Have you ever wondered what would happen if your bank was devastated by extreme weather conditions, or some other catastrophic event? This has suddenly become a glaring reality, highlighted by Hurricane Ivan’s recent rampage through the Caribbean.
While the spate of hurricanes and tropical storms has had a devastating effect on the south coast of the US and the Caribbean Islands, repercussions of the disaster have had many more far-reaching consequences on businesses. When the Cayman Islands, one of the largest offshore financial centres, took a beating, the financial world sat up and took notice of how disaster recovery should be handled. What should you do when your investment literally ‘hits the roof’?
Hurricane Ivan hit the Cayman Islands on Sunday September 12 and tore through residents’ homes, approximately 600 banks and numerous companies. With winds of up to 200mph, Ivan left the island in ruin with extensive damage to property and communication systems. Residents feared for their lives as the tropical storm left 25 per cent of houses under water and 95 per cent of homes with reported roof damage. Tidal waves of up to two storeys high battered the Island of Grand Cayman, causing whole floors of buildings to disappear and their contents were washed away.
The Cayman Islands hold deposits worth $500 billion, http://www.1 billion worth of assets and a Trust sector thought to manage in the region of $450 billion. The islands can boast more companies than people with many of these firms existing as shells or as subsidiaries of major international groups. While they do not have a large physical presence in the islands, the hurricane was bound to have repercussions on the back office, and accounting and legal functions carried out in the jurisdiction.
On top of the personal loss, many banks and companies were left with damaged or destroyed documentation. Failed communications and a loss of electricity meant that most locally based staff were out of action until power was restored on Monday September 20. This caused disruption to the islands’ economic life and had a ripple effect out to the many financial organisations which have offices there. Despite the magnitude of the disaster, companies are attempting to put on a brave face and are informing investors with connections to the Cayman Islands that they will not suffer as a consequence. The President of the Cayman Islands’ Bankers Association, Eduardo D’Angelo Silva, has assured that most large banks should have back up plans and disaster recovery services to enable them to continue providing a service from other jurisdictions. It is believed that much original documentation has been destroyed in the flooding, although other data would be backed up on computer.
The islands have accepted that it will be many months, if not longer, before anything close to ‘business as usual’ will be declared. The Caribbean will always be subject to all types of weather phenomena, and financial organisations might decide that the risk associated with maintaining a presence in the jurisdiction is too great and network to other offshore domains instead. Regulators in the Channel Islands granted urgent licences in the immediate aftermath of Hurricane Ivan to Caribbean institutions to implement their disaster recovery sites in Jersey and Guernsey.
The financial services industry is widely thought to be the part of the economy best prepared for a disaster, but few other businesses are adequately prepared and all could be doing more to safeguard against both natural and unforeseen tragedies of such magnitude. Even those businesses that have done the minimum required to be protected may often be only guarding the wrong areas of their business.
While more businesses have started to take disaster recovery more seriously after the terrorist attack of 9/11, many still rely on basic business continuity implements. Using in-house resources, secondary offices and more conventional out-sourced options may be protecting data, but this is not going nearly far enough. IT support plays a very small part of continuity and the worst thing a company can do is undervalue the importance of human beings. Data becomes useless if you are unable to access it or if staff cannot reach the office. Responding to this, a number of companies in the financial sector are starting to place measures that allow staff to work from home or while on the road. By allowing employees access to the IT infrastructure, the company gains extra flexibility in times of a crisis. A report from Accenture reveals: “Most business continuity plans only nod towards the human resources involvement that is needed. Good recovery is between 60 and 70 per cent about people, processes and training.”
Away from the financial world, the US continues to deal with the aftermath of the storms. It is thought insurers will have to pay out anything between www.-6 billion for damages, including another http://www.-2 billion for losses in the Caribbean, according to Risk Management Solutions Inc. But it was the oil companies that were hit the hardest, evacuating 60 of the 117 offshore rigs and 382 of the 764 manned oil platforms. In the wake of the storm, it is estimated that some 8.5 million barrels of oil from the Gulf of Mexico has been lost with output at 39 per cent lower than normal. Delayed oil shipments have taken an added toll on US supplies and while the disruption caused by Ivan is thought to have only short-term effects, analysts believe the underlying tightness in global oil markets may continue, causing prices to rise with every obstacle.
Lessons can be learnt from the devastation caused by Hurricane Ivan. Standard and Poor’s Rating Services has said that it hopes re-insurers will, in turn, “re-think their approach to modelling catastrophes to give greater weight to the frequency of such events than before”. Disasters such as these and the recent terrorist attacks can no longer be seen as isolated occurrences and can only emphasise the significance which disaster recovery must now play in constructing a business strategy.