Like fingerprints, disasters are unique. No two are alike. They can be natural or manmade and can strike with or without warning. They can be the result of years of neglect. Some are preventable, but for the most part much of the havoc they wreak is unavoidable. While it isn’t possible to prepare for the destruction every disaster will cause, it is possible to prepare ways to cope and ultimately recover from just about any disaster.
To be clear, jobsite incidents and accidents are not the same thing as disasters. While all three interfere with the operation of a business and can have dire consequences, including death, the scope of a disaster is widespread and typically involves part or all of the community in which a project is based. While an excavation cave-in or a scaffolding collapse can certainly qualify as a tragedy, such incidents do not rise to the level of a disaster. For the latter, consider events such as the earthquake-induced tsunami that ravaged areas of Japan in 2011, the destruction of hurricanes Katrina and Rita in 2005, or that of Hurricane Sandy in 2012.
OVER PREPARING IS IMPOSSIBLE
Like the word “disaster,” the word “plan” conjures endless possibilities. There is no “one-size-fits-all” plan regarding disasters, but that doesn’t mean contractors shouldn’t have a basic strategy. Realistically, contractors require specialized plans for specific situations.
“You can’t over prepare,” said Steve Allison, BancorpSouth Insurance Services (BXSI) Director of Business Risk Solutions. “Developing a plan isn’t difficult, but too many contractors neglect to carry through and take the steps necessary to continue improving their plans.”
Just having a plan isn’t enough. According to Allison, there are five general steps all contractors should take when it comes to disaster preparedness:
“These steps are an outline,” Allison said. “They are the foundation, but they certainly aren’t the entire structure of what needs to be built. Without question, part of the plan needs to be protecting your organization and yourself with proper coverage. Above all else, the plan has to be communicated properly to all of your employees. The employees have to know where to access the plan and where to go in the aftermath of a disaster.”
Allison, who designed the Shaw Group’s Corporate Risk Management program, added that it is also vital to have redundancies in place to ensure the plan’s integrity is maintained.
THE BARE NECESSITIES
From an insurance perspective, there is a definitive “must-have” checklist of coverages every contractor should have, according to BXSI Vice President of Risk Management Louis Fey Jr.
“For contractors, Builders Risk coverage is essential,” Fey said. “The policy should cover the entire project and include any existing structures if the project involves a renovation.”
Fey added that the policy should extend coverage for “risk of direct physical loss of covered property” and include coverage for flood. Additionally, the policy should include coverage for direct damage, soft costs, and delay damages.
Considering a disaster could result in a multi-million dollar legal liability exposure, Fey stated that excess or umbrella liability coverage cannot be overemphasized.
“Typically, contractors are somewhat protected from disasters in that they operate with generators,” Fey said. “General power outages aren’t usually impactful with regard to a contractor’s ability to operate in the aftermath. What disasters do impact, however, is the availability and cost of labor and material.”
Of vital importance, Fey insists, is that contractors review their contracts to make sure agreements include a “force majeure” provision that will allow them to opt-out of a project in the event of a disaster. Skyrocketing costs can make projects unprofitable, not to mention the potential delay damages.
What many contractors overlook, Fey contends, is the rapidly growing threat of a cyber breach.
“Contractors keep sensitive project documents and bid information in IT systems,” Fey said. “The dissemination of such information can result in the loss of bids or liabilities. We therefore recommend our contractors closely manage and protect their IT systems and purchase cyber liability coverage.”
In 2014, Fey collaborated with AIG and IFI to provide instant comprehensive cyber and identity fraud protection to small-medium enterprises.
“These coverages are not a catch-all,” Fey said. “They do, however, provide some basic coverage that will allow a contractor a legitimate opportunity to recover from a disaster. Keep in mind that no insurance program can completely protect a contractor from a disaster. Loss prevention and non-insurance measures are a necessary first step to first avoid loss and then to ensure that if a loss does occur, the contractor is prepared and protected to the maximum extent possible.”
INDIVIDUALIZED ENTERPRISE RISK MANAGEMENT
While BXSI’s Construction Practice has a definitive checklist of essential coverages every contractor should have, a complete picture of what is needed can only be ascertained through a comprehensive Loss Control risk assessment.
“It’s easy to overlook things, especially when you don’t know that they exist,” said Terry Hoyle, Vice President of Loss Control for BXSI’s Louisiana region. “People are often so involved in their business that they can’t even fathom that they have missed something. Another set of eyes can make a huge difference.”
Loss Control assists contractors in the design of environmental, health, and safety process strategies to prevent employee injury mishaps, property damage exposures, and internal and external exposures that create a risk to the financial success and overall insurability of their business. To help reduce direct and indirect insurance costs, Loss Control also consults with contractors on the day-to-day management of regulatory compliance. All of this, Hoyle states, plays a role in disaster preparedness.
“Preparation on the front end absolutely makes a difference for contractors that do experience a disaster,” Hoyle said. “Whether it’s a hurricane, cyber-attack, earthquake, tornado—whatever. Identifying risk and preparing will ultimately allow your organization to move forward in the aftermath.”
Hoyle stressed part of that preparation should be the formulation of a crisis management plan to deal with public perception and being resilient enough to adapt and respond to business disruptions and maintain continuous business operations. For instance, BXSI provides clients with business continuity via access to resources that can deliver replacement equipment or even real property, based upon an evaluation of the client’s operations and their projected needs in the event of a disaster. Following a disaster, office space, power generators, satellite communications, connectivity, and computer systems are already staged for deployment and clients can be back in operation within 48 hours.
“We help our clients take everything into account,” Hoyle said. “More importantly, we assist in providing them every resource possible to remain viable.”
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Not Insured by any Government Agency.
Not Guaranteed by the Bank.
Not a Condition of Any Bank Loan, Product or Service.
Always refer to your policy for exact coverage terms and conditions.
Services provided by BancorpSouth Insurance Services, Inc. are supplemental to the insurance carrier and your legal counsel.
© Fintactix, LLC 2016