Ahead of the hurricane season and after suffering the negative impact of COVID-19 on the commercial sector, it is necessary for small and medium-sized enterprises (SMEs) to check their insurance policies and establish emergency containment and business continuity plans.
That was the consensus of several experts before the enrollment of the Chapter of Graduates of the Faculty of Business Administration (AFAE) of the University of Puerto Rico in Río Piedras (UPR-RP) on the challenges and risks that businesses face and the insurance industry.
Víctor Soto, an expert in business continuity and also president of Continuum Consultants, indicated that between 40 percent to 60 percent of small companies on the island are vulnerable to not being able to recover after an emergency if they do not establish a continuity plan and that, after a disaster, 90 percent could take more than 10 days "to at least be able to show signs of life."
He also explained that being prepared with a continuity plan allows entrepreneurs to accelerate recovery or start operations after the emergency without having to wait for the insurance to pay the claim.
"The business continuity plan should have two approaches: recovery and prevention. Recovery should include strategies to recover from failures regardless of the emergency. The preventive approach must analyze how vulnerable the company is to risks," Soto explained.
The consultant said that the strategies of the plan should be aimed at recovery and consider the impact that the situation may have on the assets of the company. “We have six general assets in any business that must be included in the plan. These are operation, physical facility, human resources, data or information system, inventory and equipment or machinery," he stated.
For his part, Aníbal Ortiz, AIG catastrophic claims coordinator, indicated that the insurance industry is well capitalized to respond to future emergencies or atmospheric events. However, he argued that given the increase in climate change, it is necessary "for policyholders to be careful not to underestimate events" and prepare beyond their policy.
“As disasters and emerging risks increase, the insurance industry is constantly being tested on its responsiveness. So it has shifted from a reactive approach to being more proactive. Hurricane Maria accounted for some 294,000 claims and 7.4 billion in paid claims. We are prepared to handle future challenges," Ortiz said.
Meanwhile, Eduardo Criado —CEO of AON Puerto Rico, the Caribbean, and Venezuela— discussed the importance of having a business interruption cover that complements the business continuity plan. He maintained that after Maria's onslaught, they registered over 4,730 claims for interruption that represented about $516 million paid.
"This policy is very important. This promptly addresses the economic value of the risks. It has two components: the economic protection of the company's income that is affected due to a covered cause and the additional expenses incurred by the business to reestablish operations... All the expenses that arise from the stoppage of operations are taken care of," he affirmed.
However, Alexander Adams, Assistant Commissioner for Legal Affairs of the Office of the Insurance Commissioner (OCS), said that after Hurricane Maria, the OSC reinforced the monitoring of the financial solvency of catastrophic risk insurers to prevent future insolvency cases or lack of liquidity that prevents the company from being able to fulfill its responsibilities with the insured.
"Natural disasters are the main threat to the solvency of insurers due to the significant, rapid, exponential and unexpected impact they can cause… Insurers are required to submit an annual report to the OCS on their solvency. Maria's ravages served to reinforce monitoring," Adams stated.