Recently I was interviewed for an article in Business New Haven concerning hurricanes. I’ve linked to the text.
Over time I’ve become more pessimistic of what might happen in a repeat of the hurricane of ’38 scenario for Connecticut. There would be little time for warning and difficulty explaining where the damage might occur.
Even in 2005, a tragedy seems unavoidable. That’s not what I want to say, but it is a realistic expectation.
I’m glad to see, though Dr. Mel Goldstein and I were interviewed separately (I didn’t even know he had been interviewed), we are in agreement with our concern.
Unlike Katrina where good advice was ignored, I’m not sure what we could do today to help prepare us for a hurricane approaching us at 60 mph. The entire East Coast would need warning. What good would that do?
Could It Happen Here?
Disaster junkies: In Connecticut as elsewhere, more than 40 percent of companies with no disaster plan never resume business
Business New Haven
Connecticut is by no means exempt from a natural disaster of catastrophic proportions. Certainly it’s less likely that a severe storm like those that ravaged the southern U.S. last month would hit here. But it is not impossible.
WTNH-TV meteorologist Mel Goldstein says that Connecticut generally are fortunate not to experience the extreme hurricanes which occur in warmer latitudes.
But we can have a Category 3 storm, Goldstein says. We experienced that in Hurricane Carol in 1954, and more strongly in 1938.
The hurricane of 1938 was devastating, Goldstein says. Thousands of buildings were damaged or destroyed, flooding was at record levels from rainfall, and the tidal surge swept away shoreline property all along the shore. Over 600 people were killed. Hundreds of millions of trees were toppled.
The risk of a hurricane of great magnitude is one that makes landfall at high tide and moves rapidly across already saturated ground.
Goldstein’s WTNH colleague, meteorologist Geoff Fox, agrees that it’s possible to have a Category 3, or even larger storm, here in Connecticut.
Because of the colder water north of the Carolinas, a hurricane has to be moving very fast [the velocity of its forward motion, not wind speed] to reach here with most of its intensity intact, Fox says. He notes that, especially in the case of hurricanes, flooding at the shoreline is naturally likely to cause catastrophic damage.
Certainly flooding is a problem, as is inland flooding caused by heavy rain, Fox says. The ’55 floods in Connecticut were caused by a succession of hurricanes, none of which was still a hurricane [by the time] it hit Connecticut. In a Hurricane of ’38 scenario, I have no idea how warnings could be issued soon enough to really protect Connecticut.
That storm  was moving so fast, a massive evacuation of hundreds of miles of coast would be needed, Fox adds. Where would people go? Though that storm’s center struck Fairfield County, the biggest damage was far east in New London County and into Rhode Island.
Even a small storm like Hurricane Gloria [which struck New England in October 1985] turned off the lights for half of the state. A major storm would leave us without power for weeks, maybe more, Fox says.
The hurricane of 1938 is our potential Katrina, Goldstein adds. Ever since the pilgrims landed on these shores, there has been one or two of these Cat[egory] 3 storms every century. It will happen again. Wejust do not know when. If such a storm hit today, losses would be at least $100 billion.
The bulk of that $100 billion would have to be covered by insurance policies held by individuals and businesses. In Connecticut, businesses are not required or mandated to have specific types or amounts of insurance coverage to cover damage from natural disasters.
Says Jeff Olmstead, assistant vice president for property underwriting for select customers for insurance giant the Hartford Financial Services Group, We find oftentimes small business owners don’t understand what their exposure to loss is.
The Service Corps of Retired Executives (SCORE) will present a timely seminar on Insuring Your Business to help educate small companies on insurance of all types. The free seminar will take place at 6:30 p.m. November 16 at the Greater Valley Chamber of Commerce, 900 Bridgeport Ave., Shelton.
SCORE counselor Greg Bivona says that most business owners’ policies (commonly called BOPs) cover damage and loss from most natural disasters except flooding and earthquakes.
Flood coverage is unique in that it is not typically provided by commercial or private insurers. The risk of flood loss is covered not by private insurers, but by the federal government.
Because of the extent of potential financial exposure, flood damage is largely viewed as being uninsurable by the private sector. As a result, the government has a program the National Flood Insurance Program (NFIP) that underwrites flood coverage for homeowners and businesses.
Larger businesses may be able to negotiate to induce their private insurance carrier to provide flood insurance, but typically it’s underwritten very carefully and most private insurers simply do not offer flood coverage to those customers who are eligible for the national flood program.
Even then, there are exceptions, explains Olmstead, because the national flood program only insures a minimal and nominal amount of coverage, something like $500,000 for building coverage. You can imagine a big manufacturer in New Haven, for example, that has $20 million in building and personal property, and $500,000 is not at all adequate.
