Natural Disasters and Risk Management - Insurance Thought Leadership



March 21, 2018

Natural Disasters and Risk Management


One of the first employer concerns has to be preventing and responding to employee injuries when a disaster occurs.

Photo Courtesy of Pixabay

For many people, their first thought about natural disasters is the devastating property damage that is extremely visible and highlighted by the media. However, the impact of natural disasters goes far beyond property damage and includes the impact to your workforce, your supply chain and the operations of your business.

During a recent Out Front Ideas webinar, we were fortunate to get the perspectives of leaders from three different segments of our industry on the impact of natural disasters on risk management. Our guests included:

  • Tom Best, deputy general counsel for Home Depot
  • Ryan Brannan, commissioner of workers’ compensation for the Texas Department of Insurance
  • John Hinz, vice president of Vericlaim

Types of Disasters

There are two basic types of natural disasters – those with warning and those without. With hurricanes and flooding, you typically have some degree of warning that allows you to initiate disaster response protocols and to prepare for the disaster. However, with events such as tornados, earthquakes and other sudden events, there is no warning and no opportunity for advance preparation to minimize the impact and maximize the response. Both types of disasters benefit from developing a disaster response plan in advance.

Workplace Injuries

One of the first employer concerns has to be preventing and responding to employee injuries when a disaster occurs. At Home Depot, they work with vendors on a daily basis to identify any potential weather that could affect their stores. When there is a potential event, they pull together their response team, led by a disaster captain. Their response team has functional members of all their critical business areas, including human resources, legal, supply chain and business operations. These teams meet every year before the start of hurricane season to make sure everyone understands their role and the disaster response protocols. They also connect with state, local and federal authorities to coordinate response efforts. Because Home Depot has a very important community role in disaster preparedness and response, they keep stores open as long as possible and reopen them as soon as possible.

From a workers’ compensation claim standpoint, there are many concerns. Employees can be injured during the disaster itself. There is also significant potential for injuries sustained by first responders and the National Guard during the response and recovery. Texas deployed 14,000 National Guard troops in response to Hurricane Harvey, and those troops are all considered employees of the state of Texas when deployed. Traumatic physical injuries are not the only concerns. There are also occupational disease concerns because of the toxic chemicals that were in the floodwaters of Houston. Furthermore, there are concerns about post-traumatic stress. Because of the occupational disease exposure, there could be a very long claims tail from this natural disaster.

Workforce Disruption

Home Depot is a major employer, but they are also an essential element in any disaster response because people depend on them for building materials and other supplies. Their command center is focused on taking care of both their employees and the community as a whole.

The Texas Workers’ Compensation Commission closed five field offices at various times in response to Hurricane Harvey. Their primary focus was the safety of their staff, but they were also concerned about being able to conduct the business of the commission.

See also: 6 Reasons We Aren’t Prepared for Disasters  

It is important to give your employees time off during a natural disaster to take care of their families and personal needs. Employers often bring in workers from other locations to assist in the affected areas so that the employees living in the area can tend to their personal needs first, then come back to work when able to do so. This allows the business to continue serving the community while also making sure that employees are settled.

Workers’ Compensation System Impact

Keeping the workers’ compensation system running during a natural disaster is important and challenging. In Texas, the governor suspended certain regulations and extended or tolled deadlines in affected areas to ensure that workers were receiving timely care and benefits and that carriers were focused on benefit delivery instead of bureaucratic issues. Social media was very useful in keeping people updated on when field offices were open and providing other important information to all stakeholders.

Healthcare Impact

One thing people do not often think about in natural disasters is the impact on the healthcare delivery system. The healthcare delivery system is disrupted in many ways:

  • Technology: With electronic medical records and a wide variety of equipment powered by electricity, a prolonged period without power can make delivery of care very challenging.
  • Continuity of care: Patients are often forced to treat at facilities outside their areas during natural disasters. Facilities need to not only be able to handle the influx of patients, but to deal with the potential HIPAA considerations.
  • Supply chain: One impact of the hurricane that hit Puerto Rico was a significant disruption to the pharmaceutical industry, which accounts for more than 70% of Puerto Rico’s exports. There was a nationwide shortage of saline IV bags after the hurricanes, for instance, because most of these were manufactured in Puerto Rico, and those factories were shut down for a time.
  • Life and death issues for patients: During Hurricane Katrina, healthcare workers and patients in New Orleans were trapped for many days without power. Providers had to make decisions around which patients to evacuate first and which patients were in such bad shape that they could not be saved.
  • Litigation costs: There is always a big spike in litigation against healthcare facilities following a natural disaster because of care disruption and other challenges.

