This article was pre-published by Long-Term Living magazine in May 2013.
by Timothy E.J. Folk, Vice President, and Christopher M. Keith, Producer

Maximizing Coverage & Limiting Financial Exposure

Lately, the natural disasters in the United States seem to be supercharged, with each storm more deadly, devastating and costly than the next. As a recent example, a two-mile-wide EF5 tornado decimated the southern suburbs of Oklahoma City on May 20, 2013, killing dozens of people and causing damages estimated at $2 billion.

Severe thunderstorms and tornados alone caused $15 billion in U.S. insured losses in 2012, following $25 billion in such losses in 2011, when the industry suffered two of the costliest tornado events in U.S. history: $7.5 billion in insured damages arising out of April 2011 twisters that struck multiple states, most notably Alabama; and $7 billion in insured damages that resulted from the May 2011 multiple-state tornado outbreak.

But tornadoes are not the only disaster preparedness target. In February 2013, Winter Storm Nemo dumped 40 inches of snow on Connecticut, leaving 700,000 customers without electricity and causing 18 deaths. And, in October 2012, Super Storm Sandy devastated the Mid-Atlantic and New England regions, killing 285 people and causing more than $75 billion in damage. Once weather anomalies of this magnitude become common, can we still call them anomalies? Shouldn’t we be better prepared?

The examples of natural disasters are endless, and what is most concerning is that many of the most devastating U.S. disasters struck unsuspecting regions where such weather is uncommon. While Mother Nature may be unpredictable, we can look at her history and know for certain that all of us are at risk for at least one type of natural disaster or another. We cannot prevent natural disasters, but we can prepare.

For long-term care (LTC) facilities, the risk is even greater because so many lives are cared for under a single roof. A single-site facility may spend several hundred thousand dollars in extra expense, expediting expense and emergency evacuating expenses. This number increases with each additional site. In addition to the actual evacuation expenses (hotels, transportation, food), a facility could potentially incur hundreds of thousands of dollars in expenses for generators, additional linens, facility protection and myriad other items, all resulting in a substantial loss of revenue for each day that business is inoperative.

An LTC organization also needs to consider the value of the “soft costs” during and after a natural disaster, in terms of distress to the staff, distractions from strategic work plans and interruptions in the claims process. Finally, organizations need to strongly consider their General and Professional Liability exposures relative to the evacuation of residents. What happens if a resident is injured or killed during an evacuation? Are you protected?

The considerations seem endless, but the most important question is: “How do I maximize insurance coverage and limit my financial exposure? And, how do I plan for evacuations and ensure that my liability policies will protect my residents—even if we must evacuate the facility?” From preparedness to recovery, the following can serve as a primer for preparedness—from critical business considerations pre-disaster to best practices post-disaster.

Below is a “primer” for your disaster preparedness, before, during and after any devastating event.

Before the Event:

1. Form a Recovery Team

The first step in preparedness is establishing a cross-functional disaster recovery team onsite that will meet at least every trimester. This team should be responsible for evacuation planning and execution, as well as the organization’s speedy recovery thereafter. First, identify a strong leader for the team and provide explicit responsibilities for that leader, similar to a job description. Leading the team will be a time-intensive role that requires commitment throughout the year—not just in the aftermath of a disaster. It will be necessary that the team leader be given time and flexibility throughout the course of the year for opportunities to continue to examine, hone and refine the disaster recovery plan. Also, be sure to clearly define how the CEO or other executives will interact with the team leader, as this can be a source of contention if not properly defined before a disaster occurs.

The best leaders will have a solid team supporting them, so choose the team members carefully. They should come from a cross-section of all levels and functions within the organization. Rather than treating the disaster recovery team as an “added responsibility,” engage team members on the basis that the team is part of their professional development and the organization’s succession planning. These are just a few examples of the many considerations in preparing for a disaster:

2. Develop an evacuation plan

The elements of a well-defined plan will address the following elements and considerations:

