Business interruption coverage (June 2024)

It’s that time of year again when I remind you of the need to manage the business risks associated with the 2024 hurricane season.

I am contacting you earlier than usual because although September and October are traditionally the busiest months of the Atlantic hurricane season for our region unfortunately it looks like our active season has started very early this year with Hurricane Beryl currently making its way through the Caribbean as the earliest Category 5 hurricane observed in the Atlantic Basin on record.

Why does the season appear to have started so early? The move from an El Niño phase of the El Niño-Southern Oscillation (“ENSO”) cycle – typically associated with a less active hurricane season – to a La Niña hurricane phase - typically associated with a more active hurricane season - appears to be happening quicker than expected.

In May, the US National Oceanic and Atmospheric Administration (NOAA) predicted a more active hurricane season than normal largely because of near-record warm ocean temperatures in the Atlantic Ocean. By June NOAA was predicting a 65% chance of a La Niña phase by July-August-September.

Then Beryl came along! We should now assume the chances of La Niña being in place at the most active time of the hurricane season for us is very high.

I hope the following advice ultimately proves to be unnecessary but it is best to be proactive rather than reactive when preparing for potential major hurricanes.

We have been very successful previously in securing substantial business interruption claims for numerous resorts in the region following direct hits by major hurricanes. We learnt many valuable lessons along the way some of which I would like to share with you so that you may consider these as part of your planning for a disruptive business event like a major hurricane:

• Make sure your PACE records are up to date. If there was one source of information that was particularly useful in settling claims it was PACE records. They established a trajectory for resorts up to the date of the hurricane and we were then able to compare that trajectory to prior years and show how it typically developed in the following months in the absence of a hurricane in order to show the revenue that could reasonably have been expected to generate had your business not been impacted by a hurricane. As a consequence of COVID any business interruption claim will likely be more complex than it was pre-COVID because the years impacted by COVID do not reflect typical operating results but this renders your PACE records all the more important. 
• Ensure your insurance policy is paid and up to date. Hardly earth-shattering advice and no doubt if you want business interruption coverage you already have it in place. However, are you comfortable with the amount of coverage you have, the deductible and exemptions you have agreed to and have you provided your insurers with the most up to date financial information you have available on which they have based your premium? In the past we have found that the wording of many policies was quite vague. It is probably too late this hurricane season to change the detailed wording of your policy but not too late to change “macro” issues like coverage, deductible etc.
• Do you have a back-up copy of your financial data? Off-site is good. A back-up in another jurisdiction is even better. Using the Cloud is obviously a good option in this regard.
• Have a contingency plan for converting any cancellations to future bookings. This will reduce your claim and is good business sense in any event.
• Ensure your fixed asset registers are up to date so that it is easy to identify damaged assets and their value.
• Keep track of all expenditures you incur when attempting to recover as quickly as possible following any hurricane. Payments such as assistance to staff to keep your workforce together etc. may be recoverable. Obviously, nothing you can do about this ahead of time other than be alert to it.

We hope some of the above resonates with you.

We are happy to assist in any way we can during what will be a very stressful time for you and your staff thereby allowing you to concentrate on the multitude of other tasks that will inevitably arise during such an event.

In the unfortunate, and hopefully unlikely, event of a hurricane impacting your business we will be able to provide you with immediate assistance. Based on our prior experience it is critically important to act as quickly as possible, for example notifying your insurers in the immediate aftermath and being amongst the first to establish communication with their decision makers and provide them with concise and professionally prepared claims can significantly help the progress and success of those claims.

However, as I stated at the outset of this communication, I hope this all proves to be moot.

Take care and stay safe.

Regards,

Gary