Supply Chain

Supply chain is important to most businesses, and a natural disaster can significantly disrupt the normal supply chains. This was especially challenging on an island like Puerto Rico. Getting the supplies to the island was only the first step. Supplies sat for days in the ports because there were no dock workers to unload them and no trucks to deliver them. There are many lessons to be learned about disaster responses to islands after the events of 2017.

On the mainland, supplies can be staged out of harm’s way in advance of a hurricane so that the trucks can start rolling in once the area is safe. Additional products are purchased in advance so there are ample supplies available. Home Depot works with local, state and federal authorities to coordinate the distribution of disaster relief supplies.

Disaster Preparation

Mitigating the risks and challenges from disasters takes extensive planning and practice. Every location and each facility is different and has varying needs. But as John Hinz explained, planning for emergencies can be the difference between staying in business and losing everything. There are several essential elements that should be included in any emergency preparedness plan.

  • Focus on prevention: If there is any way to prevent a disaster from happening, that is your best defense. The first step in the process is to assess your risk and the potential impact to see how you can be more effective in disaster planning. Once you know the type of disasters for which you are most at risk, take steps to minimize potential damage to your facility and harm to your employees. Think of the actions you might need to take and what you would need in the event of a fire, flood, severe storm or other disaster.
  • Evacuation plan: Every facility should have primary and secondary routes and exits that are well-lit, marked and easily accessible. There should be an outside area designated as a meeting place for employees to gather once they are out of the building. Staff members that may require assistance during an evacuation due to physical limitations should be noted in the plan.
  • Communication: In addition to emergency contact information for local police, fire and ambulance numbers, you should have a contact list that also includes information for your customers, suppliers and distributors. This list should be updated continually, and copies kept both in your files and in offsite locations so you will be able to access them regardless of the situation. You may want to preset conference call numbers in case that is needed. Be sure you have a way to contact key players in and outside the organization.
  • Protect vital company information and critical data and programs that are imperative to keep your operation running. Make sure these things are backed up and that the backup is kept in a location separate from the primary facility.
  • Understand your insurance coverage: Review your insurance policies with your agent or broker so you know your deductibles and how they are applied to your coverages. You should know the limits and nature of your insurance, including coverage specifics. You may want to make changes to some policies, as all coverages are subject to limits and exclusions.
  • Keep insurance information handy: The names and numbers of your insurance representatives should be kept in a safe, accessible place, as this will expedite the claims process when the time comes.
  • Plan for contingencies: Despite your best efforts, your preparation may not be enough. Have an offsite location or allow personnel to work from home, if necessary, to keep the business running.

See also: Cognitive Biases and Risk Management  

Final Thoughts

There is no foolproof plan that will protect your organization from every disastrous situation, but you can be well prepared for most emergencies. If your company does not yet have such a plan, you can work with carriers or agents and brokers to begin the process. There are also a number of consultants that specialize in this area.

After developing a disaster preparedness plan, you need to continually review and update it to make sure that it is current and that everyone understands his or her role if there is a disaster.

You can listen to the archived Out Front Ideas with Kimberly and Mark webinar on this topic here.


About the Author

Mark Walls is the vice president, communications and strategic analysis, at Safety National. Mark is also the founder of the Work Comp Analysis Group on LinkedIn, which is the largest discussion community dedicated to workers’ compensation issues.

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About the Author

Kimberly George is a senior vice president, senior healthcare adviser at Sedgwick. She will explore and work to improve Sedgwick’s understanding of how healthcare reform affects its business models and product and service offerings.

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