blog as well!

Forum on the New Madrid Seismic Zone

Thursday, September 25th, 2008

My former employer, Swiss Re, hosted a forum to discuss the issues around the New Madrid Seismic Zone. This area in the Midwest includes Memphis and St. Louis and while the probability of a major New Madrid earthquake is less than that for one in the San Andreas Fault zone, the catastrophic consequences in the Midwest are potentially greater than those of California. This is, in part, because of the economic dependence on transportation systems, power infrastructure and other critical facilities in that area. Experts believe that the loss potential of a major earthquake at New Madrid could range from $80 billion to $200 billion in damages. Indeed, over a period of just under two months in 1811 – 1812, three major earthquakes of a 7.7 magnitude occurred in New Madrid. This was the last major seismic activity in that area and it was second in severity only to the 1906 earthquake in San Francisco.  By comparison, the Northridge Earthquake measured 6.7 on the Richter scale.  Isn’t it extraordinary to think that an earthquake in the Midwest, an area we don’t typically associate with that peril, exceeded the strongest severity U.S. earthquake in our lifetime?

One of the speakers at the Forum was Chris Cramer, PhD and Research Associate Professor at the Center for Earthquake Research and Information, who made a number of interesting observations concerning the differences between New Madrid and San Andreas. It is more difficult to collect data from the New Madrid Zone, as the surface fault lines are not as readily available to study as they are in California. Dr. Erdem Karaca of Swiss Re added that, the challenges in collecting complete data notwithstanding, it is known that the soils of the Midwest are very different from those of California, with a greater risk of damage due to liquification, which often results in building settlement damages. Another concern raised by Mr. Michael Griffin, PE, a structural engineer with the CCS Group Inc., is that building construction methodology and local building codes are less robust, with respect to earthquake safety, than in California. In California, many of the more vulnerable buildings have been replaced with structures that are more resilient to seismic shifts.

Moreover, earthquakes originating in the Midwest may travel farther than would be possible in California, owing to the fact that the earth’s crust is older and more stable in the New Madrid Zone. For example, an earthquake with an intensity of 7.0 in San Francisco may cover 12,000 square miles, while the same earthquake intensity at New Madrid may cover 203,000 square miles. This larger zone impact brings additional challenges to coordination among emergency responders. In his presentation to the Forum, Jim Wilkinson, Executive Director of Central U.S. Earthquake Consortium, noted that the New Madrid Seismic Zone covers four FEMA zones, eight states and nine bordering states. The Central United States Earthquake Consortium was formed to help coordinate various governmental and private activities related to the New Madrid Seismic Zone. Mr. Andy Castaldi, Senior Vice President of Swiss Re and Head of Cat Perils in the Americas, moderated the Forum. In the near future, I will invite an expert to contribute a guest blog on earthquake risks for the benefit of our small businesses in the Midwest.

Leveraging Strength for Ike Evacuees Returning to Galveston

Wednesday, September 24th, 2008
Welcome home

Welcome Home

Evacuees returning home to Galveston are just now seeing the devastation inflicted on their homes and businesses by Hurricane Ike. Undoubtedly, they are feeling overwhelmed by the recovery process ahead of them. Having been through a version of that process myself, I can offer words of hope and advice.

First, leverage the strength of your insurance company. Let me explain how that can work in your favor. I returned home to my apartment in the shadow of what used to be the World Trade Center after our neighborhood was closed and evacuated on 9-11-01. For several months I had been homeless as our neighborhood remained under the control of the National Guard, although during that time period, I was once allowed to return home for a half-hour, with a Guardman, to retrieve some personal effects. The Guardsman took neighbors into apartment buildings (once we produced our New York driver’s licenses proving our residency) in groups of five or six. When I came back for good, I contacted an environmental remediation company to remove the soot, ash and other contaminants from my home and my office. The project manager with whom I had spoken said that it would be “months” before he could send a staff person to my property to give me an estimate to perform the work, let alone actually start the work.

I asked if someone could come in the evening, after business hours. The answer was no. I asked about early mornings, before business hours, or on the weekend. The answer was no and no again. With relatively few companies certified to do this work and many thousands of people demanding these services, the queue was very long. And yet this was the critical task before I could safely return home. So I called my insurance company. I hoped that this would be the only major disaster that I would ever have to work through and I would never have to deal with an environmental remediation company again. But insurance companies deal with environmental remediation companies all of the time. They approve payment for these services for their policyholders. They can choose remediation companies as their preferred vendors for certain types of work. So the insurance company had the leverage that I did not.

