Do You Have Any Volcanic Vulnerabilities?

A few weeks ago, nobody who wasn’t living literally in the shadow of a volcano was giving much thought to the impact that a volcanic eruption could have on their lives. Of course, that was before the volcano-nobody-could-pronounce erupted in Iceland, shutting down air traffic in Europe for several days. Would-be travelers were faced with a choice between sitting tight in London (or wherever) and reading a book or sightseeing, or else hopping a train to race south and attempt to fly out of a different airport. For most travelers, it was a relatively minor inconvenience and perhaps a bit of unplanned expense. For the airlines, it would certainly have had a much bigger impact.

Most people aren’t overly critical about the shutdowns… though Richard Branson was an exception (and presumably others like him). Branson called the ban an overreaction; Virgin Atlantic lost $77 Million USD during the disruption. Branson wants the British government to compensate the airlines, whose losses totaled more than $1.7 Billion.

I spent more than a decade in the insurance industry, and I can tell you, people don’t generally think about what could happen very far beyond what probably might happen. As a result, they don’t insure against events which they see as having a low likelihood of occurring, even though those events are usually less expensive to insure against. If the results of such “unlikely” events would be devastating, they’ve just gambled the entire future of their business.

Some events are ones you don’t insure against, but develop contingency plans for. Do you have a single supplier for a critical part or inventory item? What happens if the supplier can’t deliver for one reason or another. Is there another supplier, and if not, then what? A bit of research here can go a long way. And if the alternatives are really unattractive, insurance is actually available for some types of contingencies — like a fire at a key supplier’s warehouse.

Take a cue from Eyjafjallajokull and ask a few questions of your business. Where are some of your hidden vulnerabilities? How would you recover from a disruption in one of these areas?