Weather-related property damage - lessons from Buncefield

For this special report, Norwich Union property claims manager Paul Redington draws a parallel with the aftermath of Buncefield - offering an insight into some of the lessons learned...

THE EXTENT of the damage to surrounding property following the fire at the Buncefield oil-depot in December was extensive, to say the least. The explosion - registering 2.4 on the Richter scale - affected properties over a wide area, some several kilometres away. When I visited the scene I saw the metal cladding of many buildings ripped open like sardine cans - graphically showing the tremendous force of the blast.

Now, over one year later, our weather has managed to produce eerily similar scenes of destruction - only this time it's less obvious - because the area affected, although wider, is less concentrated, and the scale of the damage is much more varied.

However, the problems faced by businesses post-Buncefield offer several pointers to firms that have been hit by the storms, in terms of how they might respond.

In the immediate aftermath of Buncefield, the key issues were safety and security. Where buildings could be entered, there was still a potential danger posed by materials like loose glazing panels and masonry. It was therefore critical that emergency shoring up and repairs were completed before a proper damage assessment could be carried out.

We also had security issues - with widely reported instances of opportunist thieves scouring the area for items of value. With industrial estates largely deserted in the aftermath, it was important that buildings were made as secure as possible and that there was a physical presence, such as security guards, where necessary.

Both safety and security will also need to be managed by businesses suffering from damage caused by storms and floods.

Business continuity

Buncefield also reinforced the importance of having a business continuity or recovery plan (BCP) in place. The more comprehensive the plan the better, but even an off-site list of important mobile telephone numbers can be better than nothing.

Communication is critical in the hours and days post-event. The managers of any affected business obviously need to be co-ordinating activity, updating employees and speaking to key stakeholders, suppliers and customers.

Those businesses that were affected by the explosion and had a BCP in place coped better than those that did not.

The key factor to a successful recovery is having a workable plan in place. With Buncefield, seeking alternative, temporary accommodation was crucial for some businesses, but in many cases that accommodation needed the same location benefits as the Hemel Hempstead industrial site which - with its close proximity to the M25 and M1 motorway networks - was important to those who dealt in supply and distribution.

With much of the neighbouring industrial estate sealed off and inaccessible, businesses had to move quickly to find alternative premises.

Companies should keep in regular contact with commercial agents and be aware of what is available on the local market. It is inevitable that when there is a short-term demand for premises, they disappear quickly and the rates are hiked up for those that remain.

Running repairs

Incidents of this scale also result in a huge demand for contractors who have to be ready to react, and assist quickly, in an emergency. Businesses should try to make an exclusive agreement with a local, reputable contractor and include this in their BCP to ensure minimum time is lost.

As we know, most businesses rely on computer systems for everything from payroll to customer databases. Backing up data regularly is crucial, and even important paper documents need to be kept secure. Something as simple as keeping original architects' drawings or site plans off-site can be vital when you are looking to reinstate or rebuild premises.

It is also important that businesses consider the cost of materials and demand for replacements. The Buncefield explosion caused thousands of glazing panels to be destroyed. This resulted in a huge demand for replacement panels, some of which had to be sourced from abroad. It is therefore necessary to consider the time it takes for these to be shipped over to the UK.

BCPs should also consider lead-in times for items like replacement stock. Many businesses found vulnerable stock damaged by the explosion itself or its aftermath - such as falling glass or other debris.

Equally, if vital pieces of machinery are damaged then they cannot always be replaced at short notice. Machines manufactured abroad also take time to ship, even if there is no waiting list. All these factors determine the length of the indemnity period needed for business interruption cover.

Risk management

Buncefield also highlighted the importance of having adequate business interruption insurance in place - such as 'supplier extensions'. Many businesses throughout the country were reliant on firms within the Hemel Hempstead area. These businesses were obviously indirectly affected as a result of the explosion.

The importance of keeping sums insured up-to-date was also brought home for many following the incident.

Ultimately, many of the claims we received could be dealt with fairly quickly with buildings repaired and a restoration of "business as usual". Some claims, however, do remain outstanding where the damage was very severe and where a large-scale reinstatement programme was needed.

Equally, some businesses suffered a longer period of disruption to trading and the impact on profitability within the indemnity period - the period of time for which cover was purchased - is still being assessed.

We are at the first anniversary of the explosion, and 12 months' business interruption cover has been sufficient for many affected businesses. But some may now be regretting not taking out a longer period of cover.

Fortunately, incidents like Buncefield are not commonplace, but as last week's storms demonstrate, they do bring the issue of basic risk management into sharp focus - an issue no business can afford to ignore.

A version of this article first appeared in Insurance Age, January 2007.