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Wildfire risk calls for an effective business continuity plan

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As with any other catastrophe exposure, wildfire risk calls for contingency planning — but they can disrupt a company's business even when there is no physical damage to property.

Because the fires tend to cover large areas — tens or hundreds of thousands of acres — they can lead to large-scale evacuations and make travel difficult or impossible.

The 2007 Witch Creek fire in San Diego County, which burned nearly 200,000 acres and was one of the most destructive in California history, led to the evacuation of 800,000 people, said Paul Hering, CEO of Barney & Barney, a unit of Marsh & McLennan Agency L.L.C. in San Diego.

“That affected our businesses in a big way,” he said, closing companies in evacuation zones and putting employees out of touch with their workplaces. One client, Mr. Hering said, had to shut down for 48 hours because of the evacuations, and the 48-hour deductible in its business interruption policy meant it had no coverage for the losses.

Businesses should map out what they will do in case of a wildfire, including how they will stay in contact with evacuated employees and whether they can work remotely. Tabletop exercises in which senior management participates in responding to a hypothetical wildfire are a valuable planning tool, said Craig Garlock, a senior consultant with Aon Global Risk Consulting in Los Angeles. They help executives think through what would be required to keep employees safe and the business going, he said.

If a company's property is actually damaged or destroyed in a fire, it helps to have pre-established contacts with contractors and suppliers for rebuilding and with a real estate broker to find alternative space if needed, Mr. Hering said.

Companies may also line up risk assessment and claims help in advance, contracting for services, such as Aon Rapid Response, that provide loss mitigation advice and help in quantifying and preparing property and business interruption claims, said Peter Jagger, managing director with Aon Global Risk in Dallas.

“Having an effective business continuity plan is something we try to discuss with all of our clients,” Mr. Hering said.

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