Continuity planning - Avoiding disaster

Snowstorms and freezing conditions in early February brought much of the country's transport systems to a halt and, as a result, 20% of the UK working population struggled to make it into work.

The Federation of Small Businesses estimated that the adverse weather cost businesses over £1.2bn. The knock-on transport problems served to highlight the need for a good business continuity plan.

Brokers are particularly vulnerable: clients expect them to be contactable at any time and the chance is that, especially where the client is local to the broker, it may be looking to put in major claims at the same time as the broker is experiencing similar issues from the same cause of disruptions.

In 2007, the heavy rain that caused the River Don in Sheffield to burst its banks left Walker Midgley Insurance Brokers - a member of Broker Network - with a metalworks client facing a claim likely to run into millions of pounds while the broker was also dealing with the flooding itself.

The British Standards Institute claimed that a business without a continuity plan has a low chance of survival should a disaster hit and may leave partners, directors and business owners personally liable.

The Home Office estimates that 80% of businesses without a business continuity plan close within 18 months of a major incident.

Imperative

"From the perspective of any business, a disaster recovery plan is vital. Without one, companies are leaving themselves open to chance. Many people think that managers' reactions in a crisis should be common sense but many people panic when faced with a disaster," said Tony Gimple, managing director of Lewes-based risk management firm Crisis Survivor.

It is not just the obvious disasters such as fire, flood and pestilence that managers need to think about - more prosaic problems such as disruption to the travel network or a large client's collapse are just as important. "Businesses need to make sure that managers think about how they would react to any crisis, especially how they would contact the stakeholders of the business and handle press," said Gimple.

Information technology has changed the way we work - especially when communicating with clients - and persistent problems with IT could affect client retention easily. Files and other data are often stored locally, though it may need to be accessed remotely when a firm is under pressure of extreme disruption.

Graeme Newman, business development director at CFC Underwriting, believes that many businesses are not planning for IT problems. He said: "People are generally good at covering traditional continuity such as fire and flood, though fewer people think about the possible effects of IT interruption. They forget how important IT is to their businesses: there will be an equivalent of pandemic flu with attacks on IT in the future and good businesses will have plans in place for this kind of disaster."

Requirement

The FSA obliges firms that it regulates to have continuity plans in place, particularly in handling customer data.

Though a company may have its disaster recovery plan in place, it may not put in the effort to test it regularly and this is a potentially grave error. There is no point in having a plan if you are not sure it will work when you need it. Even the best thought out plans may fail when put into practice: small details, such as the absence of a key member of the team, can be missed easily.

"Business continuity should be run just like health and safety; it is a lot to do with culture and communications. Test your plans and then repeat at intervals until you see what is sinking in. People need to be aware that it is part of their jobs," warned Alex Hindson, head of enterprise risk management at Aon.

Insurers are prepared to reward firms that are prepared for disaster, with premium discounts of up to 20% achievable for clients that can demonstrate the existence of a tried and tested plan. Because business continuity cover is bought to cover an indemnity period, clients can also save money: where a business can recover from a disaster within two months then there is no need to buy 24 months of cover.

Newman highlighted that these plans are expected by some insurers: "Clients without a good continuity plan can often not get the right insurance. People always expect a discount for having good plans in place but in many cases continuity plans are expected."

Brokers that talk about recovery plans with clients may find them more willing to spend to ensure comprehensive cover. Gimple believed that all brokers should discuss business continuity with their commercial clients: "By talking through business continuity plans with their brokers, businesses can become more aware of the exposures that they are facing. This makes it easier to sell offerings such as credit insurance and directors' and officers' cover. The ability to help clients through (the process of) designing a business continuity plan puts the broker in a position of knowledge, which can help differentiate the broker from competitors that rely on price."

QUESTIONS FOR BUSINESSES

If an untimely crisis prevented delivery to a key client, would it give you a second chance?

If your premises or equipment suffer serious damage:

- How long would your ability to operate be affected for?

- How easy would it be to contact clients to let them know about the situation?

- How would this affect your reputation?

How would your business survive a serious flood?

- Would electrical circuits and computer systems be affected?

- How long would it take to recover?

- How would you keep clients happy?

- How would you pay your employees in the interim?

A major incident will affect staff morale:

- Would they stand by you or look for greater security elsewhere?

- What impact would departures have on your business?

If your computer or telephone systems went down now:

- Would you be able to contact your clients?

- What could you do to make certain that you have access to vital data, even if your computer system is destroyed?

Source: Crisis Survivor.