By: Jeff Esper | June 28, 2016

I am not sure why policy language has to be so confusing. Truly there are some complicated risks that insurance covers, but even the simple ones seem to be made complicated by the language used. A good example of this is extra expense. The words themselves seem pretty self explanatory; a policyholder spends extra money due to an occurrence and submits the expenses as part of the claim. Though it sounds straight forward, within a property claim these expenses require different types of measurement, documentation and coverage. To ensure you are buying the right coverage for your risks, it’s important to understand the details and the differences.

Per the International Risk Management Institute (IRMI), extra expenses are defined as: 

…additional costs in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss. Extra expense coverage can be purchased in addition to or instead of business income coverage, depending on the needs of the organization.” 

This is true, however there is another kind of “extra expense” that is included as part of your business income - this is commonly known as “expense to reduce loss.” These expenses meet the definition of extra expense, however, they are incurred to reduce the duration or magnitude of the business income loss.

Consider this scenario. A manufacturer is shut down because of a covered cause of loss. Despite damaged machinery, they manage to resume operations in the facility by performing work manually with more than normal labor. The extra labor costs enables the insured to maintain some production that reduces lost sales. Is this a business income loss, extra expense loss or both? 

In this case, extra expense coverage in excess of the business income would not be necessary since the extra expenses reduced the business income loss. Any sales that were lost could still be recovered as well. If only extra expense coverage was purchased, the manufacturer could recover the extra expenses but not any lost sales.

The distinction between “extra expense” and “expense to reduce loss” is important when you are placing coverage. Quantification and documentation of extra expense exposures depends on the types of expenses and the scenarios envisioned. If the only extra expenses that are foreseen would be to reduce a greater business income loss, then it might not be necessary to purchase the additional coverage. If business income is not at risk or can be avoided entirely with extra expenses, extra expense coverage may be the way to go.  

Another category of coverage that gets confused with extra expense is expediting expense. Per the International Risk Management Institute (IRMI) expediting expenses are defined as: 

…expenses of temporary repairs and costs incurred to speed up the permanent repair or replacement of covered property or equipment.

The need for expediting expense coverage came from a time when boiler and machinery coverage applied to specific objects written on separate policies. Modern all risk policies will include expediting expense as a part of expense to reduce loss or extra expense coverage.

Again it is important to understand how you might incur these loss related expenses when placing coverage. To the extent that you can save the insurance company money by expediting, you are less likely to meet resistance. If you will need to expedite repairs for other reasons, regardless of cost or time savings, you may need to get coverage that provides full reimbursement.

Understanding the different types of expense coverage and how they apply to your business risks is critical when buying insurance. You don’t want to find out how your coverage works during a claim or realize that you’ve been paying for coverage you don’t need. Think through your potential scenarios, consult your broker and a forensic accountant to explore what coverages and limits are best for your risks. Then, share your conclusions with your underwriter to make sure everyone is speaking the same language.

By Christopher B. Hess, CPA, CFE

 

By: Christopher Hess | June 01, 2016

Remember the classic 80’s film “War Games” where the computer system named War Operation Plan Response, or WOPR for short, asks Mathew Broderick in that See ’n Say computer voice “Shall we play a game?” The movie was a tense thriller that was topical for my Cold War childhood but pointed out, among others things, that all games are not fun. Insurance claims should not be a game, where one side is playing games as a tactic to delay or reduce claim payment. It’s much like a battle in a war, in which one side is lured into an ambush. Unfortunately,  I see this all to often when preparing property and business interruption claims for my clients. 


The reason it is so frustrating is that my client is usually struggling to recover from a major loss to it’s business, affecting them financially and emotionally. They have done their best to protect from such an occurrence via loss control, insurance procurement and a proper claim filing. So when they document their losses and present their claim under the terms of their insurance contract, they should not have to battle bullying, stall tactics and misguided theories. 


