With all the time you spend running your business, emergency preparedness and insurance may seem like afterthoughts. However, one powerful storm or fire could literally wash or burn all of your hard work away.
Preparation for natural disasters is an important piece of good financial planning. While it does require a concerted effort, it may not be as difficult or complicated as you think. Being prepared involves a mix of sensible precautions, good record-keeping and a carefully chosen insurance plan.
Sean Brownyard, executive program manager of Salon and Spa Specialty Insurance, notes that thorough paperwork and inventory–though considered the least exciting elements of running a business–can provide the shortest trail back from “business interruption,” the period of time it takes to recoup and reopen after a natural disaster or unforeseen weather event.
“You should keep consistent, regularly updated lists of your retail inventory at all times,” Brownyard says. “Furthermore, your employees should know where you keep a copy of your business’s insurance policy, as well as current lists for all of your stock.” In fact, Brownyard advises having multiple copies of your insurance policy for yourself and trusted higher-level employees. He also recommends keeping a phone list on hand for important communication when there is an interruption in your business.
Don’t forget to keep a visual record too. “You should take photos of your store, from the inventory in the front of the house and stockrooms to the displays and furnishings, so they are ready for the insurance company,” he says.
Of course, to have copies of an insurance policy, you need to obtain one first. Here are tips from the experts on securing the best policy or policies for your business.
“It’s important to be proactive and choose a solid insurance company that specializes in your type of business,” says Jenny Bortman, vice president of Universal Insurance Programs (a partner of the Professional Beauty Association). “Claims are never easy, but the insurance company’s duty is to pay for the covered cause of loss. There is a misconception that insurance companies look for ways not to pay, but they look at the policy to see where and how they can pay.”
Brownyard and Bortman both stress the importance of reading the fine print when selecting an appropriate general insurance policy as well as additional policies covering damage from floods, hurricanes, tornadoes and earthquakes. Brownyard advises businesses on the East Coast to be aware of the two different types of flood insurance they will need: the protection built into most renters’ policies covering damages from pipe, plumbing, sprinkler and water main malfunctions and policies requiring an additional purchase from the National Flood Insurance Program to cover flood damages brought by storms and hurricanes.
“You should keep consistent, regularly updated lists of your retail inventory.”
—Sean Brownyard, executive program manager, Salon and Spa Specialty Insurance
“Some policies may only cover a percentage of what profits the shop may have made,” Brownyard says. Also, be sure to look closely at the fine print about the insurer’s definition of “business interruption,” as well as what and how much they’ll cover. He adds, “Even if the landlord has flood insurance, you need to also make sure that you have flood insurance concentrated on your inventory and assets.”
It is important for businesses in hurricane-prone areas to pay close attention to how different policies with hurricane deductibles work. For example, the deductible will often be 3 to 5 percent, not of the loss itself, but of the total value of the contents of your business. “This means that if you have $200,000 in contents, but you only lost $10,000 worth, you will actually be liable for the whole loss, as that $10,000 is still less than 5 percent of the total contents you have on inventory,” Brownyard explains. “Read everything closely and be careful of what you sign off on.”
Bortman, meanwhile, cites wind and hail deductible buy-back programs, which are becoming increasingly popular. This extra policy reduces deductibles for losses from wind and hail to as low as 1 percent in some areas prone to such natural disasters. So if a salon in Florida has a $500,000 business personal property limit with a 5 percent deductible and suffers a total loss from wind or hail, its buy-back insurance lowers the deductible from $25,000 to $5,000.
The risk of natural disasters makes insurance rates vary drastically by state. Bortman says, “For example, an insurance premium for a business in Minnesota is likely to be way less than for an identical business in Florida, which is vulnerable to hurricanes and natural disaster-influenced flooding. After a natural disaster strikes, the premium increases don’t happen overnight. What usually happens is the insurance company limits the ability to write in certain areas. We call this a change in ‘appetite.’ Each insurance company has different risk thresholds.”
Bortman encourages business owners to look at weather-related insurance coverage as part of the bigger picture. You also have to factor in professional liability (accidents or negligent acts that arise while performing a service on clients); worker’s compensation; and general liability (including bodily injury and property damage, or which most salons have at least $1 million in coverage as required by landlords). Even as things seem to add up to form a cocoon of protection from the unknown, she recommends that salons and beauty businesses be extra vigilant about finding and filling any coverage gaps that may not be so obvious on the surface.
