"This is our Katrina." After the tornado outbreak

Ways to make sure you have the means to rebuild, replace, and recover

Natural disasters this year — including multiple tornadoes that ripped across the country, flooding along the Mississippi River, and drought and wildfires in the southern plains — have grabbed headlines and the nation's attention. Among the hardest hit: Alabama.

Many individuals and churches have wisely asked the question, "How prepared am I for a natural disaster?" Preparation is crucial. As Rick Lance, Executive Director of Alabama Baptist State Board of Missions, can tell you, the weather — and your life — can change in a moment.

"This was our Katrina. Some cities, like Hackleburg and Phil Campbell, were essentially in rubble. Parts of Tuscaloosa look like they had been carpet bombed. Areas near Birmingham were leveled. Widespread power outages, food and fuel shortages, searching for the missing and over 250 dead. It was horrific," said Lance.

Immediately after the tornadoes, Lance and his team were focused on rescue and crisis response. "We did what we could, where we could, to meet people's needs in the name of Christ," said Lance. Now their thoughts are turning to rebuilding.

Working through the clean-up

"Of course the means to rebuild is a big concern," Lance continued. "After the initial shock, and as we continue to work through the clean-up, the concern is whether churches have enough insurance. This disaster has made some churches realize that they either didn’t have the right kind of insurance, or they had too little."

Though the scale of the April 2011 tornadoes was virtually unprecedented, the realization that many were not properly insured is not. "Every church really needs to do an annual audit of its property and casualty insurance coverage. Do they have enough to do a full replacement? Are they insured for replacement value instead of the original cost of the building? Is the deductible so high that it'll break the bank in the short-term?," said Lance. "It can directly affect the future out in front of you."

Three areas of concern: rebuilding, replacing, recovering

"Churches should focus on what they'll need to rebuild, replace or recover in the event of a devastating event and losses," says Gaelen Cole, Property and Casualty Program Manager for GuideStone Agency Services. "Lower-cost policies can mean that there are gaps in coverage that may go unnoticed until a disaster. It's important to have a comprehensive plan in place before that happens."

Rebuilding

In the event of a total loss or damage too severe to repair, churches will have to consider what it'll take to rebuild lost structures. Here are a few areas to consider:

• Replacement cost vs. cash value. "Replacement cost" coverage covers the amount it would take to replace the asset in today's dollars. "Cash value" coverage covers the amount the lost asset would be worth in today's dollars, which is often pennies on the dollar of what it would take to replace it. Make sure your policy insures the replacement cost of all vital assets.
• Insuring for proper value. Estimating the actual value of your property and assets — and re-assessing regularly — is crucial to making sure you're adequately covered. Because of their unique nature, churches can be difficult to accurately value.
• Coinsurance penalties. Most property and casualty policies contain coverage standards that require organizations to insure their assets within specific ranges of the accurately estimated replacement value. If the church does not insure its assets within those ranges, the provider will levy what are called "coinsurance penalties." These penalties reduce the amount paid in claims by a stated percentage.
• For example, a church’s property is valued at $10 million in replacement value. Their P&C policy requires them to carry insurance for at least 80% of that value, which is $8 million. If the church has less coverage — say, $7 million — and then has a claim (even if it is not a total loss), the provider will levy a coinsurance penalty and only pay a percentage of the claim and not the full amount.
• Rising building costs. Wide-spread disasters can drive up the cost of labor and building materials, which become scarce as everyone rebuilds. Churches that expected to be able to build under the protection of discounted labor or materials my find themselves unexpectedly burdened.
• Changing building codes. Because churches tend to build in phases over several years, changes in building codes can drive up costs of rebuilding older structures. Have a trusted contractor walk you through what changes would be required under current building codes and how much the entire process might cost.
• Planning for debris removal. Debris removal is a necessary part of rebuilding, but it's not generally covered by property and casualty policies unless specifically listed. Talk to your agent and make sure you’re prepared for this expense.
• Named peril vs. all risk. "Named peril" coverage insures against specific events — fire, wind, hail, etc. — but excludes most other events. "All risk" coverage insures against all causes except those specifically excluded in the policy (most often earthquake, flood). Cobbling together several "named peril" policies can be less expensive, but coverage gaps can cost churches big when they try to rebuild.

Replacing

If your church experiences a total loss, you'll also have to replace the assets your church has accumulated over the years.

• Accurately assess value of personal property and contents. Think replacement value rather than cash value. Include both obvious items like furniture as well as everyday items like cleaning supplies. For high-value or unique, hard-to-replace items (like older pews, your organ, an antique hand bell set, stained glass donated in memoriam, etc.), you'll need to consider separate coverage riders to cover the replacement or restoration of these items.
• Keep an accurate inventory. Do a video inventory of all your facilities and assets and keep it off-site in a secure location. This will help you make sure you account for everything.

Recovering

Continuing your ministry is the priority. In the wake of a disaster, you'll want to be able to continue operating.

• Business interruption coverage. This can help provide both the resources and the facilities to keep things running.
• Business income protection. In the event of a disaster, this coverage replaces lost income — in most church's case, lost giving — up to stated limits.
• Extra expense coverage. Should you need to relocate or operate from a separate location while you rebuild and recover, this coverage pays costs to temporarily relocate operations in the interim.

Said Lance, "I give our churches tremendous compliments and accolades. I traveled through many of the affected areas and am amazed at how the churches responded. They were on the front lines, distributing food and clothing, using their basements as triage, spreading the Gospel in new ways. This was an overwhelming situation, but we refuse to be overwhelmed. We will go on."

This article is for informational purposes only. It is not intended to be construed as legal advice. Readers should use this article as a tool, along with best judgment and any terms or conditions that apply, to determine appropriate policies and procedures for your church’s risk management program.