As an example, I had a chemical company as a client whose business was heavily dependent on the supply of raw materials from specific international locations. The exclusive relationships with these international suppliers and their governments took decades to forge and represented a distinct competitive advantage. Their business was cyclical and during a low point, their manufacturing plant was devastated by a hurricane. If they were not able to get back up and running quickly, the long term contracts with their suppliers would be cancelled undoing years of supply chain efforts.  


The CEO had a legal background and recognized the real possibility that his company would not recover from this loss if the insurance they bought could not reimburse in a timely manner. He knew he was facing the possibility of laying off over 1,000 employees as well as losing long term supplier relationships.  


The insurer’s tactic was to overwhelm the client with requests for information while demanding time and attention to explain the operational complexities. While scrambling to answer the flurry of questions, my client had to accommodate a large group of insurance investigators at their chemical plant that was still underwater. Contractually, the insurance company has the right to gather information they need; however, there is a tact and decency that should be observed. The insurers strategy was to leverage the policyholder's crisis situation to establish reasons not to pay the claim based on misguided theories about their business. Because of the chaos, when the insurance consultants arrived on site to survey the damage, the client was not prepared. They did not have a proper escort for the insurer consultants to review the damaged facility. As a result, information was gathered from which they made critical assumptions about the damaged equipment that formed the basis for their theory on the valuation of replacement equipment and lost production.  


The client was not informed about these conclusions until some months later when the report was presented. They were ambushed and put on the defense, backtracking trying to disprove the incorrect information. All the while, claim payment is withheld until the issues are resolved. 


This tactic is common in claim war games. While the insurance team may just be doing their job as instructed, a company’s existence is at risk. Adjusters are often cavalier about this process and will hide behind their “duty” or policy wording, while in reality they are just playing games with the money owed to the policyholder. 


Despite the games, I am happy to report that through a lot of hard work and foresight, we were able to overcome these obstacles and secure advanced payments to stabilize the client’s operations, maintain supplier relations and create an equitable settlement. The CEO and other executives were relieved and appreciative of the results we achieved considering the situation we were facing. 


So how did we do it?  


It takes an effective strategy and careful execution to be successful and here’s the approach that we know works best: 


  1. Take Control - You do not want to put off the insurance company too long, but it is okay to let them know you are going to control when they get access and who they can interview. More claims are derailed in the first week by uncontrolled access and miscommunication. 
  2. Agreements in Real Time - one of my favorite risk managers relates this mantra during claims, “we make decisions in real-time.” What he means by this is that when confronted with a decision - say rebuild or replacement of equipment - you use all the information you have at that time to make the decision. As long as the adjuster is aware of the decision and your reasoning, they should not second guess what you have done down the road once more information is known. For example, immediately after a loss you think you need two cranes onsite to move equipment and debris. After the fact, you realize you could've got by with just one. You made a decision in real-time that was based on what you knew at the time and should not be penalized based on your initial estimation. If the adjuster doesn’t object at the time of the decision, they have no grounds to object after the fact. 
  3. Clarify Requests - the insurance company is going to ask for information - a lot of information. In general, these requests are broad in scope and may even be used to fish for something that can be used against the claim. Don’t let this happen. Ask that requests be specific - if they are not specific, send the request back. Ideally, claims are presented with supporting documentation and that should be the focus of requests. I am often used to filter this information down to what is really necessary to provide - which should be specific to what is being claimed. Extraneous information can create confusion and lead to more requests. Your loss accountant, if experienced, will be helpful with interpreting these requests and focusing on what is relevant to the claim. 
  4. Recruit Experts  - Adjusters and their team work on claims every day. It’s their full-time job. For you, it is an infrequent part of your job. If you want a smoother process and positive outcome, you need experts working on your behalf. In addition to your internal team, your brokers claim experts, as well as independent forensic accountants, engineers and outside counsel are critically important. Ensure that those on your team are working on your behalf and match-up well against the insurance company representatives. In my claim example, we were not engaged from the onset, so it is vital to have your independent team vetted and agreements in place ahead of a loss. Remember, like this example, many claims are hindered by mistakes made in the initial weeks post loss. Immediately after a loss is no time for shopping. 
  5. Don’t play games - In other words, focus on the claim, not the games. Prepare an accurate claim from your perspective, be upfront with relevant information and be reasonable in final negotiations. As stated before, games have no place in claims. Just because insurers may play games to offset your recovery, doesn’t mean you need to do the same. You are much better off being prepared, being professional and being confidently in control of the process. 


