Archive for the ‘Floods’ Category

Tips for Nashville Small Businesses

Wednesday, May 5th, 2010

Nashville residents are coping with an epic flood, a one-in-500 year event, and struggling for “air time” against other major events; namely, the oil spill in the Gulf Coast and the attempted bombing in Times Square. Nashville’s recovery is dependent on resources provided from elsewhere in the U.S.; the city needs and deserves our attention. Meanwhile, the following are tips for Nashville small businesses owners as to things that they must do right away to begin to recover from the flood (this is modified from an earlier blog posting on hurricane recovery issues):

1.    Rapid response is critical. Many small business owners will be in a state of shock and disbelief as a consequence of the disaster.  However difficult it may be, they must manage their emotions and work to restore operations as soon as possible. The choice is not whether to recover quickly or whether to recover at a more measured pace.  The choice is whether to recover quickly or not to recover at all.  A study of small businesses affected by the 1993 World Trade Center bombing found that of those businesses that could not restore operations within five business days, 90% of them were out of business within one year. Prioritize your business needs according to relative urgency and delegate where necessary.

2.    Mitigate your losses. To establish a valid property insurance claim, you must demonstrate to your insurer that you acted in good faith to mitigate your insured losses.  Consider a hypothetical example.  Let’s imagine that you have returned to your property and you see broken glass about the site. You must take reasonable steps to insure that the broken glass will not injure people.  Insurance companies are not very tolerant of passive policyholders who fail to act in their interests to limit losses. Limit subsequent losses to your business by taking prudent steps, such as restoring fire sprinklers or other equipment that may have been damaged by the storm.

3.    Identify your implicated policies. You should invest the time and effort required to examine all insurance policies implicated in the disaster, rather than foreclose options for coverage by limiting the scope of your review. Begin with insurance policies for first-party property losses that cover direct property damage, including collateral damage and indirect property damage, such as business interruption losses and loss-related expenses.  Next review all-risk policies, named peril policies, business owner’s policies, policies covering particular endorsements, valuable papers and records policies.

4.    Provide timely notice. Your business owner’s policy likely requires you to provide timely notice to your insurance company of covered losses.  Do not forfeit indemnification for a covered loss by failing to give timely notice. If you are in doubt as to whether an item is covered by your policy, err on the side of caution and include it in your claim.

5.    Report the facts, don’t diagnose the cause. Think of the words of Sergeant Joe Friday, “Just the facts, ma’am”.  Here is an example of why you should not be a diagnostician.  A sole proprietor worked from her home near the World Trade Center on 9-11 and experienced a systems crash.  She concluded that the crash was most likely due to the loss of electrical power that was the result of the terrorist attack and so notified her insurer.  Because her policy did not include an endorsement for interruption of electrical supply, that portion of her claim was denied.  In fact, the damage to her computer was the result of soot and ash clogging the fan of her computer, a peril that was covered by her policy.  The denial of coverage and dispute that followed could have been avoided had she sent a description of the problem without the diagnosis.  Had the insurance adjuster inspected the damaged computer, he would have seen the soot and ash in the machine and likely authorized payment on the claim.  Her hasty diagnosis resulted in a denial and delay of her claims payment.

6.    Inspect your IT and other electronic assets at least twice to ensure that you have not overlooked anything. I began hearing unpleasant grinding noises emanating from my PC when I returned to my office following the 9-11 disaster.  I suspect I had not heard them earlier because of the background noise outside my office as work was being done to restore electricity and other essential services. Upon closer examination, I learned that the noise signaled an imminent hardware failure. By inspecting each IT asset twice, I avoided the error of submitting an incomplete claims report.

7.    Document your loss mitigation and other loss-related expenses; your business owner’s policy likely covers them.  Such expenses might include overtime wages paid to employees who work to restore the business, lease payments for alternate office facilities when your primary space has been rendered unusable by the flood, costs of purchasing assets for temporary business use and so forth.

