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Before the storm

CPCU panel addresses disaster preparedness

By Bruce Hicks, CLU, CPCU

In the past few years the United States has been rocked with very high-profile, disruptive natural and man-made catastrophes. Regardless of what part of the country they live, Americans have become familiar with a number of terms that describe such events: Northridge, 9/11, World Trade Center, Katrina. If you’re fortunate, you have only heard of these events. If you’re unfortunate, you have been directly affected by them, and you may still be in the process of recovery.

The Central Indiana Chapter of the Society of Chartered Property and Casualty Underwriters (CPCU) recently hosted a panel discussion titled “Before the Storm: The Relationship of Government and the Insurance Industry on Disaster Preparedness.”

The discussion, excerpted here, was moderated by Doug Holtz, CPCU, CSP, CIC, resident vice president for Harleysville Insurance’s Indiana Branch. The panelists were:

Colonel Marjorie K. Courtney, com-mander of the 38th Division Support Command, 38th Infantry Division, Indiana Army National Guard.

Daniel E. Carrigan, claim manager for the Catastrophe Section of the Property and Casualty Claims Department, State Farm Mutual Insurance Companies.

J. Eric Dietz, Ph.D., the first executive director of Indiana’s Department of Homeland Security.

Millicent (Millie) W. Workman, a risk management consultant from Memphis, Tennessee, and the 2005-2006 national president of the CPCU Society.

Moderator: When we think of disasters—being in the Midwest—they appear to be exotic (occurrences). What disasters could take place in the Midwest, and why should we prepare for them?

Dietz: The Midwest is prone to tornadoes. Indiana is just as vulnerable to them as Oklahoma which is color-coded red (on emergency maps) because of its susceptibility. This area is also prone to flooding, with more than 20 disaster area declarations in the last decade. Another potential catastrophe is earthquakes. We are located on the New Madrid Fault. We have also been victimized by some terrorist-related incidents, such as the recent white powder mailing hoax.

Col. Courtney: The military (Indiana National Guard) is involved in disaster response. On my radar is the possible (avian) flu pandemic that could affect up to a third of the active work force. We have to collaborate with state and local partners in order to do our job.

Workman: Tennessee (her home state) is also affected by the New Madrid Fault. The recent hurricane activity (experienced in parts of the country) has increased interest in the possibility of catastrophes that could directly affect us. However, we seem to have a yen for disasters and are mostly just aware of them affecting “others.” Nothing has happened recently to focus our attention, and people are unprepared. (Editor’s note: Since the panel discussion, Tennessee was hit with serious tornadoes in early April, killing 23 people—according to USA Today, and damaging thousands of homes and businesses.)

Moderator: Are certain people or parts of the country more prepared (for disasters) than others?

Carrigan: The Insurance Services Office (ISO) is responsible for issuing catastrophe codes which are assigned when an event triggers a given, multi-million threshold of damage. When these assignments are made, they create media attention. (Essentially) insurers deal with two different types of catastrophes: Losses of Inconvenience (such as hail and ice dams) and Losses of Severity (such as floods and hurricanes). They create different responses from policyholders but may eventually have similar financial impact. Losses of Severity cause immediate loss reporting while Losses of Inconvenience trigger loss reporting that can last weeks or even months after the loss event.

Pockets of the country are prone to repeat catastrophes. It is the areas that are not prone to repeat events that are not prepared to deal with disasters when they occur. The insurance industry should help the public to get rid of any false sense of security.

Moderator: How are businesses affected by disasters?

Dietz: Once a tornado destroyed a sheet metal manufacturer. The plant manager developed a plan for dealing with the loss in a couple of days. Within two weeks after the disaster, the manager had found a temporary manufacturing location, and equipment and was back in operation. This points out the need for insurers to figure out: What is the value of a company that has a viable business continuity plan? How do you underwrite the company that is prepared vs. one that is not?

Workman: Many businesses that are struck by disaster may never re-open or, if they do, may fail within a few years after the event.

Col. Courtney: Consider a flu pandemic. It won’t affect property or infrastructure, but its impact on the workforce would be a disaster. How do businesses handle a severely reduced work force? What if employees or businesses are quarantined (for an extended period)? How do businesses or individuals survive?

Carrigan: Economists may not have a reliable way to (accurately) calculate economic impact of disasters. There has to be an awareness of economic drivers. How do recovery dollars flow into an area hit by a disaster? Government personnel must be more aware of (the importance of) permitting claims personnel access to impacted areas in order to begin settlements.

Moderator: What plans are in place (in Indiana) today and what plan obstacles exist?

Dietz: A strategic plan for the state is being prepared on how it will respond. It will consist of operational plans (state-level response) and tactical plans (local-level response). (The federal government requires) all states to be ready to respond to 15 events (including several radiological, bio and chemical terrorism and natural disasters). Our state has designed five different response plans—chemical, radiological, biological, natural and earthquake catastrophes.

