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It's a question many people want to ask but are afraid to say on the record: Why the hell would businesses want to move back to New Orleans after Katrina? Or here's another one: Who would want to open a business in Florida after the eight storms that have collided with it in the last 15 months? Or how about own any property anywhere near the coast--Gulf or Atlantic?

From local business owners, residents and government officials, you're likely to hear a rallying cry that echoes what was shouted after Sept. 11.

Sure, that warms the heart, but does it make sense when the waters recede, the rubble is cleared and your business is out of commission for who knows how long?

It could be more wishful thinking than responsible action. Some would blame ignorance, obstinacy or emotion. After all, the Atlantic Basin is experiencing an upswing of cyclone activity. For at least the next couple decades, the U.S. coastline could expect more seasons like 2004 and 2005. That means business interruption year after year, compounded by escalating premiums.

There's that question again: How many catastrophe adjusters does it take before the light bulb goes off in a risk manager's head?

Maybe it makes more sense to study up on a Safest Cities list--with the mind to move your business from a hot spot to a location where you won't fear calamity. The economic-development planners of these cities sure would appreciate the consideration--and doubtless they'd send you a brochure.

A SPLIT-SECOND, LIFE-LONG DECISION

Business-continuity planning and disaster-recovery strategies are supposed to mitigate catastrophic risk. Teams of corporate risk managers and executives devote their time to business-impact analysis, to scoping risks and preparing mitigation measures.

"Most companies today are being proactive," says Pat Corcoran, disaster recovery expert with IBM Insurance and Financial Services. They're understanding their exposures and liabilities and are planning and drilling against them.

Is that really so? Not necessarily, says Joseph Gerber, co-chairman of the Crisis Management Practice Group at Cozen O'Connor. He observes the issue differently. "A real problem for business is that this planning is not in anybody's budget," he says.

Perhaps the truth lies in the middle--that some companies aren't as prepared as they should be. False alarms and hasty mass evacuations will become more commonplace, Gerber says. "Public officials are a lot more nervous than they used to be."

To confront these challenges, he says, businesses must become nimble. They must be prepared to halt operations at one location and launch them at another--"almost like throwing a switch," he describes it.

Another seismic shift in the landscape is the emergence of mega catastrophes. It is possible that even the best crisis-management plan could fail when confronted with a high rise that no longer scrapes the sky, or a city that seems submerged 20,000 leagues under the sea.

"There comes a point in certain scenarios," says Gerber, "where you say, 'We need to relocate.'"

Claudia Wolf is a partner in the Chicago office of Deloitte Financial Advisory Services LLP, and as the national leader of the Business Insurance Claims Consulting practice within the firm's Forensic & Dispute Services, she has consulted with clients in such scenarios.

"When I see examples of this, it's a post-loss situation," Wolf says. "(Businesses) look at the risks and benefits of relocating, and how that will impact their insurance recovery."

In Wolf's experience, many insurance companies in these scenarios pay out to repair or replace your property, and then your company can spend that money any way you want--either by rebuilding your damaged facility or relocating to a new facility. All that you are required to do is prove that the money has been put to use.

Of course it's not as simple as that. Millions of dollars, thousands of customers, and hundreds of employees can complicate a decision that will affect the future of your business for years to come. And, by the way, you can't dilly-dally.

"Decisions must be made very quickly," Wolf says. This is true in many cases because of the nature of the damage, whether it involves the threat of mold in flooded buildings or the threat of collapse from a compromised structure.

But it's also insurance that hastens the pace. "If you don't move quickly on these decisions," Wolf adds, "you're risking that you're not acting with due diligence."

Speed plays into the decision-making in other ways. In some instances, you may be able to re-establish your business quicker in another location, rather than rebuilding at your current one. A good example of this today, says Wolf, is the Gulf, where contractors and building materials are in short supply. On the other hand, lumber, drywall and hardhats could be readily available in, say, Phoenix.

Prove to your insurer that such a move to Phoenix could save them in business interruption, and your company's salvation may come easier.

But insurers can be hard to convince. When Wolf sends in a Deloitte consulting team to aid businesses in these situations, she includes construction experts who create timelines--scenarios for how long it will take to repair or replace the damaged facility, others for relocation schemes.

BACK TO BUSINESS

For Corcoran, if you're looking to cut and run, you must consider your business needs above all else. Ask yourself if there are good reasons that you're in your current location. Is that where your infrastructure needs to be--for instance, along the coast if you're in shipbuilding? Or can you be located virtually anywhere on the 10 safest cities list--as might an Internet-based company? And then there's the question of your market--is it strictly local?

"The real risk," Wolf says, "is everybody is trying to figure out where their market is."

When Hartley Powell, managing director of the Strategic Relocation and Expansion Services practice at KPMG LLC., advises clients on relocation, he asks them to prioritize their site criteria and differentiate between true needs, and wants. The company then picks a short list of communities with only the needs in mind.