1. Command Center: This should be your central hub of planning, communication, decision making, adjusting as the disaster evolves, etc. Where will it be located? Who will run it?
2. Food: Who is your food vendor and do you have a back-up food vendor? What are your residents’ dietary considerations? How will you supply the vendor with patients’ dietary needs?
3. Medication: How will you safely transport and maintain medications, including oxygen, injectables and ingestibles? What medications are needed by your residents? How will their needs be communicated to a receiving facility?
4. Shelter: Do you have established arrangements with nearby receiving facilities? Are the arrangements reciprocal? Do you have pre-negotiated rates at hotels?
5. Transportation: Ambulatory Residents: Does your facility have enough vehicles to transport residents, or do you need arrangements for group transportation? Other transport considerations – ALS, BLS, and wheelchair lifts/ramps, etc.: What route will the vehicle will take from the site to the hotel? If that route is no longer available, what is Plan B?
6. Transportation: Non-Ambulatory Residents: Do you have vehicles equipped to transport non-ambulatory residents? If not, do you have relationships and established arrangements with local EMS crews? Do you have non-ambulatory residents on the second floor or higher? If so, do you plan to carry immobilized patients, or do you own chairlifts?
7. Patient Identification: What “tagging” system will you use to identify every patient? What information does your tag need? (i.e. name, medications, diet, name of evacuated facility, name of receiving facility, other medical/behavioral considerations)
8. Communication Tools: What if phone lines are down? What if cellular signals are disrupted?
9. Communication Plan: Who is responsible for writing, approving and sending notification to residents, families, and employees? How will communication be sent? Will you utilize social networks like Facebook and Twitter to communicate with families? If so, who is responsible and what information are you authorized to share?
10. Individual Patient Arrangements: The more patients you can readily return to family, the less professional liability you have during an evacuation period. Are patients’ families willing and able to pick-up and care for the resident in the event of a natural disaster? Have you documented patients’ status/preference, and do you have updated family contact information to make arrangements?
11. Labor Pool: What employees will likely be able to come to work during a regional evacuation? To make it as easy as possible for employees to work during the evacuation, will you offer employees and their families (and pets) lodging at the same hotel or other facility that houses your residents?

3. Develop a shelter-in-place plan

While having an evacuation plan is critical, there may be many situations, like a tornado, flood warning or air contamination warning, when it is best to stay inside avoid any uncertainty outside. In these situations, a Shelter-in-Place Plan is essential. This plan will have different elements than the evacuation plan. For example, determine what areas of the building will serve as “shelters” in the event of a disaster. Keep in mind that a tornado will require shelter on the ground floor or below ground, while a flood warning would require a different shelter location.

Next, develop a warning system for the facility, as well as a system that accounts for who is in the building in the instance an emergency. With regularity, test the warning system, practice the in-shelter plan, and check the stock of emergency supply kits.

4. Consider your insurance

Covered Perils: Meet with a professional broker to determine Covered Perils and assess the level of coverage for wind, storm and flood. Consider expanding policy to include some level of coverage for perils that may not be that common in your geographic region to be prepared for atypical events.

Sublimits: A sublimit is part of, rather than in addition to, the limit that would otherwise apply to the loss. In other words, it places a maximum on the amount available to pay that type of loss. For example, under a commercial property policy with a $200 million blanket limit applicable to loss from all other causes, there may be a $100,000 sublimit on coverage for loss from flood, a $500,000 sublimit on loss from earthquake, and a debris removal sublimit of 25 percent of the direct-damage loss amount. It is critical that you understand what the sublimit is for evacuation response expenses, business interruption and remediation. Also, know what event will officially trigger an evacuation—depending on your insurance policy structure, sublimits may only apply at the insured’s discretion (i.e. evacuation when safety of patients is at risk) or at the discretion of an official governing body (i.e. the state, the county or the National Weather Service).

Be aware of what your insurance policy excludes—including the breadth of those exclusions. A “flood” exclusion is much less broad than a “water” exclusion, and those differences can change your recovery costs by dramatic amounts. Consider the following:

1. Are you eligible for National Flood Insurance Program (NFIP) coverage? If so, do you have it specifically for each building?
2. Is your “extra expense limit” part of the blanket limit or part of the stand-alone limit?
3. Does your policy make you subject to proportional spending of the extra expense limit over specified time periods, or do you have access to the whole amount up front?

After the Event:

Recovery

Broker’s Response & Claims Management

An insurance broker’s response to a disaster is just as critical as preparing for the disaster. Brokers must fully understand an organization’s financial exposure in the wake of a disaster and be equipped to leverage various areas of the policies to maximize recovery. Expenses need to be appropriately “bucketed” into the various sublimits available. Were the costs related to civil authority, business interruption, evacuation expense, real/personal property damage, expediting expense or others? The most important post-disaster step is the initial reporting of the claim, because how a claim is reported is critical—it’s not what is said, but how it is said.

In the face of disaster, brokers should operate in an onsite project management capacity so that all the remediation and restoration processes of your vendors are funneled through them. The broker should work in concert with forensic accountants to help the organization limit financial exposure. By maintaining a central, onsite risk management role, the broker and the supporting claims managers can ensure that the claims strategies are executed in the best way for your organization.

SUMMARY

The trend toward more violent and destructive weather patterns unfortunately shows no signs of abating. It is more important than ever for owners and financial officers at assisted living and LTC facilities to consider consulting with a professional broker well versed in disaster planning and recovery. A professional broker can help you stress-test a disaster plan and then improve it, or can help implement a plan if one is not currently in place. Mother Nature has proven too many times that disaster can strike anywhere, anytime—the recent May 2013 devastating tornadoes in Oklahoma City are just the most recent proof. And, organizations will only be as strong and resilient as the preparation and recovery plans in place.