Make sure your limits are sufficient, Bortman says. “Total losses do occur, so when insuring your business, make sure you are including full replacement limits. If your salon burned down, either because of an earthquake or a building code violation, and you have to rebuild, you need to consider how much money you would need to rebuild your salon from scratch–including flooring, walls, equipment, furniture, retail, HVAC units and the list goes on. Worrisome gaps we see in regards to property include insufficient limits and wind and hail exclusions, which means there is no coverage if a wind- or hailstorm caused the damage.”
For beauty businesses in rental properties, it may be challenging to make demands on landlords. However, you can at least be sure the landlord’s property is up to the city or region’s current building codes and insist on seeing the building code certificate as proof. The best time to discuss safety issues with a landlord is while negotiating or renegotiating a lease. If reading a lease isn’t your area of expertise, consult a lawyer to review it with you. After signing a lease, get a specialized insurance agent to make sure you have the appropriate coverage for your needs. And of course, you can still insure the contents of your store.
AFTER DISASTER STRIKES
Once you know your staff is safe, the first order of business is to submit your claim. The insurance company responds by sending a business owner a “proof of loss” form to fill out. This is where inventory lists, photos and other daily records from before the weather event will help you compute exactly what was lost and reassure your agent you were prepared.
“Do not remove any objects or clean up the site of your business, damaged or otherwise, until an adjuster has come in to assess the overall damage to the shop,” Brownyard warns. “Many clients do not realize this until it’s too late and the inspection results in a lower payout.” If you need help, turn to a trusted agent or broker to ensure that the assessment is done correctly.
To prevent more extensive damage triggered by a storm or earthquake, he suggests that the owner and at least some employees memorize where gas and fuse-box switches are so that the gas and electric can immediately be shut down in advanced immediately following the event. “Don’t assume the landlord’s got this, as he or she may not be in the building when a disaster strikes,” he cautions.
In the case of zones vulnerable to catastrophic wildfires (such as the recent Camp Fire in Northern California), it’s always wise to have go-bags and fireproof safes for important papers and valuables. However, according to guidelines established by the State of California, having a game plan in place for the aftermath is equally important. For example, if wildfires damage your property, you may be eligible for property tax relief. The state’s website, business.ca.gov, provides guidelines for tax breaks and claims based on the extent of damage to the building. The more you prepare prior to a natural disaster or emergency, the better your chances are of getting your store up and running again with less downtime.
Maricha Ellis, vice president of marketing and sales operations for Stericycle Environmental Solutions, which assists companies in the consolidation and removal of hazardous chemicals and materials, states that beauty stores, salons and spas should not forget that various products used in day-to-day business can become hazardous waste in the aftermath of a storm, earthquake or other disaster. These can include hairsprays, some hair dyes, bathroom cleaners, light bulbs and batteries. “A common misconception is that if a product is labeled as ‘nonhazardous,’ then it can just be disposed of in the trash,” she says. “Prior to a disaster striking, it’s a good idea to have a program in place for managing waste. If a disaster is on its way, beauty stores and salons should remove hazardous waste, when possible, from their locations. ... Solids and powders should be covered in plastic and secured properly, and the correct lids should be firmly fastened on containers. Containment areas should be set up and properly cleaned. Known waste areas should also be cleared out in advance of a natural disaster.”
To mitigate the stress of a potential emergency-response cleanup, Ellis says beauty businesses should find an experienced third-party emergency response partner. A knowledgeable waste management partner, meanwhile, will help businesses to reopen affected locations as quickly as possible. “It also helps to follow partner recommendations to move and secure hazardous materials before the storm arrives to alleviate any emergency-response expenses. Also, it is good to determine what may be salvageable, as not all damaged products need disposing of, such as certain shampoos and conditioners, and they might be able to be sent to a facility where they can be donated to an organization in need,” Ellis says.
From paperwork to insurance coverage to your environmental impact after a disaster, advanced preparation will boost your chances of getting safely through the crisis and back to business as usual.