If you follow this advice, you will stand a much better chance succeeding with claim recovery. Just like WOPR realized in the movie, with claim war games there are no winners.  Avoid this ambush by being prepared and informed.



Published 6-8-16: InsuranceThoughtLeadership.com

Category: Insights 

Tags: Claims 

By: Jeff Esper | May 31, 2016

From left: Chris Hess, Jeff Esper, Joe Wieligman, Mike Murphy

Whether the task at hand is recovering a business interruption loss or competing in a golf scramble, it takes a team effort to achieve a successful outcome. With the right combination of skills, mutual support and good fortune, your team will have a great chance of winning the day.


RWH Myers always enjoys supporting RIMS golf events. It's certainly a bonus when we put a team together that wins. In this year's Pittsburgh RIMS tournament, our team did just that. With a score of 59, we managed to capture our first RIMS chapter victory of the year. A big thanks to Joe Wieligman of Hylant and Mike Murphy, Director of Risk Management at Kennametal for excellent play and camaraderie throughout the day.


Also, a special thanks to another great team, the Pittsburgh RIMS chapter, for hosting a well organized and enjoyable day of golf, networking and fundraising.

Category: News 

Tags:

By: Jeff Esper | May 02, 2016

If you are responsible for your company’s Business Interruption Values (BIV) reporting, we have a special offer for you! BIV reporting is possibly the most misunderstood data requirement of all lines of coverage. We hear it from brokers and policyholders across the country. It’s a concern for many and now you can find out how your values stack up.


RWH Myers now offers a simple and effective three-part system to assess the validity of a company's reported Business Interruption Values.


  1. First, we'll walk through a simple questionnaire that examines the process currently in place to pull together the numbers. The process used is a major indicator. Why? By looking at how you come up with your BI Values reveals what you may be missing and where potential problems are lurking.
  2. Next, we can review your current BIV reporting. With this step we can gain insight in to the output and what the underwriter is seeing. Any unclear or inconsistent numbers will create uncertainty in the mind of the underwriter and drive up premium costs. We'll ask the questions that your underwriter won't ask so that we can identify areas to improve.
  3. Finally, we'll do a BI Benchmark against others in your industry segment to see how your current BIV compares to the benchmark number. Our proprietary BI Benchmarking tool is a popular and useful tool that displays a ballpark BIV displayed in a "worksheet" like report summary. How will it compare to your numbers? There's only one way to find out.


The benefits of getting your grade are many. Once you know your grade we'll share with you what is hurting your score as compared to what you should be doing to increase the accuracy of your numbers. The way to a higher BIV Grade is the way to more accurate ratable BI values which is used to calculate your premium. This offer is free of charge to policyholders so there's nothing to lose by signing-up!


To sign-up for your BIV grade click here and we'll get started. You may contact me directly with questions. jeffesper@rwhmyers.com


By: Jeff Esper | February 26, 2016

Q & A  with William A. Warren, CPA, CGMA

Contingent Business Interruption is a critical part of the business interruption and supply chain risks facing companies. You may have the coverage in your policy, but are you sure you have the appropriate language and an accurate measure of this exposure? It may be time to revisit this complicated risk area to prevent a costly surprise.An earthquake, explosion or Tsunami hits on the other side of world.


