Employers optimistic about emergency plans

The adequacy of corporate emergency planning--just like the nature of beauty--may lie in the eye of the beholder.

A new survey conducted for Business Insurance by Greenwich Associates, a Greenwich, Conn.-based research group, indicates that's particularly true if the beholder happens to be beholding his or her own handiwork. For example, the report--"Corporate Emergency Plans: A False Sense of Security"--found that 27% of corporations called their corporate emergency plans either "fully" or "well" developed, while another 58% considered their plans at least partially developed.

But insurers and brokers have a different--and much less optimistic--take on their clients' level of preparedness. In fact, only 2% of the brokers and 6% of the insurers surveyed rated their clients' plans as either fully or well developed, with 38% of the brokers and 39% of the insurers considering their clients' plans only partially developed.

The report will be released this week.

Bill Bruno, senior vp at Greenwich, said that while the corporations thought they were further ahead than did the brokers and insurers, they were missing key components of what a broker or insurer would consider critical parts of an emergency plan, notably communicating the plan.

For example, only 35% of the companies surveyed said that they had communicated their emergency plan to their board and fewer than half--48%--said they had communicated their plan to employees. That stands in sharp contrast to what insurers recommend, with 94% of the insurers holding that emergency plans should be communicated to employees. Seventy-six percent of the corporations said they had communicated their plan to senior management, but fewer than one in three--31%--had shared it with their insurers.

The survey found that emergency training among corporations also lagged far behind where their brokers and insurers said it should be. For example, during the past 12 months, only 28% of corporations have conducted companywide emergency training, and 72% did not. But 65% of brokers and 78% of insurers believe such training is of high importance.

In addition, corporations do not audit their emergency plans very frequently. Among corporations, 38% conduct annual audits, and 8% conduct them quarterly. But 38% conduct audits on an ad-hoc basis and 16% never audit their emergency plans. The overwhelming majority of brokers and insurers recommend an annual or quarterly audit.

The emergency planning shortfalls present opportunities for brokers and risk managers alike, according to Mr. Bruno.

"This gap in communications" gives brokers an opportunity to explain how to improve emergency planning, he said. "They also have the opportunity to provide advice."

"There's been a lot of talk about enterprise risk management," added Mr. Bruno. "A lot of companies embrace the concept but find it hard to get such a broad scope of risk management integrated into their company. What we saw here is an opportunity for risk managers to embrace emergency planning as a step toward integrating more sophisticated risk management practices into their organization in a way that fits well with their skills and experience."

Risk managers can "use emergency planning as a nice stepping stone," he said. "There is desperate need for that in the organization. It's a great thing to aspire to as a step toward ERM."

Nevertheless, the report found that companies have made considerable progress in recent years in terms of protecting day-to-day operations. Emergency plans address core business elements such as facilities, personnel, equipment, communications and systems.

For example, more than half of the companies said they've secured a remote worksite from which to resume operations if their primary place of business becomes unusable and more than 55% said that they've made arrangements for workers to telecommute in the event of an emergency.

But "although companies have made progress is terms of preserving their own day-to-day operations, they have devoted less attention to other critical resources and functions," according to the report. "In fact, the results of Greenwich Associates research reveal some troubling gaps in corporate preparedness. For example, only slightly more than 35% of companies have diversified their network of suppliers in response to emergency risks. Only about a quarter of companies have diversified their production capacities and less than 15% have taken steps to diversify their shipping operations."

Corporations also have a widely divergent approach to various sources of corporate disruptions. While more than 80% take natural disasters such as hurricanes and earthquakes into account in their emergency planning, less than half of the respondents have addressed terrorism risk in their plans. Only half of the plans address pandemic risks, the survey found.

The survey, which was conducted in July, was based on the responses of 229 BI subscribers.

Additional information about the report is available via e-mail at contactus@greenwich.com or by telephone at 800-704-1027, option 1.