Recovering From — and Avoiding — Disaster (Part 1)

CHICAGO — An unfortunate event with a plan in place can be an inconvenience. That same event without a plan can turn into a business-ending disaster.

Even major incidents such as fires are survivable for a company if there’s a plan in place that allows business owners to get back up on their feet. Simply knowing what the next step is — or even the first step — is a great help in getting the wheels to recovery moving.

Preparing for the Worst

“It’s working on plans before the event happens, and there are a lot of different disasters that require very different plans,” says Kermit Engh, owner of Fashion Cleaners in Omaha, Nebraska, and managing partner of the consulting firm Methods for Management (MfM).

“There are weather disasters,” he says. “There are mechanical disasters, such as a boiler blowing up or something else that prevents you from operating. There are fires and floods, of course, but I think an even bigger one is what happens if the owner is no longer available, or if they are injured to a point where they are unable to fulfill any functions? What happens if you get hit by a bus?”

Engh also points to “non-disaster” events, such as key leadership leaving the company; new regulations from Washington; pandemics; and other factors that can also impact the business — and do greater damage if there’s no plan in place.

“So, when you put all those different things together,” he says, “those really are different plans, and they need to be reviewed periodically to make sure that they’re still in place, and they’re still adequate to get you over the hump.”

Ensuring Insurance Coverage

One action that owners should take is to make sure the one product they pay for but never want to use — insurance — is up to date and covers their current business situation, says Wayne Wudyka, CEO of The Huntington Company, which includes businesses such as Huntington Cleaners, Wesch Cleaners and the Certified Restoration Drycleaning Network (CRDN).

“From the business side, the most important thing they can do is to understand their insurance policy, and make sure that coverage is in no doubt,” he says. “Right now, it’s a hard market, and a lot of dry cleaners are getting declined. There are some major players like The Hartford exiting the space, and they were always one of the biggest carriers. So, understanding your policy is important.”

No single insurance policy covers every aspect of a business, Wudyka says, so owners need to look at their business at a granular level.

“In your policy coverages, there’s the structural, rebuilding side,” he says. “Then, there’s the equipment side — your personal belongings from boiler to presses to computers to counters and racks. And then there’s the bailee coverage, which covers the customers’ goods that you have in the store or plant.”

There are also “hidden” elements that might come as a surprise when the time comes to make a claim.

“Most of the policies today are going to exclude furs,” Wudyka says. “If you have a $10,000 fur in your possession and your building goes up, usually no coverage for that is included, unless you buy a rider. A leather jacket with fur trim would be excluded under most of the policies today, as well.”

Pickup and delivery — known as “goods in transit” to insurers — is also an element of the business that needs attention.

“Say you’ve got $50,000 worth of clothes in your van, and the van has a problem,” Wudyka says. “Sometimes, insurance will exclude goods in transit. So having insurance and then having the right insurance are two very different things. And most agents don’t understand our business to know what we need.”

The best time to determine what your insurance covers, Wudyka says, is well before it’s needed.

“Probably the most important thing someone could do right now is have their agent come in and have a review conducted,” he says. “If you own your building and you want to rebuild your property, you want the coverage to cover the cost of the construction today, because construction costs are 30% or 40% more than they were a few years ago. Most agents will just continue to renew your policy at the current levels. So, if you’ve got a 5-year-old policy, they might have put your building replacement at $125 a square foot, where today the cost might be closer to $250.”

For owners who lease their buildings, it’s important to take this into account, as well.

“If you’re leasing your property, you want to have rights to rebuild,” Wudyka says. “If you have a fire in your plant, and you’re going to be down, your policy should give you 12 months for the rent coverage, because the landlord’s not going to be very patient.”

Wudyka is well-versed in this area of the business, having recently conducted his own insurance review.

“We just went through a four-month renewal on my policies, and it was a job,” he says. “We had to split it up between multiple carriers. Find the right agents, first and foremost, who understand our industry. And then pay the extra money for the right coverage, because if you don’t, you’re out of business.”

Come back Tuesday for Part 2 of this series, where we’ll explore what should go into a recovery plan, and the first steps to take after a disaster.