On August 4, a longtime, well-known family business in Ephrata suffered a significant fire that appears to be a total loss. Thankfully no one was injured, and the dedication of our local volunteer fire departments was on full display, which is always a silver lining in these tragic events. Nonetheless, a fire like this is a significant blow to the family who owned the business, the employees, their customers, and the community itself.
Just to be clear, the business that suffered this fire is not a client of ours and is not a business that is personally known to our insurance agency. We don’t know any details other than what we have read in the news, and we are certainly not sharing anything that is private or sensitive. It’s just that when we see a fire like this in our local community it brings a new level of seriousness to our insurance discussions. These are not just abstract discussions about numbers on paper. They are critical discussions that have a life-altering impact on the post-loss lives of many.
As a business owner, staring at the charred rubble of a neighboring business and realizing that this absolutely could have been your business is certainly a sobering experience that brings with it many emotions and concerns. My recommendation is that you take these emotions and boil them down to the following three actionable Insurance and Risk Management items.
1.) Do I have proper Business Income coverage?
There is perhaps no more prominent insurance question than this. What seems like such a theoretical coverage prior to a loss becomes glaringly important after a loss. I consider this to be the most important Property Insurance that you can buy. Why? Because for most businesses, if they don’t have adequate Business Income coverage they will never return after a significant loss, and if they don’t return, then what’s the point of purchasing any other property coverage?
The reality of having a business suddenly and unexpectedly cease operations entirely is gut-wrenching. Business Income (sometimes called Business Interruption) coverage will at least get some money flowing quickly to help pay bills, replace income, and cover payroll. This allows you to communicate to your employees that they will continue to be taken care of, that you value them, and that you want them to be there whenever you reopen. Without this money available, what do you communicate to your employees? Without this money, how long can you pay your mortgage, vehicle and equipment loans, insurance premiums, and other expenses when there is no revenue? How long can you go without your personal salary for your own living expenses, or continue paying the salaries of your key managers?
Finally, Business Income coverage typically includes “Extra Expense” coverage. This makes funds available to provide for plans to operate temporarily in some other way in order to minimize your loss.
Rather than just adding this coverage, it’s very important that you’ve worked with your insurance broker to determine a proper limit of coverage and to make sure that it’s structured correctly. This is complex coverage that requires expertise to make sure that it’s set up right. Taking the time to complete a Business Income Worksheet is necessary to know what limit of coverage you should carry. All of this is an investment of time that you will be glad you’ve made when a loss occurs.
2.) Are my insurance limits adequate?
I know how this discussion typically goes. Most of our clients aren’t thrilled to talk about whether their limit of coverage on their Building and Business Personal Property is adequate. Why is that? Because almost everyone knows that their limit isn’t adequate, and no one wants to spend more money on insurance. The unspoken logic goes something like, “The odds of my building burning down entirely are very low, so I’ll just roll the dice rather than buy more insurance.” This logic falls apart with the devastating reality of a fire.
In the event of a fire, being underinsured is the last thing you want to worry about. If you’ve chosen high-end coverage limits, think what a weight off of your shoulders that is.
The other benefit of choosing high-side coverage is that we simply don’t know what economic conditions will be like at the time of a loss. For example, right now there are significant inflationary factors not just in the cost of construction, but also in the cost of many other raw materials and inventory. This means that if your limit was already low during “normal” times, then during inflationary times you may have a significant problem.
So talk with your broker about your insurance limits, both for your buildings and your business personal property. This may require having Replacement Cost Estimators or formal appraisals done on your building, and detailed inventorying done on your personal property. You’ll be glad you followed through on this.
3.) What is my Disaster Plan for the business?
Before we discuss Business Income insurance with our customers, we like to ask this simple question, “What would your plan be if you had a total loss?” This straightforward question is really the start of a Disaster Plan (sometimes called a Business Continuity plan).
A Disaster Plan can be simple, it can be very detailed and complex, or it can be anywhere on the spectrum in between. There isn’t a right or wrong way to structure a plan. The important part really is the process of thoughtfully considering how a disaster would impact your business and how you would respond, and putting it all down in writing. Once again, what seems theoretical, and maybe even a waste of time pre-loss, becomes a critical lifeline after a loss occurs.
The basic building blocks of a good Disaster Plan include:
- What could happen to the business?
- What steps can we take now to prevent this from happening?
- If it does happen, what would our response plan be in the short term?
- What would the response plan be in the long term?
- What do we need to research, or have in place now, so that our short-term and long-term response plans can go smoothly?
Having a disaster happen to your business is surely one of the most stressful events you will encounter in your life. We all understand that making lots of decisions and formulating future plans during a time of immense stress is not healthy, and will likely lead to some poor decisions being made. With a Disaster Plan in place, you will have minimized the number of decisions that need to be made because you’ve already thought through the disaster scenarios and formulated plans. So, this means that if and when a disaster occurs, your Management Team can sit down, pull out the Disaster Plan (which you will have stored off-site, or made electronically available), and begin implementing the strategy that was already decided upon before the loss ever occurred. This will give your business the best possible chance of success for recovery.
To sum up, our thoughts and prayers are with the Weaver Nut Company family and team during this challenging time. We all look forward to seeing a reinvigorated business emerge that is stronger than ever. In the meantime, let’s all take to heart the fact that we’re not immune, and our business could suffer a disaster as well. Let this be a wake-up call to spend time focusing on these three actionable items so that if disaster does strike, we’re in the best possible position to bounce back quickly.