A key supplier is disabled bringing your production to a halt until an alternative supplier is in place and able to fill the void. Your company may suffer extra expense costs and/or a serious business interruption, i.e. contingent business interruption. Will your cover respond appropriately and make you whole?In this article, you’ll learn some important answers to critical CBI questions. I asked Bill Warren, CPA, CGMA and Partner of RWH Myers, an expert in valuing business interruption exposures, the following six CBI questions that policyholders need to know to get a handle on the relevance of their CBI risks.


When you do a BI values project for a client, do you always address CBI?

No. CBI exposure is a critical component in understanding and managing an organization’s risk profile, and it does adds time and effort to a first-party BI values and exposures project. CBI should be addressed as it’s own analysis to properly reflect the organization’s goal(s) and the complexities involved in meaningfully achieving those goals.


Does the BI worksheet ask for CBI?

No, the worksheet and schedule of values generally assigns an organization’s earnings contribution (BI value) to its own locations. CBI represents the interdependencies those earnings have on third-party locations. Therefore, CBI is separately addressed in the insurance program. Without specific information, the coverage (if it exists at all) is often sublimited to relatively small, tiered sub-limits for named vs. unnamed suppliers or customers. Even if specifically identified, appropriate terms and conditions are difficult to ask for, let alone get, especially if you don’t understand the risk yourself.


What is expected by the underwriter at renewal?

Renewals rely heavily on momentum … sometimes focusing only on major changes since prior years. Many programs have stable, incumbent participants who have been on the account for several years. Even when that’s not the case, there is usually substantial information from prior program marketing that is leveraged on an ongoing basis. The same goes for the policy’s CBI coverage. It has gained attention in recent years, and insurers are requiring more information to avoid limiting coverage terms in its absence.

How do we address CBI and what is the benefit of our approach?

The theory is to tie a third-party’s potential operational risk to the clients potential lost earnings. The method is always customized to the situation at hand. Even in the same industry, different organizations can employ a very different model that relies on a unique mix of suppliers/customers. Information about them is often buried in functional silos and can be difficult to identify. Even after we get the necessary information, it may be incomplete for the intended purpose. This is why our process is one of inquiry & discovery. There are some formulaic approaches to capturing data. Often the obvious, critical risks are known. However, the discovery process must include quality probing questions to identify potentially unknown risks, or simply, concerns that have not yet been communicated. We then build customized models that correlate this operational reliance to the potential financial impact. The models are designed for the organization’s financial reporting, accounting for additional internal interdependencies, inherent resiliency and explicit mitigation planning.


The benefits of this approach are many. At a high level, it provides an understanding of the potential magnitude of the exposures from these external risks so that clients can make informed decisions about the cost-benefit of mitigation planning as well as the risk transfer strategy, terms and pricing.

What are the common challenges with an inaccurate representation CBI risks?

The most common challenge is tying inbound raw materials and/or supplier spend (sometimes the only accounting data you really have about suppliers) to the potential revenue exposure if that one part/service were lost. Another typical challenge is obtaining ample information from the third party about their exposures, locations, and mitigation planning. A supplier will generally want to comply with their customer’s request for information, but the they generally do not want to burden their own customers with these requests. The latter is difficult enough in a real loss situation, let alone during an evaluation of potential exposure.The consequence of inaccurate representation could be a loss from a contingent risk that could have been proactively mitigated, consciously retained, or adequately transferred via a policy with appropriate coverage and limits. Even worse, after years of premium on CBI risk area, the insured learns the hard way, it’s either not an accurate limit or the coverage isn’t the right fit. It can be extremely frustrating, to say the least.

Why should policyholders seek help from an independent expert?

CBI is about protecting the balance sheet by protecting the continuity of earnings either via operations or insurance. To accurately express the risk that a supplier or customer disruption may pose involves a holistic look at the organization and its earnings streams. An expert will calculate the net earnings at risk to empower clients to make better cost-benefit decisions surrounding loss control, mitigation, and risk transfer. An independent expert brings an unbiased perspective. They are not constrained by the assumptions that internal personnel may make, and should not be directing the result to a predetermined outcome. They would have no agenda other than an accurate assessment prepared for the client.