In such a scenario, a company may be able to negotiate with its private carrier to include some flood coverage, but even then, it’s typically very expensive and often out of the question for a small business.
The flood exposure is a unique exposure in that it’s very localized, so places that are prone to flooding are concentrated and can often be catastrophic to the insurer, Olmstead explains.
There’s also the problem that people who buy flood insurance are the people who need it and if you don’t need it, you don’t buy it. So it violates one of the principals of insurance, which is spreading the risk.
Only the government has the wherewithal to limit exposure to where there isn’t a true threat of risk, he adds.
Bivona recommends adding extra flood insurance to your policy if you are in a flood-prone area. He warns it is expensive, but necessary. He also recommends adding Business Interruption Insurance to a BOP.
He explains: This covers the income that you may lose as a result of a covered peril fire, windstorm, something of that nature. It will replace the loss of business income during that time.
The loss still has to be mitigated, he adds, but it will cover the expenses to keep employees on, cover notes and car loans. Even though you’re out of business and the fire burned down the building, it will cover for the loss of income and business as a result of this interruption. There is typically a limitation in either time or dollars.
Business Interruption Insurance covers those associated losses only in the case of a covered peril.
Creating a disaster recovery plan is a key element in ensure that a company can continue to operate following a disaster. In fact, according to Bivona, businesses need both a disaster plan and a recovery plan.
Think about these people in Biloxi who are trying to get their business back up and running, Bivona says. If nothing can be done and the business is destroyed, they’re faced with a recovery plan.
Before disaster strikes, he urges business owners to consider what other organizations they might potentially work with and to where they might move operations over the short or long term. The key is always, he says, to have a Plan B.
Maybe there’s another business similar to yours that you can have help you, he explains. If you’re a manufacturer, maybe somebody can take over manufacturing some excess of a product under your auspices so you can keep some of your business going.
Although common sense tells business owners to plan for the worst even as they hope for the best, not even the best-intentioned always do.
Our statistics tell us that on average, over 40 percent of businesses not just small businesses that don’t have a disaster plan of any type will go out of business after a major event like a fire, Olmstead says. That’s a staggering number.
Included in that 40 percent are companies that do have insurance they just don’t have enough, or they lack some elements that are critical in allowing them to return to business. An insurance policy is a must, but it’s just one part of a three-part plan that also includes a disaster plan and a recovery plan.
Following Katrina the Hartford launched a 20-minute webinar entitled Surviving Disaster that outlines steps that businesses should take to be better prepared if faced with a natural or manmade disaster. The webinar is available at www.sb.thehartford.com.
Even the insurance policy looks for you to mitigate the business interruption, Bivona says. The insurance company wants you to get back in shape as soon as possible. It will cost them less if you can get back to running at least part-time.
Of course, not all disasters can be blamed on Mother Nature.
Connecticut is home to quite a few attractions for potential terrorist attacks. Among them, the New London Submarine Base, Yale University and Sikorsky Aircraft have been cited as possible future targets.
In terms of insurance, these organizations are covered against acts of terror, but small businesses have an opportunity to insure themselves as well. Terrorism is part of a contract/package that the Hartford is marketing to small businesses. The Spectrum is the Hartford’s business-owners policy that combines property and liability coverage in one contract.
The Hartford has long provided terrorism coverage. The only change is that since the September 11, 2001 attacks, the insurer now assigns a specific premium percentage for terrorism, where before it did not. In Connecticut, that charge is two percent of the policy premium.
We do collect money for terrorism, and that’s to recognize the exposure that we never knew was there, Olmstead explains.
In June 2004, the U.S. Department of the Treasury decided to extend the “make-available” provisions of the Terrorism Risk Insurance Act (TRIA) through 2005. There are hopes that program will be extended through 2007. These new provisions require that each insurer make available in all of its commercial property and casualty insurance policies coverage for losses due to covered acts of terrorism. These losses don’t differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than acts of terrorism. The act, sponsored by U.S. Sens. Christopher J. Dodd and Joseph I. Lieberman, has not yet been activated.
Similar to a homeowners policy, a business policy is written with exclusions and not all things are covered. Insurance is not the only vehicle for protecting small business. One reason is that there are exclusions in every policy.
We do advocate that there are risk-management steps and practices and measures that small businesses can take to avoid having a loss to begin with, says Olmstead. Of course, Whether it’s covered by insurance or not, it’s better not to have a loss.
The Hartford partners with the U.S. Small Business Administration (SBA) to provide risk-management knowledge, materials and resources to companies.
The SBA has also teamed with the Institute for Business & Home Safety to create Open for Business: A Disaster Planning Toolkit for the Small Business Owner, which is available to small business owners at www.ibhs.org.
Not only get a good policy, but also have a good plan in place, Olmstead advises. Risk-management is what you do to protect what you have then insurance takes care of what might go wrong.