Inflation and Other New Economic Challenges Impact Disaster Preparedness

Dear Chicago,

You're right to be concerned. If your business were to suffer a physical property loss due to a fire or a weather-related event, you might find yourself "down" for much longer than originally anticipated. And the amount and type of insurance you purchased some time ago may no longer be enough.

Businesses need to be prepared for issues like increased inventory cost and property valuations, higher replacement costs and the potential for extended repair times.

The ongoing supply chain disruptions have resulted in higher prices for goods -- including building materials. Workforce shortages and increased demand for services have compounded and prolonged the time to repair or replace property.

Thankfully, there are three steps businesses can take to help protect themselves from such risks: prevention, planning and programs.

Prevention -- The time to identify and mitigate potential risks and exposures is before losses occur. This may include implementing capital improvement projects such as replacing roofs and installing water monitoring and detection devices, as well as other preventative measures.

A well-rounded risk-mitigation plan includes a variety of strategies. For example, IOT safety devices such as water monitors or detectors can help identify issues before they cause larger problems, including downtime due to damage and the consequential productivity and revenue loss.

Planning -- Business continuity and emergency response planning in advance of potential emergencies is key. This helps get companies back up and running faster. It's essential to build strong business continuity plans and review them regularly. They should provide the framework for the full operational and financial recovery of a company following a loss.

The business continuity plan should consider the potential impact of inflation on the cost of repairing and replacing property and inventory. Build in supply chain redundancies to minimize disruption in the event of loss. This should include vetting alternate suppliers and third-party vendors.

Emergency response plans are also necessary to help businesses respond to a variety of possible events, including an accident or incident, service outage, weather-related event, or natural disaster. Identify appropriate responses and actions for each of these possibilities -- including chain of communications (internally and externally). Staff should be assigned responsibilities and trained accordingly. The plans should be rehearsed and tested periodically and updated regularly.

Programs -- It's also wise to reassess your property insurance programs, including the terms of coverage and limits. Five years ago, a $10 million limit may have sufficed, but that amount would likely need to be higher today for the same property. The last thing any company wants is to suffer a $15 million loss while carrying a $10 million limit.

It is important for companies to revisit asset valuations -- including inventory -- to make sure they are on par with current replacement costs. Considering today's inflationary economy, a reevaluation may be in order. Work with your insurance agent, broker and carriers to assist with and help inform your decision-making.

All companies need to understand how much insurance is needed to deter a financial calamity. An experienced insurance broker or agent can help determine whether to assume more risk internally by maintaining insurance with a higher deductible. Or a business may decide to take on added self-insured risk at the top end of a loss via lower insurance limits -- or assume greater risk by increasing the waiting period for a business interruption loss to trigger.

Insurance agents or brokers can discuss ways to help assess, and potentially reduce, the cost of a business's risk by:

• Proactively identifying potential risks and mitigating exposures.
• Developing or reviewing comprehensive emergency and business continuity plans to help respond and recover following an insured loss.
• Implementing appropriate risk-transfer mechanisms to ensure a company's insurance program includes the right balance and mix of policies, accurate valuations, limits, and deductibles to current and evolving needs.

Every business' risk profile and risk tolerance are different, and they're often evolving in response to market opportunities and pressures. Those in the media business are certainly no exception. By carefully planning for future disasters and bearing in mind the new economic realities, companies can avoid a world of pain down the road. And while it still might not be pleasant, the situation will be a lot more manageable.

Maxime Lefebvre is Senior Vice President, Entertainment, at the global insurer Chubb.David Blevins is Executive Vice President, Commercial Insurance Property Manager at Chubb. They can be reached at info@mediavillage.com.

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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.com/MyersBizNet.