Losses arising from a catastrophe like Sandy may be mitigated in part by both a strong business continuity plan or disaster recovery program, and an effective enterprise risk management program.
While trying to manage an unprecedented volume of claims from Sandy, many insurers with local claims offices and staff experienced extensive power, phone, and computer outages, not to mention property damage from flooding. Staff had limited access to transportation to both their offices and their clients. The logistics of just getting adjusters out to policyholders was a major issue for most companies, and companies also incurred significant additional expenses that they would not otherwise have had to deal with in other types of storms, such as extended lodging costs for on-the-ground adjusters due to shortage of hotel rooms because of either property damage, or full occupancy by displaced residents.
From a claims operations perspective, Superstorm Sandy had both significant immediate and long-term operational and financial impacts. Losses arising from such a catastrophe in the future may be mitigated in part by both a strong business continuity plan (BCP) or disaster recovery program, and an effective enterprise risk management (ERM) program.
Business continuity planning is the process of identifying internal and external threats and establishing specific plans to continue operations under adverse conditions, such as a fire or severe weather emergency. It recommends alternate routes on the insurer’s business roadmap. Creating a business continuity plan is particularly crucial for smaller to mid-sized insurers that may not have the physical or human resources on hand to respond to an immediate crisis.
Even for companies that had an existing BCP, however, Sandy was an unusual challenge. Some weaknesses in company BCPs included:
In light of Sandy’s “lessons learned,” claims departments are likely to update their business continuity plans to:
Claims departments may increase their focus on reviewing, auditing, or revising their BCP based upon the results of the practices and significant changes in the organizational infrastructure. In addition, Sandy highlights the need to “stress test” a BCP periodically by doing a mock-emergency exercise, running through the BCP protocols for a realistically staged scenario with all key claim staff as if a real disaster were to occur.
In contrast to business continuity planning, enterprise risk management is the process of identifying internal and external threats across the organization, ensuring the effectiveness of controls, and using enterprise-wide risk information as key input for strategic planning. ERM is much broader than, but should function as supporting framework for, a solid business continuity plan. ERM includes planning for contingencies affecting other functional departments beyond claims.
In addition to post-Sandy updating of BCPs, insurers may benefit from taking the following types of actions around their enterprise risk management plans:
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