I explained to the person who answered my insurance company’s CAT line (“CAT” is insurance speak for “catastrophe”) my situation and reminded her that the longer it would take to remediate my home, the longer I could remain in a hotel, which expense was covered by my homeowner’s insurance. She got the point. A few minutes after we concluded our conversation, my cell phone rang. It was the project manager from the environmental remediation company, the same man with whom I had spoken only minutes ago. He advised me to be at my apartment at 7:00 a.m. the next morning so that I could let his team in. At the time I was displaced, I was staying in Jersey City across the Hudson River from Manhattan. Most people commute to Lower Manhattan from Jersey City by the PATH train, but with the World Trade Center PATH train terminus destroyed, we had to take ferry routes that were put in place on an emergency basis. The routes and timetables changed from day to day, as the recovery was underway, so it could take some time to get from where I was staying to my home. Obviously, the project manager didn’t want to waste a trip to my apartment if I could not be there. “Oh,” I said, “you can have someone visit and give me an estimate tomorrow morning?” No, he answered, the insurance company called him on my behalf and he would have a team there to do the cleaning at 7:00 the very next morning.

Some of my neighbors spent months dealing with long waits and negotiating their spot in the queue. This is why you pay for insurance, so get full value for it. By the way, I recommended this tip to someone whose mother lived in Florida through the 2004 hurricane season when she was in the same situation (months and months to get an estimate before any work could be done). He reported that it worked for her as well. Another lesson I learned from 9-11 is that vendors often present the worst-case scenario in terms of service restoration because they would rather err on the side of caution. Then, of course, they look like heroes if they can restore service in a more reasonable time frame. I remember contacting my telecommunications provider to find out when landline service would be restored and was told that it could take months. It was back within two weeks. Bear this in mind when vendors are giving you bad news and don’t let it discourage you.

By the way, the photograph you see here is of the lobby of my apartment building upon our return home when civil authorities re-opened our building. It was quite an experience to return home after an absence to see what had happened to our neighborhood. This is undoubtedly the stress that residents in the footprint of Hurricane Ike are now experiencing.

Going for the Greens in Orlando

Saturday, September 20th, 2008
Go for it! Going for the greens with NAWBO at Walt Disney World

Go for it! Going for the greens with NAWBO at Walt Disney World

Yesterday, I had the privilege to participate in the “Go for the Greens” conference held at the Disney Boardwalk Hotel on the Walt Disney Resort property. The conference was hosted by the National Association of Women Business Owners, the Women’s Business Enterprise National Council, UPS and Walt Disney World. Diane Sears, the Co-Chair of the Steering Committee, was kind enough to invite me to speak. Participants were welcomed to the program with an ambitious agenda: “This conference is all about access. It’s about giving women business owners access to people who can help them grow their businesses at a faster rate, and giving corporate, government and nonprofit leaders access to terrific, women-owned businesses….The conference’s programming is designed at a 303 level, rather than 101, to show our respect for your experience. We know you’re not interested in training wheels. You want to rev up your economic engine and take off.”

I joined Molly Gimmel, a fellow NAWBO member and CEO of Design to Delivery Inc., in leading a breakout educational session “What Your Competitors Don’t Know About Contracting”. One of the key messages to differentiate yourself from the competition is to think about your the reliability and resilience of your business. Many Fortune-500 companies and government purchasing agencies, as part of their disaster preparedness efforts, are evaluating the resilience of their supply chains. As part of their vendor due diligence, they are examining the disaster preparedness of prospective suppliers. Show the procurement officer that you have a credible disaster plan in place to help you meet your deliverables in the event of an unexpected disruption and you are better positioned to win the business. This was a particularly appropriate topic to discuss at this time, as September is National Disaster Preparedness Month. Preparing your business is part of growing your company and taking it to the next level.

In addition to leading this breakout educational session, I participated in a number of matchmaker events with corporate procurement executives. But most important of all, “Go for the Greens” afforded me the chance to connect with old friends while enjoying the hospitality as a guest of Disney.

Confirmation on FEMA Hotels for Those Displaced by Ike

Wednesday, September 17th, 2008

In my blog entry on Sunday, I reported that I had spent some time as a guest on a live broadcast of KTRH News Radio in Houston dealing with some of the urgent needs raised by their listening audience in response to Hurricane Ike. Chief among these was the need for a list of the FEMA hotels for the transitional housing program. Listeners in the Houston audience called in to this radio program, one after the other, to report that they could not obtain information from FEMA about which hotels were participating in the program so that they could attend to their urgent needs for shelter. The anchor of the news program reported that FEMA had not updated its website for Texas since Hurricane Dolly. I found the list of FEMA hotels in Texas for the Gustav evacuees and was assured that this list was the same for those displaced by Ike. I posted the link to this list on my blog on Sunday, September 14 and made it available to the news director of KTRH so he could convey the information to his listeners who did not have Internet connections.

Three days later, today at 6:30 p.m. Wednesday, September 17, the Associated Press reported that FEMA had finally published the list of participating hotels for the transitional shelter program. It is, indeed the same list I had posted on this blog on Sunday and made available to the listeners of KTRH when I was a guest on their program.

