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The photos and videos of southern Alberta, ravaged by devastating floods, remind us of how fragile our lives, homes and cities can be in the face of natural disasters.

For days, 350,000 commuters who regularly travel into Calgary were told to stay home. Some workplaces were still inaccessible days after the flood, and as of the date of writing, there continue to be buildings in southern Alberta without power.

If you're a small business owner, what do you do when an emergency of this magnitude damages your place of business, bars employees from getting to work and prevents customers from buying your goods or services?

Most small business owners affected by the flood will call their insurers to assess their coverage and try to make a claim, if possible. And depending on their policy, they may weather the storm. But those without adequate coverage might not be so lucky, particular those unable to obtain insurance for "groundwater flooding"

The Calgary flood should serve as a wake-up call. Now is a good time for small business owners to review their insurance requirements to see if they are covered in the event of a natural disaster like a flood or an earthquake, what the extent of that coverage is, and whether the coverage is enough to keep the business operating after the emergency is over.

But they should be doing more than simply revisiting their insurance. They should be developing a 'business continuity plan' that deals with their insurers as well as their key employees, their landlord, their IT personnel, their bank, their key suppliers and others who they'll need to count on when the business is temporarily closed, and to help them repair or rebuild when the emergency is over.

Indeed, one question to ask yourself might be: "If there's a flood like there was in Calgary, will my business be protected?" Another one is this: "If I am out of business for a period of time, what will I still have to pay to enable me to open up after the emergency is over, and will my insurance cover it?"

Even during an emergency, business owners will still have to pay for rent, taxes, and the salaries of key employees that are indispensable to the business, presuming non-key employees have been laid off temporarily while the business is closed. And of course, just because your business might be able to open up a couple of weeks after the emergency is over, it might be that your key supplier of widgets needed to manufacture your products is closed for an extended period of time, forcing you to source out to other (more expensive) suppliers. Many manufacturers in North America discovered this after the Tsunami in Japan, when Japanese manufacturers were unable to manufacture components used in the production of other products in North America and Europe.

Brad Shantz is with Shaw Sabey and Associates of Vancouver and specializes in business insurance. He says that all businesses, large and small, should assess their insurance requirements regularly, rather than after a natural disaster. The Calgary flood will likely put the issue of insurance and disaster recovery in the forefront of people's minds.

Mr. Shantz also recommends that all businesses regularly engage in business continuity planning and says that business owners should ask themselves the following questions:

  • It’s great that your data is backed up, but how do you get to it?
  • Where do you or your employees access it from?
  • Is your data still secure if it’s being accessed remotely by your employees using a Starbucks Wi-Fi?
  • Can you or your employees actually use the data without access to a physical file?
  • If you have to replace key manufacturing equipment destroyed in the flood (or earthquake), do you have enough insurance to buy replacement equipment, or are you under-insured for replacement value?
  • Can all of your employees contact management and other employees from home? this is called the ‘call tree’ which as the name implies, needs to be kept up to date with protocols, contact details and escalation / referral rules).
  • Do you have business interruption insurance that will compensate you for the time you’re out of business?
  • Do you have contingent business interruption insurance to deal with dislocation of the supply chain and your inability to buy the key components you need to manufacture your products because your exclusive supplier or manufacturer of the key component got hit harder than you did?

Places like Calgary and Winnipeg may be more susceptible to floods than Vancouver. But as we all know, Vancouver has its own issue, and that's the possibility of an earthquake hitting sometime between tomorrow and 500 years from tomorrow.

The risk management models used to predict earthquakes and their devastating effects on cities have changed as a result of recent disasters in Japan and New Zealand. These new risk models predict that any major earthquake to hit the Vancouver area may be far worse than originally anticipated. This has also affected the reserves that the Federal Government requires insurance companies to maintain (and to have available to pay out claims) in the event of an earthquake. Consequently, these new risk models have also affected the cost of earthquake insurance in terms of premiums and deductible amounts. Some insurance companies have chosen to simply get out of the earthquake insurance business. The availability and affordability of earthquake insurance in light of these new risk models is becoming a major public policy issue in the insurance industry and for government policy makers.

Insurance is an important piece of the puzzle in any discussion of business continuity planning, but it's not the only piece. In order to protect yourself and your business from the aftermath of future emergencies, and to help you open for business when the emergency is over with a minimum of disruption, a comprehensive business continuity plan should be developed now that involves your insurer, your key personnel, your suppliers, your IT providers, your banker, your landlord and others who you need on your side to help you open up again.

Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.

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