DISASTER STUDIES

There are many studies of how business and individuals fare following significant loss events.  Studies of business recovery show a very sobering picture.  I have included key items from several studies for your information.
 
HOOSIER BANKING STUDY-CATASTROPHIC LOSS RECOVERY FIGURES
 
Forty percent (40%) of firms do not reopen.  Within five (5) years ninety-three percent (93%) of all businesses that experience a major disaster were closed.
 
UNITED STATES DEPARTMENT OF COMMERCE
 
Forty percent (40%) of small business firms affected by a natural disaster never reopen.  An additional twenty-three percent (23%) will close within twelve months.
 
INDEPENDENT INSURANCE AGENTS OF AMERICA
 
Forty-three percent (43%) of firms that experience a serious (relative to assets) loss never reopen.
 
Twenty-eight percent (28%) of those that do reopen will close within thirty-six (36) months.
 
Forty percent (40%) of firms closed by Hurricane Hugo never reopened.
 

Seventy-five percent (75%) of businesses damaged in Hurricane Andrew were underinsured.

 
Ninety-five percent (95%) of the business income losses countrywide do not adequately compensate the insured. 
 
Eighty-five percent (85%) are underinsured by forty to fifty percent (40% - 50%).
 
CPCU JOURNAL
 
A University of Wisconsin study found seventy-seven percent (77%) of firms suffering a total loss did not receive adequate insurance funds to rebuild.
 
OAKLAND-BERKELEY HILLS FIRESTORM OF 1991
 
This fire caused 3,810 total and 2,892 partial losses.  The California Commissioner of Insurance found twelve percent (12%) of policies were adequate as to form and limits.
 
HOW DO YOU ADDRESS DISASTER RECOVERY?
 
I have helped develop disaster recovery plans and seen them placed into operation on a real emergency basis.  It is a real test of how well you have thought the process through.  But the companies quick recovery and continued service to their customers kept their competitors from taking over their business.  It was literally the difference between business survival or failure.
 
Disaster planning is not as difficult as one may think.  Several of my clients have entered into agreement with local friendly competitors to provide services through a period of recovery.  Another firm selling fine meats to high end restaurants entered into agreements with similar firms located more than four hours distance from the city.  This kept their competitors out of their customers business but provided continued service.
 
Firms providing manufactured products with "just in time" delivery requirements have a very different situation.  A rubber manufacturer instituted a plan to store a significant amount of product off site in an accessible warehouse.  While this would not carry them through an extended closure they made arrangements to buy product from a competing firm whose production capacity could be increased within a short period of time.  The combination of off-site storage and agreement with the competitor bridged the gap.
 
One client approached their customers with a disaster plan. Each party was operating on "just in time delivery".  If the firm lost their warehouse or production capacity a large number of businesses would be closed until substitute suppliers could deliver product.  This client arranged to store a stated amount of inventory for several of their customers off site in a bonded warehouse.  The product would be rotated every six months.  The company charged the customers for the service, turning disaster plans into a source of new revenue.
 
There are several sources of information about disaster planning.  Several are available for free.  I have helped a number of firms through this process.

 

CONTACT INFORMATION:
James R. Mahurin, CPCU, ARM Phone: (615)790-0083
207 Third Avenue North Email: jimmahurin@aol.com
Franklin, TN 37064 Website: www.risk-guide.com