What Happens to Insurance Companies in a Financial Crisis?

Wednesday, September 17th, 2008
New York Stock Exchange, A Photo I Took Not Far From My Office

New York Stock Exchange, A Photo I Took Not Far From My Office

On Monday, I was in the Wall Street area where the mood was decidedly somber. I was standing at one of the street food vendors buying lunch when I saw CNBC anchor Dylan Ratigan leaving the New York Stock Exchange and entering the Wall Street subway station. CNBC interrupted its ordinary broadcast that evening to provide programs with experts discussing the concerns about the safety and soundness of our Wall Street institutions with specific reference to Lehman Brothers and AIG. Later that evening, one of the cable television networks (NOT CNBC) featured a guest commentator urging that the federal government “rescue” AIG because it is the world’s largest insurance company and policyholders must be paid. For people in the Gulf Coast and the Mid West recovering from Hurricanes Ike and Gustav and the associated flooding, the failure of an insurance company at this time is the last event they want to contemplate. Let’s try to separate the facts from the cable television theatrics to examine what the real issues are.

When insurance companies write business, they collect premiums and set aside required reserves to cover future losses. That is the first layer of protection for the policyholders: those reserves are set aside for their benefit. They are not available to retire other financial obligations of the company. Second, states have policyholder guarantee funds for life insurance companies to provide an additional level of security in the event of insolvency. Third, insurance companies pay premiums for reinsurance coverage, which provides an additional layer of capital available to pay claims. In the event that an insurance company becomes insolvent, the reinsurance company is not relieved of its obligation to pay the claims to the ultimate beneficiaries – the policyholders. What would happen in such an event is that the state insurance commissioner would establish a trust and appoint a trustee to oversee the orderly liquidation of the insurance company. The reinsurance company, or companies, as insurers often buy layers of capital protection from multiple sources, would pay their required claims into the trust in lieu of to the insurer and the trust would pay the policyholders. Finally, the insurance commissioner would likely to try arrange the sale of the insurance company’s operations to a financially sound insurance company which would then assume all of the liabilities for the policyholders it would acquire (along with the associated reserves).

With specific reference to AIG (American International Group), it has many subsidiaries operating in many different financial sectors, some of which are insurance companies. But the assets and the liabilities of these businesses are not fungible. The assets of its property-casualty insurance companies, for example, are held separately from certain of its other businesses that have exposures to the sub-prime mortgage market. More broadly, with respect to any corporate restructuring, there are different classes of constituents that have claims against a company should it go into bankruptcy: employees, creditors, suppliers and vendors, stockholders and, if the company is an insurance company, policyholders. In all cases, the policyholders’ claims are senior and superior to all others. They will be paid first. The cable television commentators I observed on television appeared to have confused the risks for the policyholders with those of the stockholders, bondholders and employees. They are certainly not the same. Nevertheless, the financial crisis underscores the importance of the advice we gave in the first (published in 2002) and second (published in 2008) editions of the book: consider the financial strength and claims paying ability when selecting an insurance company.

Housing Needs for Those Displaced by Ike

Sunday, September 14th, 2008
KTRH News Radio in Houston Helping the Community

KTRH News Radio in Houston Helping the Community

This photograph shows the volunteer efforts of Houston Radio Station KTRH 740 AM News Radio to distribute ice and water to those in need before FEMA’s efforts have begun. I was a guest on their news radio program this afternoon to offer tips to their listeners about their urgent recovery needs. One of the issues that many callers had concerned the needs for immediate housing. FEMA has announced a program for offering hotel rooms but, according to the host of the radio program, FEMA’s website has not been updated for Texas since Hurricane Dolly. The callers reported frustration that they could not get information about this hotel program and which hotels are participating.

Here is how it works: Texas residents who have been displaced from their homes by Hurricane Ike can report to a participating hotel that is open and benefit from free temporary housing. These hotels have arrangements with FEMA to house displaced residents without requiring payment on check-in. It is similar to what the airlines do for you when you are bumped from a flight and they put you up overnight in a hotel. They have pre-negotiated rates with local hotels and you claim the room with a voucher. It is the same for the FEMA program, except that you don’t need a paper voucher.

The callers to the radio program expressed a great deal of confusion because they don’t know which hotels are participating and they cannot get through to FEMA. This is common in the aftermath of a major disaster: communications with relief agencies will be difficult. Here is the hotel list for Hurricane Gustav, but I am told that it applies for Ike as well. Be sure to call and confirm that the hotel is open for business and accepting guests before heading to any property. (By the way, for future reference, if you find yourself in a disaster and you don’t have Internet access, try calling the airlines. The FEMA hotel list in most cities substantially overlaps with the hotels that airlines have negotiated rates for passengers who have been bumped.)