Even when a company does examine CBI and supply chain risks, the project is often lead by procurement or operations functions and the results are not leveraged holistically for the benefit of enterprise risk management.


So, is it time to revisit your contingent business interruption risks? It’s a question worth asking inside your organization. Perhaps, Mr. Warren’s insights will help you come to the answer. In any case, it may be worth consulting with an independent and experienced expert to explore further. If your earnings are heavily dependent on direct suppliers and indirect suppliers, as well as direct customers and indirect customers, your CBI exposures may warrant a closer look.

Category: Insights 

Tags: Business Interruption 

By: Christopher Hess | February 01, 2016

Partnership

We are excited to announce that two of our most devoted and experienced managers have been promoted to Partner!

 
Jerry Liberatore
 
Russell Zinn

Jerry Liberatore, CFE, has served as manager of the Pittsburgh office for 5 years and has worked with the Partners of RWH Myers for his entire 12-year career. Jerry always employs a proactive client-focused approach to handling business interruption, property damage, extra expense, and fidelity insurance claims both domestically and internationally. Jerry has extensive experience across a diverse range of industries, including chemical, manufacturing, retail, mining, hospitality and consumer products. His efforts have directly contributed to the recovery of over a billion dollars in insured losses for our clients. 


Russell Zinn has served as manager of the Connecticut office for 5 years and has worked with the partners of RWH Myers for 11 years. His extensive knowledge of the insurance claim process, tireless work ethic and willingness to go above and beyond have been recognized by clients, his peers and Partners. Russell’s experience includes preparation of claims in the manufacturing, health care, energy, hospitality and services industries. In addition to his work domestically, Russell has traveled extensively overseas to serve our intentional clients. 


Please join us in congratulating Jerry and Russ!



JerryLiberatore@RWHMyers.com p: (412) 897-3134

RussellZinn@RWHMyers.com p: (203) 240-3889 

Category: News 

Tags:

By: Christopher Hess | January 23, 2016

More often than not, a large property and business interruption insurance claim turns into an “us vs. them” scenario, creating a rough process for all involved. Not unlike a football game, someone is trying to win - at any cost. As a forensic accountant for over twenty years, specializing in quantifying business interruption losses and documenting property claims for policyholders, I’ve seen the good, the bad and the ugly. The problem is that the process is designed to focus on disagreements. 


We’ve heard the concerns from our clients and the insurers, and we can understand both perspectives. Policyholders accuse the adjuster of being  unreasonable - trying to stick it to them at every turn. Insurers accuse policyholders of trying to take advantage of the claim in an attempt to get more than they deserve. The battles can become very heated, even on a personal level. Once during a claim meeting on a large loss, the discussion between the parties intensified until an executive, from the insured, ordered the adjustment team to “get out of my building!” 


Disagreement in the course of a property insurance claim is an anticipated part of the process, but there are ways to keep it civilized and productive. It is possible to come to a fair representation of the loss without all the aggravation. The fix is really quite simple but will require the insured and insurer to take responsibility for their contribution to both the problem and the solution.



Here are some ways insurers can improve the claim process: 


Take time to understand the insured’s business 

Too often the adjuster wants to appear to know it all. It is better to listen first and try to understand the insured's position. Understanding your customer is common business sense. 


Adjusters should have superlative people skills

A big part of an adjuster’s role is to coordinate with experts needed for the situation. These are management and organizational skills. In other words, the adjuster does not need to know all the technical aspects of every loss and would be better served knowing more about how to manage people and deal with customers. Whether it’s from retiring baby boomers or cost cutting, there is a lack of well trained and experienced adjusters. 