8.    Get help if you need it. You are likely to experience a range of emotions following a disaster, from disorientation to shock and disbelief to grief. This is not uncommon and may continue for some time after the disaster.  You won’t be able to look after your employees and family if you are run down.  Get the support you need.

9.    Assess your performance. Review your business contingency plan and, in particular, your employee training to identify areas for improvement so you will be better prepared for the future.  You can and will learn from this difficult experience.

10.    Exercise care when negotiating continued insurance coverage. Premium increases following a major disaster are not uncommon, but there are steps you can take to protect yourself.  In particular, be aware of the “paying more/getting less” phenomenon in which increases in insurance premiums can be dampened by excluding risks that had previously been covered. Also, be prepared to demonstrate to your underwriter the features of your business protection plan that make your business a better risk.

Nashville Floods in a Recession

Monday, May 3rd, 2010

When I worked in the reinsurance industry, “double-trigger” policies were the latest innovation for commercial policyholders. A powerful storm season concomitant with severe financial stress owing to a prolonged recession suggests a new market for this innovation. Double trigger policies offered more cost-effective coverage for linking uncorrelated risks. Consider an insurance company that covers policyholders in a seismically active area. It has sufficient capital reserves to pay expected claims from its own resources and so would prefer to forego more expensive reinsurance coverage to supplement its capital strength. But what if the earthquake occurs at a time when the value of the insurance company’s bond portfolio is impaired due to events in the financial markets? A double-trigger policy kicks in when two events, or triggers, occur: a defined financial event and an insurable peril. As these two risks are uncorrelated with one another, the premiums are lower than standard earthquake insurance alone. I wonder if such a product could be adapted for public insureds; certainly state and local governments are in need of assistance.

Consider that the flash floods caused by record levels of rainfall in Tennessee could not have come at a worse time. And they follow an unusually active storm season, such as the recent floods in Rhode Island, the worst in that state in the past two hundred years. At least 25 people have been killed in the southern states in thunderstorms, floods and possible tornadoes. Top Nashville tourism spots, such as the Grand Ole Opry and the Country Music Hall of Fame, are flooded. The news media have reported stories of local residents who are unemployed, lack funds for evacuation or temporary housing and could not pay for flood insurance. A disaster like this is doubly devastating when it occurs during a time of financial stress.

Mitigating Flood Risk in NYC Subways

Saturday, April 17th, 2010
Sharp and Functional

Sharp and Functional

This subway grate represents a creative design and a practical solution and was this week recognized with an Urban Design Award of the American Institute of Architects. (The photograph is courtesy of New York City’s MTA Facebook page.) Because ventilation grates are flush with the sidewalk, above subway stations that are not deep underground, stations are at risk of flooding. When a particularly heavy rainstorm in August 2007 completely flooded the New York City subway system, the transit authority instituted a $31 million flood prevention plan in susceptible areas. This clever subway grate doubles as street furniture. What the transit authority has yet to address, however, is passenger education about disaster risks. There is concern that New York City residents would seek refuge in subway stations in severe storms which are, of course, the last place you want to be during a disaster alert.

Flood Emergency in Rhode Island

Sunday, April 4th, 2010

Record-setting rainfall spurred heavy flooding in much of the Northeast, including my home state of Rhode Island. During the month of March, more than 15 inches of rain fell on the state’s capital, Providence, an all-time record. The floodwater has begun to recede, but the cleanup of what is the worst flooding in 200 years will take some time. The pain is particularly acute as the state already has one of the highest unemployment rates in the country, close to 13% and, with a budget deficit, few resources to fund relief programs. Life has yet to return to normalcy, with National Guard troops deployed in the state, nonessential government workers given time off and schools and businesses, including the University of Rhode Island, closed. Transportation has been disrupted, as stretches of Interstate 95, the highway connecting Boston to New York, were closed. Amtrak suspended train service, as tracks were submerged underwater. The Rhode Island Emergency Management Agency has asked residents to limit their use of electricity and water owing to flooded electrical substations and sewage systems. Public health officials remind residents exposed to floodwater to wash their hands carefully to protect against bacterial and viral infections. The President has issued an emergency declaration for the state, thereby engaging the Federal Emergency Management Agency to coordinate federal relief aid programs. Relief for residents and small businesses, however, is likely to be limited. RI residents were given an extension, until May 31, to file their state and federal income taxes. However, in terms of direct aid, small businesses should not expect much. FEMA programs are generally designed to rebuild public infrastructure, not to provide private assistance. Businesses can adjust their taxes for uninsured losses, such as flood-damaged inventory. But this is where an appropriate insurance program, including business interruption insurance, is critical.

