When searching for insurance to protect your business, you may consider the specific risks your Massachusetts business faces, such as lawsuits, employee injuries or illness, mechanical malfunction, or even data breaches. You may not have considered the threat that extreme weather events and natural catastrophes could have on your business insurance. If hurricane winds blow the roof off your business or a lightning strike causes a fire that forces you to close for several weeks, could your business survive? But how are extreme weather and Massachusetts Business Insurance correlated? Not only is your business at risk from physical losses resulting from repeated catastrophes but they can also have a significant impact on your business insurance premiums.
Frequency and Impact of Catastrophes is Increasing
Weather related disasters can happen anywhere at any time. It doesn’t matter where in the United States your business is located, there is a risk of inclement weather negatively affecting your operation. Climate change is resulting in more frequent and more intense storms throughout the United States. “Between 1980 and 2021, the U.S. suffered 7 or 8 natural disasters per year, on average” (1), but in 2022 alone there were “18 weather/climate disaster events with losses totaling $1 billion each.” (2) with overall damages totaling $165 billion. Even if you took steps in the past to design a disaster plan, secure business insurance and employ risk management techniques, with the increased severity and occurrence of extreme weather events, those protective measures may prove inadequate now.
How Do Frequent and Severe Catastrophes Affect My Massachusetts Business?
There are many ways that repeated catastrophes can impact your business, these include physical loss/property damage as well as increased insurance premium costs.
Physical Loss/Property Damage
The weather events typically faced by businesses in Massachusetts and throughout New England are hurricanes, flooding, Nor’easters, hail, and winter storm/cold damage. These storms can have a physical effect on your business, as snow, wind and rain can damage your business, cause flooding, and power outages can result in spoiled product, not to mention the financial cost of lost business. According to FEMA (the Federal Emergency Management Agency) 40% of businesses don’t re-open after a disaster and another 25% will fail within a year. (3)
The property insurance portion of your business insurance is designed to cover damage to your business’s physical assets, like the building itself, inventory and equipment after a catastrophe but, recent factors could result in business owners being inadequately protected. The severity and frequency of catastrophes is increasing, post-covid supply chain issues are causing a lack of building materials and resulting in increased materials cost, and there are labor shortages in the construction industry. These factors drive the cost of claims higher. It’s important to work with your McSweeney & Ricci risk manager to determine whether your business has an adequate amount of business insurance to keep up with the rising cost of repairs.
Catastrophes Drive Premium Costs
“According to a recent report from Allianz Global Corporate & Specialty (AGCS), natural catastrophes are the largest driver of corporate insurance losses in the US.” (4)
Typically, when a catastrophe occurs, insurance companies will receive higher numbers of claims. To ensure they have enough reserves to pay the claims and maintain profitability, the insurance companies draw from their own reinsurance. Reinsurance helps insurance companies deal with high numbers of claims. The reinsurance market is global so it’s not just disasters in your specific area that can affect your premiums. If a catastrophe happens on the West Coast, insurance premiums for businesses and homeowners on the East Coast may still see an increase, as the reinsurance company must raise its rates to provide enough coverage for the companies they support.
Locations considered “high risk” will experience increased premiums. If a certain area experiences multiple devastating events, that region can be considered a higher risk and insurance rates for businesses located there may increase. Insurance companies may adjust their underwriting guidelines to account for the increased risk, which may make it more difficult for businesses in that area to get coverage and/or cause them to pay higher rates for the same level of coverage as low-risk areas.
With climate change resulting in more frequent and intense weather events, property losses for individuals and businesses are expected to increase. In fact, “the property losses from natural disasters due to climate change could increase more than 60 percent by 2040 according to Swiss Re, the world’s largest reinsurer.” (5)
How Can I Help Protect My Massachusetts Business from Catastrophes?
To help your business recover fully and quickly from an extreme weather event you should try to prepare in advance. Consider which types of storms are likely to affect your business. Given the increase in storm severity and occurrence due to climate change, take into consideration that the impact of today’s events may be greater than previous years. While there is no way to prevent storms from happening, there are things you can do to prepare your Massachusetts business and minimize the effects of a catastrophe. Making sure your business is as structurally sound as possible will help minimize any possible damage, creating a disaster recovery plan, ensuring you have return to work programs in place and conducting a thorough review of your business insurance program will assist your business in preparing and recovering from a catastrophic event.
- Fortify Your Property-Make sure that your business property conforms with all current building codes. Research possible ways to strengthen the structure to protect it from possible wind, rain or snow damage. Make sure your building has central station fire alarms that immediately notify the local fire department in the event of a fire and an OSHA approved sprinkler system. Always keep up with routine maintenance and repairs on your business property.
- Keep Duplicate Records Off–Site– Any computer files should be backed up monthly and stored off the main business premises. Make copies of important business documents including insurance policies and banking information. At a secure location maintain lists of contact information for employees, vendors, and key clients, as well as any business equipment (including model and serial number).
- Business Continuity Plan-Take the time to prepare a Business Continuity Plan. A BCP helps your business continue functioning with minimal downtime during and after an unplanned catastrophic event. A BCP should include:
- An emergency response plan that details how the business will respond in the event of an emergency, (train employees in how to carry it out).