Of course, once you secure temporary emergency housing for the next few nights, you will then have to deal with your longer-term housing needs. I will talk about that on tomorrow’s radio program. I will be a guest again on KTRH News Radio 740 AM in Houston at 7:00 a.m. CST and will also post some additional information on this blog.

When Disaster Strikes, Calls Often Do Not Go Through

Friday, September 12th, 2008
Hurricane Ike Approaches

Hurricane Ike Approaches

There were widespread disruptions in telephone service in Southern California following their recent earthquake, as callers overloaded both landlines and wireless systems. One wireless carrier reported an 800% increase in call volume following the earthquake, prompting emergency responders to urge citizens to restrict their calls so that 911 calls could go through (source: The Los Angeles Times). Such disruptions are common in the immediate aftermath of a disaster and are particularly frustrating as people are anxious to connect with their loved ones to assure their safety. These disruptions may cause particular hardship for smaller businesses, which typically cannot diversify their geographic risk to work from multiple, remote locations. However, there are simple, basic steps that every small business owner should take now to prepare for the inevitable future disruptions:

1.    Make sure that your employees and family members become familiar with text messaging, which often works even when landline and cell phone communications are disrupted. Cell phones have two communication channels: one for the negotiation protocol to establish the call, which has no real time requirements, and a data channel that transports the actual digital voice data stream, and requires real-time quality of service attributes that require capacity on the network. SMS messages are sent over the protocol channel; therefore they don’t arrive in real time, but with a few seconds’ or minutes’ delay. However, the protocol channel is never as busy as the data channel, so if the network is congested (e.g. all calls during emergencies), the protocol channel is the best bet. (SMS stands for “short message service”, or text messaging.)

2.    Here is a tip verbatim from the book: think in reverse for forwarding critical business calls. The cell phone is the natural backup solution for landlines. The question is how to automatically connect land- and cell-phone based service so that the cell phone service would take over once the landlines have failed. The problem is two-fold: once the landlines have failed, it is not possible for you to forward them to the cell phones. Moreover, in an emergency, such as an earthquake, you want to evacuate quickly and should not put yourself in harm’s way by returning to your office to deal with the phones. The solution is developed by thinking in reverse. Use the cell phone as your general business contact number. Program the phone in such a way that any incoming call is forwarded to your land-based business phone number when the cellular phone is switched off. If your land-based line fails (or you are unable to return to your office to access it), you simply switch on your cellular phone, and voilà. This is what I did on the morning of 9-11, when I evacuated the World Trade Center, but it was not safe to return to my office. I went home to shelter in place and turned on my cell phone to receive all incoming office calls.

3. I also pay $40/month/person to have a second cell phone with service provided by a different carrier from a different area code for major disruptions in cell communications services. This approach may be of limited benefit when a large geographic area is affected by disaster (such as the Gulf Coast post-Katrina when cell phone towers were all down), but it can help you if you are evacuated to another region and can access a non-local carrier. More importantly, it can help for a less widespread disaster, which is the statistically more probable event.

With Hurricane Ike approaching Texas, small businesses in the affected area should learn from the experience of our peers in Los Angeles and prepare accordingly for possible disruptions in communications.

A Somber Day

Thursday, September 11th, 2008
Towers of Light on the Seventh Anniversary

Towers of Light on the Seventh Anniversary

The seventh anniversary of 9-11 was a somber day. I noticed unusually light traffic, presumably because many people decided to take the day off and remain home with family. The morning began with the sound of bagpipes opening the memorial ceremony. At this point, though, I have the sense that the emotion of anger overwhelms the emotion of grief. Ground Zero remains an open pit, political gridlock having stymied the reconstruction effort which has gone way, way over budget. Pedestrian access is limited as Lower Manhattan remains an obstacle course, although the impediments certainly don’t make you feel any safer. A professor at Tufts University in Boston reported being “shocked” by the impediments and loss of public space. Although I suppose for locals, our diminished expectations have led us to accept this without significant protest. After all, there are 9/11-related issues that are much more egregious.

At Ground Zero in 2001

At Ground Zero in 2001

I returned to the exact spot where I stayed from September 11, 2001 through November 2001 following the evacuation and closure of my neighborhood. It is in Jersey City right on the Hudson River facing Lower Manhattan. From that spot, I photographed the “Towers of Light” which went up last night and will remain on reflecting in light the absence of the Twin Towers for 24 hours. I also post for you here the light memorial shown from the ground up at Ground Zero, which photograph I had taken on the first anniversary.

Mostly, though, my thoughts today focused on the future rather than the past; specifically, the approach of Hurricane Ike towards Texas. I did two live radio interviews today and that was the major topic. I am sure that there is something therapeutic for me in reaching out to other small businesses that are experiencing major disasters. Otherwise, the day might have been more difficult. But tomorrow is September 12 and we move forward.