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A destructive storm swept through Lancaster, N.H., in early 2006, knocking the city’s power supply out cold. It was an unfriendly greeting for Jennifer and Daniel De Moras, who had just moved from Boston to buy Memos of New Hampshire, Inc., a 30,000-item office supply business.
Luckily, the De Moras had invested $20,000 in a system that insulated their home network from power failures, allowing them to run the business.
“We can’t afford to be down. The one time we’re down, our customers will see how easy it is to go to Staples.com,” Daniel De Moras says. “Our livelihood depends on it.”
Although small to midsized businesses are the backbone of the American economy, they are often the least prepared for catastrophe.
That’s beginning to change.
To Start Planning, a Free Toolkit
In 1998, the commercial insurance industry banded together to form the Institute for Business and Home Safety – a nonprofit designed to help their customers be better prepared for disaster and loss. The Institute has since developed a free toolkit to begin that planning.
“It’s a structured approach to look at your operation, to identify what can go wrong and then put plans in place to reduce that risk,” says Diana McClure, IBHS vice president. “Start by thinking about what you want to protect.”
The Better Business Bureau suggests keeping copies of all essential records off-site, and maintaining a list of assets so a damage inventory can be taken quickly. Common sense is the cornerstone of business continuity.
McClure stresses flexibility, redundancy, good communication and a solid contingency plan for critical business functions. “It’s certainly going to improve chances of survival,” she says.
While the IBHS offers its help free, the $26 billion business continuity market has blossomed, growing 10 percent a year since 2001. Businesses have been focusing more attention on disaster preparedness since the terrorist attacks on the World Trade Center highlighted the New York financial center’s vulnerability to catastrophic disruption.
After 9/11, a $36 billion industry in catastrophe insurance has also emerged. That’s roughly what private industry paid out to policyholders who suffered losses in the attack. Linked to a commercial property policy, catastrophe insurance covers companies for anything from anthrax to storms or military attack by providing seed money to help businesses recover.
But there’s no “magic solution” to insuring against many of the global risks businesses live with today, say Dennis Kelly, an American Insurance Association spokesman.
“You can harden a target, you can put huge flower pots in front of a building,” he says, “but we simply don’t have the history to be able to predict a terrorist attack.”
‘The Threat is Real’
The spate of hurricanes in 2004 showed that nature is arguably the biggest threat to business. Then came Hurricane Katrina in 2005. Katrina alone cost the insurance industry $41 billion in payouts in 2006, says Mike Barry of the Insurance Information Institute.
While last year’s hurricane season was relatively quiet, there has been a clear trend over the last 15 years toward more frequent and powerful tropical storms. Then there are tornados, earthquakes, floods and all of the other unstoppable things nature can throw.
And smart companies are also learning how to prepare for unprecedented dangers. For example, the Washington, D.C.-based Disaster Recovery Institute International now offers a business course in readiness for a possible avian flu pandemic.
“The threat is real,” says John Copenhaver, DRII’s CEO. “No one thought what happened to New Orleans could happen. We learned from Katrina that businesses have to take some initiative. They can’t rely on the government to handle disaster.”