Temporary Reprieve for Flood Insurance

Wednesday, March 3rd, 2010

Following an earlier post, the U.S. Senate approved a 30-day extension in the National Flood Insurance Program. I am betting that on Day 29, we will still have no resolution as to the Program’s status on a longer-term basis. Congress appears to favor stop-gap measures rather than dealing with the issues in a way that would allow for businesses to plan their risk management programs and insurance coverage.

Gap in Flood Insurance Program

Monday, March 1st, 2010

Consistent with its past practice, Congress allowed the expiration date of the National Flood Insurance Program to pass without timely action, allowing the program to lapse. “Failing to act in time – again – and allowing the National Flood Insurance Program to expire is disconcerting,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies. “If nothing else, this episode should make it clear that short-term extensions, which can be blocked by any Senator or congressional caucus, are untenable.” The NFIP was brought to the Senate for a vote just days before the program was set to expire, leaving inadequate time for the procedures required to renew the program. If recent history is any guide, the lapse will be of short duration, as the most recent extension was authorized at the end of December after the program had lapsed for nine hours. Nevertheless, after flooding in areas affected by the three blizzards that struck the eastern states this past month, Congress’ apparent indifference to the issue of flood insurance and disaster mitigation is disappointing.

Scotland Begins Flood Recovery Effort

Sunday, December 13th, 2009

Severe floods struck parts of Scotland in September and again in late November and the recovery will take some time. With the affected area only recently declared safe for return, clean-up efforts have just begun. The Association of British Insurers estimates the damage to exceed £100 million. Businesses and homeowners fear that premium increases for the losses or higher deductibles will be passed on to them or that their coverage could be dropped entirely. The encouraging news is that insurers have agreed to continue to underwrite flood cover in areas where flood defenses exist or are planned for construction within the next five years. But uncertainty exists around “resilient repair” which goes beyond restoring the property to its pre-flood status and enhances its ability to withstand future flooding. Resilient repair efforts could include moving electrical circuits to higher levels or replacing carpets with hardwood flooring. The brokers’ trade association endorses resilient repair, but insurers reimburse policyholders’ investment in resilient repair by different means or not at all. It is best to seek guidance from the insurance carrier before incurring the expense. The National Flood Forum provides helpful information on flood property defenses.

I spoke with Michael Duncan of the Federation of Small Businesses, which is offering a £500,000 disaster recovery fund to finance the recovery of its members. Members in affected communities (Elgin, Aboyne, Oldmeldrium, Canoustie and Pitlochry) are eligible to apply for interest-free loans of up to £5,000 for businesses to finance their recovery and continuity efforts. The FSB has asked for forbearance for small businesses to meet their obligations under more flexible terms during this difficult time. If you wish to contribute to the UK Red Cross, here is the link.

Flooding in Kentucky, Drought in Texas

Thursday, August 6th, 2009

Louisville, Kentucky was flooded when a storm left the area with more than seven inches of rain, resulting in flash flooding, and power outages. Thankfully, no casualties or serious injuries resulted from the storm, but the rainfall overwhelmed the area’s public infrastructure and caused major disruptions to local small businesses. The mayor of Louisville estimates that the main library sustained $1 million in damages when flooding destroyed books. Firemen led water rescue efforts for people stranded as animal shelters evacuated animals to minimize casualties due to drowning.