Give the adjuster more control 

Even the best adjusters are impaired by the current claim process. Adjusters seem to have limited authority to make decisions. Policyholders find it pointless to explain their issues in great detail, when the real decision maker is somewhere in the background. When pressed to make a decision, they just throw their hands up. It’s difficult to make any progress, when the adjuster has to get every little decision approved by their superiors. To the insured, it just seems like it’s a delay tactic to put off payment, and only adds to feeding mistrust.



Here are some ways policyholders can improve the claims process: 


Give the process a chance 

While there are many times you will experience some of the problems mentioned above, the process can work with the right people involved. Communicate with the adjuster and their team. Be responsive to all requests that are reasonable and appropriate. If otherwise, ask for clarification and then address your concerns right away. 


Maintain good relations with realistic expectations

Set realistic expectations for what you want, like advance payments and resolution of differences. Though insurers are not obligated to finance a rebuild project, they should be willing to advance money to stay ahead of the cash expenditure. By maintaining good relations with the adjuster, they’ll be more open to working with you rather than against you. 


The best defense is a good offense 

Be prepared and organized on your end so that you can require the same of the insurance company. You cannot withhold information until the last minute and then demand resolution and payment. The faster you answer questions and requests, the faster they can review them. Often times it takes them longer to review the support you provide because they review the information in a vacuum. Don’t assume they understand what to ask for or what has been presented. Promote frequent meetings and discussion to make sure misunderstandings are not made part of their reports to underwriters - once it is on the record, it is harder to change. 


Escalate when needed

If issues start to arise that cannot be resolved, rather than letting it fester, escalate it to the markets involved. It is no different than speaking to a manager at a restaurant. It’s better to deal with decision makers when action is needed. This should only be used as a last resort to avoid litigation.


The insurance claim process has it's flaws. I don’t think it’s intentional, but rather a result of how it has evolved. The best approach to improving the process is by recognizing the challenges with an “us vs. them” mentality and finding a way to work cooperatively through the claim. Both sides need to help to fix it, so that more claims get resolved as they should.



Published 2-1-16: InsuranceThoughtLeadership.com

Category: Insights 

Tags: Claims 

By: Jeff Esper | December 15, 2015

The Right Way to Look at BI Values
As a professional loss accountant with more than twenty years experience with business interruption valuation, I can understand why policyholders struggle with their BI values. Over the years, some of my clients recognized the issues with the traditional BI values approach, and decided to make a change. Unfortunately, too many companies continue doing what they have always done, even when there is a better way available. The fact is that BI values are an important requirement of the insurance process. The challenge is finding a repeatable, efficient system that produces an accurate measurement of your BI exposure. 

Consider for a moment, just how important this information is to your underwriter. The numbers you report gives the underwriter the basis for writing coverage and calculating premium. Each renewal provides policyholders with the opportunity to present their unique BI exposure. Unfortunately, this opportunity is often squandered due to a multilateral misunderstanding of business interruption values and the exposures they represent. The point of this article is to share an alternative approach that is proven to help policyholders take control of their BI values reporting while maximizing the opportunity to enhance the value .

Understanding BI Values
First, there’s the Ratable Value. It is the “big number” that is calculated for the business as a whole assuming a twelve month total shutdown of all revenue generating operations. This worst case and often unrealistic scenario is the information requested by the insurance company, usually in the form of a one page worksheet. Without additional information, the underwriter will use this information to set limits and charge premium. The ratable value calculated is somewhat meaningless, except that it establishes the base assumption that is used as the BI value in all other scenarios, such as un-incurred cost categories. The ratable value is seldom a reflection of your exposures. A better way to assess your exposures are to examine your MFL and PML loss scenarios.

What is Maximum Foreseeable Loss?
The maximum foreseeable loss (MFL), as the name indicates, is the worst case scenario. This is not as extreme as the ratable value scenario, but pretty close. The assumptions used here include a complete breakdown of protection and loss mitigating factors while hitting you where it hurts at the worst possible time. An example would be the loss of a unique distribution center to a retailer during the holiday shopping season - say the distribution center that handles online orders going up in smoke on Cyber Monday. The factors used to measure the ratable value would be used here to determine the business interruption value for this scenario. Certain assumptions may change depending on the duration of the loss scenario. For example, labor expense may be considered completely saved in the ratable value scenario due to the assumption that there is nothing left, but only partly saved in an MFL scenario.