Each plan will be developed at a different part of the state and the details will be (structured) from the state-level down to a local level. (We will) try to identify a catastrophe’s occurrence and then send recovery resources. (It is more realistic to) push planned resources to an affected area because persons (living in) the affected area aren’t immediately able to communicate what they need. (This strategy) improves response, reduces civil unrest and creates more public confidence.

Moderator: What are obstacles to any disaster planning?

Dietz: Ninety-two counties have to agree on plans. Indiana is broken up into ten Homeland Security districts. How do various fire departments agree on search and rescue teams? How are they defined? We need a common understanding of heavy, medium and light search and rescue teams. National Homeland Security is emphasizing that all areas of the country develop a common language on terms to be used. We must create a unified response culture.

Moderator: What is the National Guard’s Disaster Response plan?

Col. Courtney: Each (of the 10 state) districts is divided into three areas: north, central and south. The guard has put plans into effect on how to deploy personnel and equipment. Indiana has the country’s fourth largest National Guard force, and it is constantly being asked to help in other areas of the country. Indiana is creating disaster training (sites) to educate both military and civil (emergency) personnel. Government has to work on how to get insurance personnel into disaster (affected) areas quickly.

Moderator: What can the public do to prepare for disasters?

Carrigan: Use hail resistant shingles (on roofs), use secure cabinet locks to prevent contents from spilling out, have metal (reinforcement) straps around water heaters to keep them from tipping over and causing indoor flooding, prepare against (damage) from frozen pipes. (The) public needs to take advantage of ways to mitigate a disaster’s impact. It is extremely difficult to educate (the) public on how to prepare for disasters.

Moderator: What can the insur-ance industry do to train the public?

Carrigan: The public is most receptive to getting information when building a home or right after a property loss. While the industry doesn’t have much opportunity to affect plans while a home is being built, it has a key opportunity to train victims of losses. However, adjust-ment usually focuses on paying for losses without taking next step to mitigate future loss. Industry must be more proactive.

Dietz: (We must) create more post-disaster public service announcements and the insurance industry con help develop them.

Moderator: What is the status of Indiana’s building codes?

Dietz: (The state’s) building code is updated each year with input received from both public and private sources. It is tough to convince Indiana building industry because of fewer disasters occurring in the state.

Carrigan: (Disaster) recoveries can be hampered by emergency-related backlogs in building inspections. To relieve backlogs, a department may start rubberstamping permits. Recovery efforts become less effective when building code reinforcement lapses, so such areas become more vulnerable to future, similar catastrophes.

Moderator: The military uses the terms “essential and non-essential” ser-vices. Can you (explain) them, Colonel?

Col. Courtney: Essential services refer to critical needs such as payroll, medical services and communications, while non-essential items include educational services.

Carrigan: All operations should have a plan on how and where to relocate. Relocation features should match site with business needs. It is very important to have redundant records and to train your workforce on what to do after a catastrophe.… where to report, who to call, where to call. It is also very important to regularly review and update plans on both a business and a personal level.

Workman: It is extremely important to test a plan once it is written. I’ve seen too many companies go through the long effort of writing a plan and then placing it aside. I’ve never seen a plan that, when tested, worked 100%. Testing is critical because, without a test, it’s impossible to determine whether the plan works.

Moderator: What have we learned from the most recent disasters?

Carrigan: We have to understand (public) expectations. The hurricane response was very different in different areas (of the country). In some areas, such as New Orleans, expectations were inaccurate regarding how safe the area was, who was prepared to evacuate, what type of help was to come and when it would arrive.

Dietz: People must expect a worst case scenario, plan for it and be prepared to implement that plan.

Workman: (The) planning process must be a partnership between business and government. How can each party help each other?

Dietz: Government should plan on how to share its recover-related data with businesses.

Moderator: The pandemic flu—what would its impact be on Indiana?

Dietz: A pandemic will eventually occur, but no one knows actual impact (whether it will restrict itself to birds or will it significantly affect humans). Right now, any focus (on the situation) should be on (developing) practical rather than hysterical actions.

Moderator (reading audience member question): How does the state deal with terrorist activity?

Dietz: The federal government has jurisdiction over any terrorist activity, and the state would assist in its efforts.

Moderator (reading audience member question): How does the state plan for terrorist activity?

Dietz: Our focus is on creating and running emergency exercises in areas that have a practical exposure to various events. (In other words we) create plans for dealing with non-terrorist events that mimic/share features of a terrorist event.

Moderator (reading audience member question): What sources can the public access for information on disaster planning.

Dietz: I suggest ready.gov (part of the Homeland Security Web site).

Carrigan: The Institute for Prevention and Home Safety Web site. Also, schools are a good way to communicate about preparation issues, especially for sharing prevention and mitigation methods. The building industry and the insurance industry are (both) getting better at dealing with catastrophic events. *

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