Promoting disaster recovery

The figures are alarming and show that, while many have no plans at all, it is likely that a high percentage of firms would not recover from a major incident. With an increasing array of disaster recovery tools available - and as insurers and brokers look to increase their share of the SME market - the question is, could insurance professionals benefit by offering disaster recovery advice as part of an added value service?

Disaster recovery planning is not a new concept and the insurance profession has been offering assistance for some time. There is now, though, increasing consensus that the all-encompassing, generic approach is no longer sufficient. Steve Foulsham, technical services manager at the British Insurance Brokers' Association, asserts: "A template or an aide memoir has a place but that should just be viewed as the start of the conversation." He believes that brokers should talk to their clients about effective planning: "It makes good business sense for brokers to ensure that this is part of the conversation they have with their clients."

Rod Ratsma, who heads the UK business continuity team for Marsh, views this as a fundamental part of the broker's service proposition: "We understand risk and part of this is how to recover when something goes wrong."

For the best

Yet with increased competition from brokers and insurers, some doubt how far it can be viewed as a differentiator. Sean Bell, senior client risk manager at QBE, observes: "Everybody does it. We couldn't claim that, by doing this, we would be unique or that it's a unique selling point. We like to believe that we were adding some value and that it would be a barrier to customers leaving."

Tony Gimple, managing director at Crisis Survivor, remarks: "Rather than thinking about differentiation as such, they should do it because it's the best thing to do for their clients." Foulsham points out that this can only benefit brokers in terms of competing with rivals, particularly in the context of intensifying competition from direct writers looking to attract SME business.

Disaster recovery is relevant to all sizes of business. As Joe Brown, specialty commercial product manager at Hiscox UK, observes: "Disaster recovery planning is beneficial for all companies, large and small. As well as size, it is the nature of the business that determines how complex a disaster recovery plan needs to be. A company with a large, high-tech information technology production line will have very different requirements from an accountant's or solicitor's office."

Mitchell Feldman, sales and marketing director at Internet Group, explains: "Disaster recovery is often deemed more relevant to companies with time-sensitive, mission-critical or service-based offerings, though it should be considered by companies of all sizes if they wish to remain standing in the event of a disaster."

Lyndon Bird, the Business Continuity Institute's international and technical director, observes that business continuity management planning is a statutory requirement among parts of the public sector, as well as a regulatory requirement in some other sectors such as financial services. Bird adds: "BCM is relevant to all organisations that have customers, suppliers, staff, IT and telecoms, sites and facilities, external financial needs and reputations to manage."

Those keen to add value by providing disaster recovery advice continue to face resistance from small businesses, where awareness has historically been low. Paul Jackson, director at First Recovery, emphasises: "The UK disaster recovery industry is characterised by very large companies providing service to other very large companies."

Independent research commissioned by Biba has revealed that 45% of businesses have only rough plans, or no plans, to deal with the effects of flood or storm damage. The industry body confirms this statistic in the context of £3bn of flood claims arising from 2007 and 80% of businesses being affected by a major incident ceasing trading within 18 months.

The research has also revealed that the number of small businesses claiming that it would take more than six months for their businesses to recover has nearly trebled.

The Business Continuity Institute says that it is active in engaging with organisations representing small businesses in the UK to promote awareness of the benefits of good business continuity planning. Bird describes that the feedback from small businesses shows that business continuity planning is important but not a priority, especially during a recession., especially during a recession. "However, the outbreak of swine flu in 2009 did make many small businesses think about the issue more closely. The UK government has already introduced an obligation on local authorities in the UK to provide advice and assistance to local businesses around business continuity planning (The Civil Contingencies Act (2004)). This advice is delivered directly or through existing networks such as Chambers of Commerce," explains Mr Bird.

The storms and floods of recent years have also served to raise the profile of disaster recovery - but it is important to note that headline-grabbing events do not represent the main risks to businesses. According to Phil Jones, chief technology officer of Shoden Data systems UK: "Recent earthquakes and terrorist activities grab the headlines but, fortunately, few disasters are quite so extreme or devastating. Bad weather and industrial action are also highly visible in the press and media. Fire is still the most common disaster, particularly in information technology terms."

In fact, one of the common misconceptions is that disasters can be only big incidents. According to Crisis Survivor: "Industrial plants do explode but more insidious threats exist, such as the workman who drills through a power main, or the water tank that overflows during a weekend. These can interrupt businesses for a week or more."

The main barriers to increased uptake among SMEs remain not just a lack of awareness but also a fear of the potential investment required, both in financial and human resources terms. Jones observes: "The cost of implementation, the additional complexity added to an organisation by adopting good disaster recovery practices and business recovery planning, as well as the time taken by key staff to develop these procedures: all are often cited as reasons not to implement disaster recovery."

Reassurance

Insurance professionals looking to promote disaster recovery planning need to take these concerns into account. In fact, there is much they can do to reassure SMEs regarding potential costs. Brown points out: "While many larger organisations have a large budget to spend on disaster recovery planning - for example, maintaining hotsites - there are also many low-cost steps that businesses can take to ensure they get back on their feet as quickly as possible. A business continuity plan, highlighting basic things such as alternative or remote working arrangements, can really make all the difference."

Despite the many barriers, the message is that brokers should persist in promoting effective disaster recovery planning - particularly to SMEs. Jackson emphasises: "There is a duty of care for brokers to talk to their customers about risk management in general and their disaster preparedness."

Ratsma adds that it can bring a financial benefit for premiums as well: "More and more, it's a question of insurers not covering you unless you can demonstrate that you can recover from an incident, particularly in business interruption. I've come across premium reductions [for effective disaster recovery planning] but I've also come across withdrawal of cover."

Jackson identifies significant benefits for insurers where disaster recovery plans are in place. He observes that, in addition to mitigating risks and reducing the business interruption elements of a claim, it encourages customer retention. While businesses need to take disaster recovery seriously, it can be equally important for brokers to incorporate it into their service offerings.