What about the Probable Maximum Loss?
The probable maximum loss (PML) is the same as the MFL, except that loss mitigation efforts and protections work properly. The PML also takes into account pure extra expenses used to retain customers. This can help with decision making on purchasing extra expense coverage.

What happens in underwriting?
Though I’m not an underwriter, I’ve typically seen insurance company’s take an engineers approach to MFL and PML scenarios that vary only in duration. This is singular perspective and does not account for the rest of the pieces of the puzzle. The other pieces are the finer details that actually occur during a claim. If it were a real claim, topics like seasonality, make-up and outsourcing would surely come up, but you won’t see them on any BI worksheet. 

The MFL and PML should be based on realistic loss scenarios and measured as if it were a claim. Simply applying the ratable value to loss period assumptions produces misleading and inflated numbers. This is precisely why it is in your best interest to develop your own valuation method based on real scenarios.

Why create Exposure Scenarios?
If BI values are based on assumptions and you are using the worksheet, then the assumption is a 12 month loss scenario. Can you imagine a scenario in which your operations would only be effected for 6 months? The worksheet makes a blanket assumption of 12 months whether realistic or not. Coming up with various loss scenarios by location would flush out a more realistic representation of the impact of each particular loss. It would further flush out high risk locations along your supply chain which will not only add value to your risk management approach but may also influence business continuity planning. 

An exposure analysis project is not only an accounting project, it’s a integrated business exercise offering multiple benefits to an organization. The goal is to identify and examine loss scenarios and the resulting the ripple effects. It isn’t necessary nor is it practical to anticipate every possible loss scenario. It’s better to prioritize by perceived risk and probability. Then, develop a good sampling of loss scenarios from which you can determine the impact to operations and the mitigating actions that would be taken. Depending on the exposure, involve the appropriate internal personal e.g. operations, sales, business continuity, IT, and accounting. The external experts you may involve are your broker, legal counsel and of course, a forensic accounting firm that specializes in insurance work. Additionally, your company’s Business Continuity Plan (BCP) and incident response plan, should be factored in accordingly.  How ever your scenarios play out, the loss accountants can calculate the business interruption as though it were an actual claim. 

As you can see, this approach would produce a more accurate BI value by location and overall. It’s the right way to look at business interruption so make it a part of your approach with underwriters. If you’d like to discuss this topic or any others, myself or my partners would be delighted to hear from you.


Published 12-17-15: InsuranceThoughtLeadership.com

Category: Insights 

Tags: BI Values 

By: Jeff Esper | November 06, 2015

Cyber Panel

It was our pleasure sponsoring yet another successful Partner Day hosted by Central Ohio RIMS. It was held at  Wendy's Corporate HQ in Dublin, OH. The Wendy’s conference center was one of the nicest and well equipped venues I’ve seen for a RIMS event. 


The agenda was complete with current events and relevant topics for all industries. Each topic involved a panel of experts with a moderator leading the discussion. 

The topics were as follows:


  • Workers Compensation and Marijuana

  • Millennials

  • Product Recall

  • Active Shooter

  • Cyber Liability/ Disaster Recovery                                                                                                                    

(Pictured above from left to right: Spencer Timmel- Hylant, Diane Reynolds- Taft Stettinium & Hollister, David Fine- FBI, Brian Minick- Morphick Cyber and Moderator, Bob Bowman- The Wendy's Company)

We would like to congratulate the Chapter Officers, Panelists and other contributors for a job well done. 

Looking forward to next year!

Category: News 

Tags: Presentations 

By: Jeff Esper | October 26, 2015

Policyholders insure against business risks to protect their financial integrity. When these risks become a reality, claim recovery is the return on investment. 