At the same time, Texas is experiencing a severe drought with 100-degree temperatures in an area that includes Austin, Dallas, Houston and San Antonio.  As a result, mandatory water restrictions have been imposed on 230 Texas public water systems, which prohibit practices such as watering lawns or refilling swimming pools.  It bears repeating; prepare for the more frequent disasters, such as drought and flash flooding, as such measures will yield a more immediate benefit against a more imminent threat at more reasonable cost.

Bid to Extend National Flood Insurance

Monday, July 13th, 2009

House Financial Services Committee Chairman Barney Frank and Financial Services Housing Subcommittee Chairwoman Maxine Waters have introduced legislation to extend the National Flood Insurance Program (NFIP) through March 31, 2010. Ordinarily, I favor limited government and market mechanisms for insurance coverage and I think it is long since time that the NFIP be eliminated. NFIP is a disaster. Recall that in 2007, the Senate Banking Committee unanimously approved legislation to forgive nearly $20 billion in debt, which NFIP had incurred in 2005 to pay hurricane-related claims. However, while I believe that the federal government should get out of the flood insurance business, I think it should do so in a responsible manner.

The NFIP program is set to expire in September, peak hurricane season. This does not give homeowners and businesses sufficient time to put other coverage in place or private sector companies adequate notice to begin to underwrite such policies. So I think a short extension of the program is the only sensible thing to do.

The American Insurance Association (AIA) approved the proposed legislation. “While this extension does not fix the NFIP’s problems, it does help those living in flood-prone areas by making sure coverage continues to be available,” said Leigh Pusey, President and CEO of the AIA. “A short-term extension to keep the federal flood programme in place is the most prudent action for Congress to take. We also support Reps. Frank and Waters in their commitment to crafting new bi-partisan legislation that would implement much needed reforms to the NFIP.  AIA looks forward to working with the House Financial Services Committee as it writes an updated bill that will improve the program and restore its financial stability.”

The photograph, by the way, is the old astronomical clock in the center of Prague. When I lived in Switzerland, I spent nearly every weekend visiting a capital city in Europe, as I had the perfect base of operations. You could be in any European capital within an hour from Zurich. I took this photograph on an absolutely perfect day in Prague and I include the clock image with this posting, because it is rare that Congress doesn’t wait until 48 hours before program expiry to act. (Remember TRIA?)

The Iowa Floods, One Year Later

Tuesday, June 30th, 2009
Not Yet Back to Normal

Not Yet Back to Normal

The Associated Press reports that “one year after Iowa floods, many still wait for help”. By my calculations, they have another five years to go and the help will be far less than they had anticipated. The AP reports of the inadequacies of FEMA (Federal Emergency Management Agency) programs and that long-term assistance has been slow to materialize. HUD (Housing and Urban Development) Secretary Shaun Donovan, visited Cedar Rapids, Iowa to announce new disaster relief grants at which time he acknowledged that there is a problem with the long gap between immediate relief and long-term rebuilding assistance. He attributed this, in part, to the fact that for every single disaster Congress has created a new law and a new allocation system that delays agency response. I am impressed by his candor. Secretary Donovan’s remarks provide insight as to why you cannot rely on government assistance if you want to keep your small business running.

One of the most heartbreaking, but not surprising, cases cited in the AP report was that of a family that is paying its mortgage on a home too damaged to inhabit while paying rent for their immediate living needs. As bad as that is, if you own a small business, you get the double-payment twice, for your home and your office. Homeowner’s and tenant’s insurance should cover the cost of your housing when a disaster displaces you. In my case, when I was evacuated from my home after 9-11, my homeowner’s insurance was responsible for the costs incurred should I have chosen to stay in a hotel. It sounds like this family did not have adequate insurance. At a time when financial regulatory reform is focused on consumer protection, we should place equal emphasis, if not more, on financial literacy. And we should give generously to private disaster relief charities, whose reserves have been exhausted in the recession. I was very happy to see American Airlines call attention to this need in the current edition of its inflight magazine.