September 1, 2022 Six Insurance Tips to Increase Disaster Resilience

Successfully recovering from a disaster is a matter of preparation. Follow these six tips to disaster-proof your business.

Manufacturing facilities are uniquely vulnerable to fires and natural disasters. While other types of businesses may be able to run remotely or defer operations during the recovery process, manufacturers are either producing or losing money. In addition to the opportunity cost, such facilities frequently contain expensive, specialized equipment that can be slow to repair or replace. Because downtime is so costly, it is vitally important for manufacturers to make their facilities and processes more resilient in the face of potential interruptions.

Here are six insurance tips every manufacturing business owner needs to know:

1. Match Your Insurance Coverage to Your Primary Risks

The first step in any pre-disaster planning is to ensure that your facility has adequate and up-to-date insurance coverage. Following a disaster, the insurance carrier will only replace, repair or rebuild within your policy limits, policy benefits and policy conditions. Proper business insurance coverage can be the difference between a quick recovery and a permanent shutdown.

With the help of your insurance broker or agent, start by evaluating the most vulnerable parts of your operation or property and identify how you can adequately protect them. For many facilities – especially for those with refrigerated storage or ventilated environments – the electrical supply is often their most vulnerable point. However, specific vulnerabilities can vary from business to business. For example, a paper manufacturer would be especially vulnerable to water damage. By identifying your primary risks ahead of time, you can select specific insurance coverages that will provide the most protection for your business.

2. Examine Your Policy

This tip seems obvious, but you’d be surprised to learn how many businesses weather a disaster only to find out their insurance policy won’t cover their damages – at least not to the extent they expected. Reviewing your policy to understand the coverage and duties of a policyholder is critical to the post-disaster recovery process. Some policies include a coinsurance clause, an obligation that the policyholder carries an amount of insurance equal to a specified percentage of the business’ value. Failing to comply with this obligation can cause a financial burden to the policyholder. If you’re not prepared for this extra expense, it can shatter recovery plans and result in unrecoverable losses, putting you on the hook for massive and unexpected costs.

Thankfully, there’s an easy way to avoid this nightmare scenario: become intimately familiar with the details of your policy. Time spent with an insurance expert poring over coverage details may not be your idea of fun, but it will give you the necessary information to make informed insurance decisions. Read more about what to consider when renewing your business insurance here.

3. Consider Business Interruption Insurance

While ordinary business insurance may cover physical damages to plant and inventory, business interruption insurance replaces lost revenue and covers extra expenses necessary to restart operations.

As a manufacturer, you likely have hundreds, if not thousands, of clients relying on your goods. Unfortunately, no matter how great your relationships with your clients are, if you can’t produce, they’ll find someone who can. This is why it is so vital for any company to be able to continue serving their clients even when an unplanned disaster disrupts operations. Business interruption coverage provides extra expense coverage to offset increased expenses necessary for the continuation of operation and sales. For example, if your facility is too damaged to operate, business interruption insurance can help cover the costs to relocate to a temporary facility, allowing you to resume operations quickly. However, it is important to make sure your business interruption policy allows enough time to cover rebuilding or relocating. Typically, policies only cover 12 months, so you must ask yourself – is 12 months enough time to rebuild? If the answer is no, make sure to discuss other coverage options with your insurance broker or a public adjuster.

4. Retain Employees with Ordinary Payroll Coverage

With persistent shortages in today’s labor market, retaining employees after a disaster interrupts your business is essential to the recovery process. However, keeping your staff on payroll can be difficult when your manufacturing facility is not generating revenue due to stalled operations. Typically, ordinary payroll expenses – the payroll expenses for all employees with the exception of key staff – are not covered by most business insurance policies.

While ordinary payroll expenses coverage can increase premiums, it provides funds for the business to retain all employees on the payroll while operations are getting restored following a disaster. After a business interruption event, it is common for staff to seek employment elsewhere leaving the employer to source what could be an entirely new workforce when operations are ready to resume. By adding Ordinary Payroll Coverage to your policy, you can continue to pay the staff during the rebuilding period so they return once the business is ready to re-open. It is important to evaluate whether adding ordinary payroll expenses to your insurance coverage could save you time, money and stress in the long run. Consider reevaluating the coverage on a yearly basis and contemplate how difficult or easy it would be to find enough staff to resume operations after a disaster.

5. Know When to Call the Experts After a Disaster

After a major loss or catastrophe, properly documenting the true extent of the damage can make a big difference in the settlement you receive from the insurance carrier. All damage must be properly assessed and reported to your insurance carrier in order to receive compensation. However, many forms of property damage are invisible to the naked eye, such as water and smoke damage. These types of property damage usually require a special assessment by an expert. Otherwise, damage could go unseen, causing further issues down the road and impacting your financial recovery.  

In some cases, you may need to deploy multiple post-disaster recovery experts to examine the property and provide their professional advice in order to optimize your settlement. A public adjuster can serve as a helpful resource in such situations. As insurance experts who specialize in first-party property damage claims, public adjusters typically have an arsenal of specialized experts they can deploy as needed, including structural engineers, industrial hygienists, electricians, and other specialists. Together, they can help document different types of damage and determine the best course of action when filing an insurance claim.

6. Add a Public Adjuster to Your Recovery Team

Coming back from a major interruption requires an active and engaged team that can help you navigate the complicated insurance claim process. In addition to your legal counsel, Human Resources, and financial experts, make sure you have the support of a public adjuster. A public adjuster is a subject matter expert when it comes to insurance claims and can advocate on your behalf in order to obtain a fair settlement with the insurance company.

Having a public adjuster on your side takes what would otherwise be a stressful and time-consuming process off your hands. This, in turn, will help you focus on taking care of your staff and clients, making sure that all operations, as well as your revenue stream, are restored to normal as quickly as possible.

About the Author
Steve Severaid is President of The Greenspan Co./Adjusters International. Steve has been with the company since 1992, and he began his career in the public adjusting field in 1989. He works for policyholders after a disaster to help restore their lives by taking on the burden of assembling, documenting, and negotiating an insurance claim. For more resources and information on manufacturing claims, or to connect with a public adjuster about your specific situation, visit https://www.greenspanai.com/.

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