Retail Resilience: Getting Back to Business After a Natural Disaster

As retailers and other businesses bounce back from closures due to severe flooding, including physical damage, power outages, acts of civil authority and ingress/egress – their first step in any disaster recovery should address their most valuable assets – employees. Once safety needs are met, retailers can turn to economic recovery, which includes the complex process of filing property and business interruption insurance claims.

Tropical Storms Irene and Lee inundated some retailers with flood damage while many others suffered lost income as a result of flooding in the vicinity of store locations. Business operations can be disrupted by extensive power outages, acts of civil authority, lack of access to the property as well as, physical disruption to suppliers and customers. For instance, during Hurricane Irene, New York City shut down its public transportation system and enacted a mandatory evacuation order for low-lying regions, leaving entire neighborhoods deserted and often inaccessible. Businesses in these areas of the city may be eligible to claim business interruption losses if their policies contain civil authority provisions because of the forced closures of the areas around their property.

When beginning economic recovery, retailers and other businesses should consider the following seven steps to get operations back to normal:
  1. Implement mitigation strategies and other relevant actions as outlined in your disaster recovery plan
  2. Assess property damage (inventory, structural, etc.) and protect and preserve property as required in your insurance policy
  3. Review all relevant insurance policies and determine coverage for the occurrence
  4. Modify accounting systems and train personnel to account for insurable losses
  5. Obtain insurance advances to fund mitigation and recovery efforts
  6. Submit insurance claims and proofs of loss
  7. Negotiate insurance claim settlements
Retailers’ size and reach can also impact their likelihood of indemnification. Big box retailers often face difficulties during the business interruption claims process due to insurers’ assertion that revenue was partially mitigated through alternative locations and web-based sales – the exception to this is if a nearby competitor was not damaged or damaged to a lesser extent. Middle market retailers, on the other hand, often sell a lower percentage of goods online and typically do not have a chain of stores able to make up for losses at one particular location.

Ultimately, even the most prepared retailers face challenges throughout the claims process.  The best advice is to understand your rights and duties under your insurance policy and to set reasonable expectations that are consistent with that policy.