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Sandy, Irene prompt Northeastern businesses to renew focus on resiliency

Businesses face up to risks previously associated with Southern states


Many businesses in the hurricane-prone U.S. Southeast or earthquake-prone West Coast have factored resilience to natural catastrophes into their businesses for years, but it took Hurricane Irene in 2011 and Superstorm Sandy in 2012 to open eyes to the need to withstand a disaster in the Northeast.

“The combination of Irene and Sandy has really reinvigorated the focus in the Northeast on resiliency,” said Brion Callori, senior vice president of engineering at FM Global in Johnston, Rhode Island.

In the lower Manhattan area of New York and other coastal areas that experienced storm surge and flooding from Sandy, a common problem was damage to systems frequently placed in basements, such as heating and air conditioning, communications and data systems, and the backup generators and fuel supplies on which many businesses hoped to rely when power was lost.

“Traditionally, utilities are placed in the basement,” said Edward Haas, managing consultant at Marsh Risk Consulting in New York. “Building owners are now challenged with the choice of how to protect flooded basements in the future.”

“They can choose to elevate the utilities, which is what is typically done in Florida,” Mr. Haas said. “They can harden buildings. We've seen some conversions of loading docks into utility space. Some companies have gone full-tilt with flood walls.”

“None of these are easy choices,” said Mr. Haas. “It's always difficult to give up rentable, leasable space.”

“Florida has very stringent windstorm codes, which we do not have in the Northeast,” said Joe Stavish, senior vice president and director of property risk control engineering at Willis North America Inc. in New York. “Of course that's changing.”

“We have clients who have two or three sub-basements,” said Al Tobin, managing principal at Aon Risk Solutions' national property practice in New York. “All of them were underwater post-Sandy and suffered extensive damage.”

Since Sandy, “a lot of significant investment was made, some of it with insurance money, some of it with a significant amount of the insured's money,” Mr. Tobin said.

Some clients had fuel tanks in their basements, Mr. Tobin said. In some cases, “the oil tanks were half full and floating around.” Those that ruptured caused an environmental issue that made cleanup even more difficult. Today, some building owners have braced the tanks, while others have entered into contracts to fill the tanks prior to a forecast storm to keep them from floating.

Wind is another factor Northeast companies should consider in their resilience plans, even if Sandy's winds didn't exceed buildings' designed tolerance levels.

“The message with wind is don't fall asleep,” FM Global's Mr. Callori said. “A lot of our clients have been looking at their roofing throughout the Northeast.”

“Most commercial buildings typically have something on the roof,” said Gregory Lanshe, assistant vice president and director of risk engineering for North American property at Zurich Insurance Group Ltd. in Schaumburg, Illinois. High winds can not only push an HVAC system off a roof, but also damage the roof and allow water to enter the building.

Companies' resilience responses differ by building and the nature of the business, said Mr. Lanshe. “If they have a very robust structure, their planning and response might be different than someone with a weaker structure.” Likewise, a hospital's approach to resilience might differ from a distribution center's, he said.

Mr. Stavish said power outages following Sandy, flooding that knocked out generators, or ingress and egress issues that prevented the refueling of generators showed that “without power, you can't operate.” He said he's seeing some companies entering into contractual arrangements with fuel suppliers to help address the issue, while others are increasing on-site fuel reserves.

Many are also entering into advance contracts with catastrophe recovery companies to ensure they'll be served quickly after an event, Mr. Stavish said.

Sandy showed many Northeast businesses the importance of including business continuity planning in catastrophe resilience efforts.

“Physical defenses only do so much,” Mr. Haas said. “The most important thing is to avoid disruption to your business operations through good contingency planning.”

“A lot of organizations ended up spending a lot of time on the planning process as well,” said Tracy Knippenburg Gillis, global reputational risk and crisis management leader for Marsh Risk Consulting in New York. “A lot of organizations didn't have physical damage (after Sandy), but either their employees did or they were having trouble getting (to work) and they were without power.”

Sandy also demonstrated to many in the Northeast the need to think beyond their own walls when dealing with catastrophe resilience, and the fact that a regional approach is needed in some cases.

“A core challenge is that many of the things that have to be done have to be done outside of any one organization because of the interdependency issue,” said Stephen E. Flynn, professor of political science and founding director of the Center for Resilience Studies at Northeastern University in Boston.

For example, many businesses' ability to remain in operation depends on the survival of their facilities as well as the ability of local transportation systems to get people to and from work, he said.

Putting together core processes that straddle public/private lines “is something we're in the very early phase of figuring out how to do,” Mr. Flynn said.

Already there's a recognition of the need for more robust capacity in areas such as transportation, communications and energy, along with an understanding that those capabilities can't be achieved by any one entity, he said.

“Something that has to be nurtured here is a conversation across the public entities who are responsible for disaster recovery and disaster planning and the large employers,” Mr. Flynn said.

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