- Information required to run your business at an alternate location or remotely.
- Which business activities are essential and need to be continued.
- Key employees required to maintain business functions.
- A communications strategy to notify clients whether your business will relocate, temporarily close and when operations will resume.
- Detailed information on maintaining data protection.
- A list of qualified preferred contractors to do repairs.
- A Return-to-Work Program (a written plan for any injured employees to return to work as soon as they’re medically able).
- Decide on a communications strategy to prevent loss of clients/customers
The process of preparing a business continuity plan may seem daunting but there are several resources available to assist you. The Insurance Institute for Business & Home Safety (IBHS) offers a free toolkit to help businesses prepare OFB-EZ toolkit.
- Review Your Massachusetts Business Insurance-With climate change affecting the frequency and severity of storms and current rates of inflation, it’s more important than ever to ensure your Massachusetts business insurance coverage is sufficient to pay the costs associated with a disaster. When considering which coverages are essential to help recover from a catastrophic event, you should plan for costs beyond the physical damage your business property and inventory could incur. If your business is unable to operate, there’s potential loss of income and lost wages. If your business continues to operate during the repair period you may have costs associated with operating at an alternate location. Contact your McSweeney & Ricci Account Manager to review your business insurance program and ensure you have the proper types of coverage to help protect your business from a catastrophe.
Business Insurance Coverages to Protect Your Business
Business property insurance protects your building and its contents, but your limits need to be high enough to cover current replacement costs. Building materials cost more today than they did previously. It may cost more to rebuild than you thought. Make sure any improvements you have made to the property are insured as well.
Most property insurance and business insurance policies exclude coverage for flood damage. “The First Street Foundation found that 14.6 million properties across the country are at substantial risk of flooding, with 5.9 million of them not currently in a designated Federal Emergency Management Agency (FEMA) floodplain.”(1) Specifically on the East Coast, new homes and businesses “are being built two to three times faster than average in areas that are vulnerable to flooding.”(1) A commercial flood insurance policy through the National Flood Insurance Program helps protect your business from hurricanes, storm surge, snow melt and rain.
Business Interruption Insurance:
After a catastrophe some businesses incur enough damage that they are forced to close. Sometimes called business income insurance, business interruption insurance compensates for income that is lost when the business must vacate due to disaster-related damage (you must have coverage for the physical damage that caused the disruption). BII covers the profits the business would have earned if the disaster hadn’t occurred, based on the business’ own financial records. BII also pays for the businesses’ regular operating expenses such as payroll, even though the activities of the business have stopped. (6)
It’s important to work with your Account Manager to determine the proper limits for business interruption insurance. In the past, it may have only taken a short time to get your business up and running after a disaster. These days, with labor shortages and supply chain issues, it may take much longer to complete the necessary repairs to get you back in business. To protect your business, you need enough business interruption coverage to replace lost income and operating expenses, for the entire duration of time your business is nonfunctional.
Extra Expense Insurance:
Where Business interruption insurance provides coverage for expected expenses such as lost profit or payroll, extra expense insurance provides coverage beyond what the routine operating expenses of the business would normally be following a disruptive incident. Extra expense insurance would pay for costs incurred when moving your business to a temporary location while your main office is rebuilt, hiring temporary workers during the transition or leasing equipment for the temporary work site. (6)
How Can I Start Protecting My Massachusetts Business from Catastrophes?
Our Commercial Insurance Division has over fifty years of experience helping businesses of all sizes and types protect their livelihood, with flexible and affordable business insurance programs. The amount of business insurance each business needs to help protect themselves from weather-related disasters varies depending upon the industry, the location of the business and other factors. Our team is skilled in assessing your company’s individual risk factors and recommending appropriate coverage limits. We work with the numerous reputable insurance companies we represent, to assess the various perils that may impact your business and develop customized insurance programs to address them.
Our Commercial Division understands recent trends due to climate change and how extreme weather and Massachusetts Business Insurance are connected. Due to labor shortages in the construction industry, supply chain disruptions causing building material delays and inflation, post disaster repairs that may have only taken a few months in the past are now taking six months and longer to be completed and at a much higher cost. An insurance program to protect your business from disaster should include tips and training on how to minimize damage, steps to take once a catastrophe hits, as well as a return-to-work strategy. As your business grows and as additional trends develop, our team will review your insurance program to ensure the proper protections and limits are in place.
In addition to helping protect your business, McSweeney & Ricci can provide customized insurance for your home, auto, boat and even provide you with life insurance quotes. Call an experienced member of our Commercial Insurance Division for a thorough review of your business insurance program today.
- With Climate Impacts Growing, Insurance Companies Face Big Challenges (columbia.edu)
- Billion-Dollar Weather and Climate Disasters | National Centers for Environmental Information (NCEI) (noaa.gov)
- When disaster strikes: Preparation, response and recovery | III
- Global claims review 2022 (allianz.com)
- Policygenius Home Insurance Pricing Report. Also With Climate Impacts Growing, Insurance Companies Face Big Challenges (columbia.edu)
- Insuring Your Business Against a Catastrophe | III
Additional Sources not quoted: