What if your insured business property is damaged or made inaccessible by a hurricane? What if your manufacturing equipment is soaked by floodwaters, or your office roof is ripped away by a tornado? What happens next?
While it isn’t pleasant thinking about these situations, preplanning for them could mean the difference between reopening for business sooner rather than later—or at all. Creating a business continuity plan, and testing and refreshing it yearly, is one way to prepare your business to operate with as little downtime as possible before, during and after a natural or man-made disaster.
When thinking specifically about your insured business property and possible damage, there are additional steps you can take now to help manage recovery and the insurance claim process: engaging a contractor and working with your insurance provider to understand the damage assessment process.
Engaging a Contractor
Who would be best suited to work with your organization if your business property were damaged? As you vet contractors, ask about the following:
- Available resources
- Location of the resources
- Response time
- Labor rates
- Equipment rates
The goal is to establish a plan and set expectations before disaster strikes. If you aren’t sure which companies to interview, contact your insurer. Often, carriers have agreements in place with mitigation contractors—companies they have vetted financially and for quality of workmanship.
Understanding the Business Property Damage Assessment Process
In addition to having a contractor in place, you can remove more post-catastrophe stress by understanding your insurer’s expectations and by being prepared for the damage assessment phase of your insurance claim.
As soon as possible after your insured business property (e.g., buildings and structures, business personal property, inventory and stock, equipment) is damaged, contact your insurance provider so that resources can be gathered to assist you. Visually document the damage as soon as practical and safe to do so.
Next, you, your insurer, your contractor and possibly other specialists can begin the on-site work of minimizing further property damage and coming to an agreement on the scope of damage. This agreement is necessary so that accurate cost estimates can be prepared and the claim process can move forward. Following are some of the damage assessment considerations for each type of business property.
Buildings and Structures. When a building is damaged, your insurer is likely to retain an engineer or work with the local building or fire department to ensure it is structurally and environmentally safe for people to occupy. Once the building has been stabilized, you, your contractor and the insurer can begin assessing the damage.
- How can further damage be prevented? You may need to create a temporary roof, remove vital equipment from the site, remove wet building components such as drywall and insulation to prevent mold, and restore a stable air flow.
- Are utilities available? If power or water is not available, how long will it be until it is restored? You may need an on-site generator or water truck.
- Are building contents secure? If not, you may need to hire security or remove the items, if possible.
- How accessible is the building? In a major metropolitan area where a lot of damage has occurred, you may need to work with the local municipality to gain access or close off streets. In a remote setting, you may need to bring in additional workers from outside the immediate area.
- Is the building in compliance with current building codes? If not, you will need to make design changes during the restoration or rebuilding process to bring the structure into compliance. For more information about this topic, watch “What Is Ordinance or Law Coverage?” here.
Business Personal Property. Business personal property typically includes relatively small items that easily can be removed from a site. Examples include furniture, phones, computers, printers, appliances, small tools, artwork, fixtures, shelving, sales counters, papers and records, and books. “Improvements and betterments” are also included in business personal property. These are components of a building—an interior space—that an insured tenant, not a building owner, has added at a location.
You and your insurer can begin assessing damage by asking the following questions.
- Is the personal property damaged? Separate damaged items from undamaged items. Move undamaged items to a safe location.
- Can damaged personal property be repaired for either permanent or temporary use, or does it need to be replaced? Items made of nonporous materials may be able to be cleaned and salvaged. Porous items, like wet furniture, will need to be thrown out and replaced. Other types of personal property, such as fixtures, often can be cleaned and used until they can be replaced. Some items, such as smoke- or water-damaged books, may need to undergo testing to see if they can be cleaned and restored to their original condition. With computers, often data can be saved even if the hardware is a loss.
Complete a detailed inventory of damaged personal property. As much as possible, identify the age and value of each item. You and your insurer will need to agree on the scope of damage before the claim process continues.
Inventory and Stock. Before an emergency arises, talk with your insurance provider. Clarify how material would be valued (e.g., replacement cost, sales minus discounts) if damaged by an insured peril and who would control the damaged stock—you, or the insurer.
As soon as practical after a catastrophic event, move undamaged stock or inventory to a safe location or otherwise protect it from possible damage. Regarding damaged materials, consider the following.
- Is the inventory undamaged but the packaging damaged? Sometimes it is possible to repackage items.
- Is the inventory so damaged that neither you nor the insurer can make a physical count of it? This is known as an “out of sight” loss. The insurer will request your business records to determine inventory on hand at the time of loss.
- What is the lead time to repurchase stock? Also, is the replacement cost different from the original purchase price?
As with buildings and business personal property, you and your insurer will need to agree on the scope of damage before cost estimating can begin.
Assessing Equipment Damage. “Equipment” typically comprises the larger assets of an organization. These high-value assets include items not easily moved from a site, such as X-ray equipment, CAT scanners, MRIs, presses, forges, mills, furnaces, lathes and the like. Because equipment is usually large and heavy, assessment typically happens at the damage site. Considerations include the following:
- Is the equipment damaged? Whether it is or not, it is imperative to protect it from damage (or further damage) since it likely can’t be moved readily. If it is in a damaged building that cannot be fixed quickly, consider covering or building an enclosure around the equipment. If it is damaged, protect it from further damage. For example, one flooded manufacturing plant sprayed its machine presses with lubricant each day as the flood receded.
- Is the equipment repairable, or must it be replaced? If it is repairable, is the repair economically feasible? Sometimes the answer isn’t obvious, so you may need to call in an outside engineer, the original equipment manufacturer or a third-party repair company to assist in the evaluation. More often than not, the entire machine isn’t a total loss.
Knowing ahead of time who to call for help and understanding how the business property damage assessment process will work can remove some of the tension present at a difficult time. If you have questions about catastrophic events and your business property insurance, contact your local Hylant risk management expert.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.