Plan to Survive a Business Interruption

Risk Management

by Edward A. Schirick, C.P.C.U., C.I.C., C.R.M.

When we think about risk management planning, the focus is often on people, safety plans, and emergency action plans. One aspect of risk management that needs more attention is how to manage and survive an interruption of your camp's business.

Experts in the insurance industry report that most businesses suffering a major property damage loss fail to resume business. These failures are attributable not to a lack of insurance but from failure to plan for the consequences of the business interruption. What is the lesson here? Surviving a business interruption requires buying insurance for sure, but more than that it requires anticipation and advance planning.

Planning for an Interruption

The first step in developing a business interruption survival plan is to assemble a team. Team members will surely include ownership, perhaps a key board member or two, the director, other key permanent staff, your insurance broker, your accountant and perhaps an architect.

The next task is identifying the risks that might cause an interruption of your camp programs. Ask the team to identify the situations that would cause widespread, catastrophic damage to your facilities. Examples of such risks might include flood, earthquake, tornado, and forest fire.

Consider other risks as well. Identify your key buildings or groups of buildings. Would you be forced to interrupt or suspend if they were damaged or destroyed? What are the specific risks to these buildings? For example, the risk of fire in the dining hall is greater because of the use of stoves, ovens, grills, electrical appliances, and refrigeration equipment in the kitchen.

Identify other risks that don't involve damage to your facilities. Examples of these risks include food contamination, water contamination, or the outbreak of a communicable disease. The consequences of these situations can include parents not sending or withdrawing their children or an order of closure from the health department to reduce the public health risk.

Another risk of interruption may develop when there is damage to an adjacent property that forces closure of roads leading to your property. A variation on this is a situation where an event at adjacent premises threatens your property requiring an evacuation of your premises. Many businesses south of the World Trade Center endured suspensions of their businesses or failed following the September 11, 2001, attacks, even though their buildings and property were not physically damaged in the attack.

Develop Worst-Case Scenarios

What would you have to do to stay in business? Consider some worst-case scenarios. A "what happens if" this happens or that happens approach will help you consider the possibilities.

The primary purpose of a "what if" scenario is to anticipate the problems and identify the resources needed to overcome the obstacles in each situation. For example, let's assume a temporary suspension of operations — you are unable to open camp on time because a fire destroys your dining hall one week before opening day. With the cooperation of the health department, you could bring in a portable, temporary kitchen, and put up a tent to feed everyone in two shifts; you lose two weeks while the debris is cleaned up, and the site secured.

Ask, "What are the obstacles to staying in business?" Communication is one issue. Minimizing loss of confidence over safety is another — this is a public relations issue. Will some parents decide not to send their children? Will you offer refunds or credits toward another session? What will you do if some parents insist on getting their money back? Will you pay your staff during this temporary suspension of business?

What financial resources will be at your disposal? Besides your camp's financial resources (cash, line of credit, etc.) insurance will play a key role in providing financial resources. Will your property insurance provide replacement cost benefits? To what extent will your business income and extra expense insurance cover the costs you incurred to save part of the summer? How did you establish your limit of insurance? Did you use a business income worksheet, or just pick a number? Did you suffer a loss of "net income" from this temporary suspension of camp? You may not know immediately. Find out how your insurance company defines "net income." You might be surprised to learn their definition is different than the one your accountant uses.

Other Considerations

Has your insurance policy been extended to pick up additional costs associated with changes in building codes? Will you be allowed to rebuild in the same building foot print, or will you be required to relocate? Does the current building code allow for the same occupancy (i.e., sleeping quarters in the dining hall), or will you be required to build two buildings? Will the local planning board require architect's plans? Can you find a contractor with the resources to begin construction immediately after camp is over in August?

Another Scenario

Develop another scenario involving a forced closure of camp. Let's assume camp has an outbreak of norovirus at the beginning of week four, which spreads rapidly infecting 40 percent of the camp population overwhelming your medical resources.

The health department is called in to help identify the source and decontaminate. After a couple of days with no resolution and more campers and staff getting sick, the health department orders you to close. The financial implications of this scenario are much greater than our previous example, because the standard business income insurance most camps buy does not cover losses caused by food contamination and communicable disease.

What happens now? Do you have enough financial resources to refund 50 percent of this year's tuition, pay your staff, and stay current on your continuing operating expenses until next season?

Even if you can buy some business income insurance, which includes food contamination and communicable disease as a cause of loss, the protection is limited. It is unlikely any operating loss suffered in this scenario would be covered entirely by business interruption insurance. How will you handle this situation?

What's the Point?

It is imperative that you take the time to think through the obstacles associated with an interruption of your camp business and develop a comprehensive plan to overcome them and stay in business. Don't make the mistake of sitting back and relying upon your insurance. As we have already discussed, some risks may not be entirely covered, while other risks (e.g., flood, earthquake, and mold) may not be covered at all. Insurance is a key factor in your survival plan, but it is not a panacea. Don't make the mistake of assuming you're covered!

A Plan of Action

There is no "one size fits all" solution to risk management planning. Each camp owner or director must go through the process. Schedule a thorough review of your camp's plan to survive a business interruption. Put it at the top of your "to do list" this spring. If your current risk management plan doesn't include a business interruption survival plan, make a commitment to putting one in place before camp opens this summer.

Business interruption is a complicated topic, too much for one person to plan for alone. Assemble your team. Focus on risk identification and risk control. Concentrate on minimizing risks on the premises generally (e.g., maintain dams, ask neighbors to do the same; keep brush away from buildings; install roofing to resist high winds) and in key buildings (e.g., install the latest chemical extinguishing system in the hoods, ducts, and over all cooking surfaces in the kitchen; have electrical wiring checked by a licensed electrician; and repair and upgrade service to reduce the risk of electrical fires).

Consult with your insurance broker once you've established your survival plan. Complete a business income worksheet to establish your specific limit of insurance for business income. Ask him/her to review the various business income insurance options with you so you can tailor your insurance to your survival plan. Find out how, and under what circumstances, your business interruption insurance will respond.

Identify any gaps (risks that might not be covered by your insurance program) and apply the risk management process to those situations as well. Review the plan annually. Update it as necessary. This may seem like an overwhelming process, but believe me if you can organize and execute a plan, it will be worth your time and effort!

Edward A. Schirick, C.P.C.U., C.I.C., C.R.M., is president of Schirick and Associates Insurance Brokers in Rock Hill, New York, where he specializes in providing risk management advice and in arranging insurance coverage for camps. Schirick is a chartered property casualty underwriter and a certified insurance counselor. He can be reached at 845-794-3113.

Originally published in the 2009 March/April issue of Camping Magazine.