"You've got to have sites that have your basic needs," Powell says. These could include adequate water supply, an international airport, or available labor. "Site selection starts out extremely rational."

For Corcoran and Gerber, employees are an important consideration during relocation, especially after an emergency. Will they follow? If they do, can you count on them being as productive as before? By relocating, you could be forcing your people to choose between their careers and their families. By asking your staff back to work as quickly as possible, you could be asking them to abandon their families in a shelter in Houston.

But concern for employees swings the other way, he says. If you swear no storm is going to beat you and you rebuild in your hurricane-prone homeland, you could be putting your employees in the path of next year's Category 5 storm.

"You and I can act cavalierly with our own lives," Gerber puts it, "but when you're an employer, you have a higher duty."

SAFER THAN YOUR CITY

It is also at this point in your relocation decision, says Powell, that incentives from prospective sites come into play. It is here that your ruined community lobbies you to stay, and seemingly safer cities, basking in sunshine and goodwill, call.

Cities, whether devastated or not, can use several incentives to draw in new companies. They can offer grants for infrastructure or training programs, says Powell. They can offer a deal on financing your land, or build your campus for free. They can offer property tax abatement, or reduce corporate or sales taxes.

Wolf says that a calamity-stricken city can use taxes "to incentivize people to rebuild," just as other states and communities can dangle tax breaks to lure you to move.

"Play it for all its worth," would be Rob DeRocker's advice to cities that find themselves on the 10 Safest Cities list. DeRocker is executive vice president and partner at Development Counselors International, the New York-based firm that specializes in economic development and tourism marketing.

DeRocker says that a city on any top 10 best list should stress those qualities that got it on the list through outreach to businesses that may be looking for a haven, as well as to those businesses already settled in the city. If that quality includes some God-given protection from calamities, all the better, because fear of hurricanes and terrorism is a staple in mass culture. "It's definitely on people's minds these days," he says.

Sacramento, the No. safest 1 city as compiled by Boston-based risk modeling firm AIR Worldwide, does just that.

"We do play up the seismic stability issue," says Barbara Hayes, executive director of the Sacramento Area Commerce and Trade Organization. Whenever SACTO is working with businesses, real-estate agents and site consultants, Hayes says, it stresses the availability of real estate, the environment for employees--and Sacramento's low risk for earthquakes.

The Sacramento region is in a zone 3 for seismic activity, she explains, meaning that it's at low seismic risk compared with the rest of the Golden State.

Now when there's an earthquake, SACTO gets calls from businesses looking for shelter. Hayes cites the case of Franklin Resources Inc. and the 1989 Loma Prieta Earthquake. The investment management organization had a significant presence in the San Francisco area, and when the earthquake shut down the Bay Bridge and destroyed a three-quarter mile section of the Nimitz freeway, the company suffered from business interruption because its employees couldn't get to work. Franklin Resources then looked into Sacramento, opening a disaster-recovery site there soon after. Since then, Hayes says, the company has expanded into a 2000-person campus in the Sacramento area, and has gradually reduced its presence in the Bay Area.

Where does that leave cities like San Francisco? New Orleans? Ft. Lauderdale?

"If a place is perceived as high risk, as Florida might be, then one thing it needs to do is reach the decision-makers in companies," says DeRocker, "with messages that are credible and that would counteract what could be the prevailing imagery," media images of blown-out high rises, collapsed houses and cracked interstates.

DeRocker says some cities may be able to ignore their more dangerous aspects; those that can't should counterattack.

"In New York, for instance, you can't say, 'Terrorism, what terrorism?'" he explains. But you could broadcast how you have one of the finest police forces in the world, and how there hasn't been one terrorist attack since Sept. 11.

Despite marketing, though, ultimately it's up to risk managers and their corporate bosses to decide whether rebuilding or relocating is the best option for a business. With millions of dollars, thousands of clients and hundreds of employees on the line, it's never easy, even in good times.

"Companies don't relocate on a whim," says Powell.

But after a catastrophe, the decision could come down to a "very traditional risk/reward analysis," says Gerber. You sit down with a pen and paper, draw a vertical line, and on one side write the pros to relocation, on the other the cons.

"If you're moving within 100 miles, it's not such a hard analysis," he says. In that case, you're likely to retain most of your employees, suffer through similar taxes and rely on the same supply routes. But if you move 500 or 1,000 miles away--"then it's a different animal," Gerber says.

For Wolf, it's a perspective of risk versus opportunity. She recalls a manufacturer whose plant was ravaged by fire. The manufacturer chose to relocate its plant, and in the process, designed it to create a completely different product. This wasn't a spur of the moment production shift. The manufacturer had considered the production change for some time because of market issues, and it seized upon the opportunity presented by the catastrophe to move forward.

Then again, opportunity and risk, safety and danger, are all relative.

"There is no place in the United States where you can say, 'It won't happen here,'" the attorney Gerber says. "There is no safe place."

MATTHEW BRODSKY is an associate editor with Risk & Insurance®.

December 1, 2005

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