Unfortunately, it’s not quite that easy. Claim recovery is a process that requires expertise to secure a fair settlement. As you know, your carrier has experts assigned to adjust and audit your claim, so, in turn, you should have experts to help you quantify your losses and prepare a well-documented claim. But expertise is not enough. If you want the best chance to be made whole, independence definitely matters.

Many companies promote themselves as focused on client needs, but, in claim preparation, it has to be more than a slogan. When it comes to preparing claims, true independence isn’t as common as you might think.

Is your loss accountant independent?

The most common "claim preparers" are forensic accountants. Let’s take a look at where they exist in the insurance industry:
  • Insurance company forensic accountants
  • Insurance broker forensic accountants
  • Consulting firms with forensic accounting service offering
  • Accounting firms with forensic accounting service offering
  • Independent loss accounting firms

It should go without saying that the firms that are hired by the insurance companies cannot provide independent and unbiased service to policyholders, but many still do rely on the insurers’ accountants to measure their losses. If asked, the insurers’ accountants would likely recommend the insured retain an independent firm to assist them, yet there are those who don’t know and don’t ask. For the policyholders in this category, I hope you see the light after reading this article.

Broker-owned accounting firms have their own set of potential conflicts, starting with the strategic relationship they have with insurance companies. As a former broker, I can tell you these relationships are sacred. The carrier’s profitability is directly related to claims paid, and the carrier will reward brokers for profitable accounts with a bonus commission, aka contingent commissions. If you are on a fixed-fee arrangement, it does not mean there’s no contingent commission in play. Your broker wants to serve your needs and will work hard for you, but, when you have a loss, the broker has a conflict of interest.

It’s also important to remember that your claim can last longer than your broker agreement. It’s hard enough to end a relationship with your broker, but if the broker is preparing an outstanding claim it will prolong your dealings with the broker. If you change carriers and your broker at the same time, the situation can be harder to resolve. If you are using your broker for claim preparation, consider an independent option that only serves one master, you.

The large accounting firms with consulting practices will scale back their consulting activities when faced with financial debacles that cause regulators to scrutinize their independence. The inherent conflict of an auditing firm preparing a claim for a client should be obvious. The audit firm will have a direct impact on creating an asset or revenue stream, which the firm would then audit as part of the financial results. Those two activities need to remain separate to maintain independence.Also consider what it means if your claim preparation firm is also the auditor for your insurer. 

As you can see, there are potential conflicts on both sides. Why not avoid potential conflicts and work with an independent specialist?

Hiring consulting firms presents similar conflicts to consider. Is it a provider of another service to your company? Does it also serve your carrier in some capacity? Making this determination can be time-consuming, and conflicts can be easily missed. Any firm you consider should be clear about possible conflicts, but it’s your recovery at stake, so it’s best to do the proper vetting.

In the insurance industry, it’s the policyholders’ right and obligation to value their own losses for submission to their insurer. Your insurer may be more than willing to help, but is that’s what is best for your business? Claim recovery is the reason policyholders invest in insurance, so be sure to hire a firm that knows how to prepare a claim and is working on your behalf. 

Loss accounting is a specialized craft that comes as a result of experience and expertise with insurance claims. Seeking an independent, third-party valuation of your losses is not only smart business but may be a fiduciary responsibility, especially with a large property and business interruption claim.




Category: Insights 

Tags: Claims 

By: Jeff Esper | October 26, 2015

Jim Gillespie & Jeff Esper presenting to SV RIMS at Intel

It's been a busy year of delivering presentations for us. We've been asked to present across the United States at RIMS chapters and regional RIMS conferences. It's an honor and a pleasure to present at RIMS events and we're always working to keep the material fresh and interesting.


For example, our presentation for Silicone Vally RIMS (pictured above) hosted at Intel HQ, featured case examples relevant to companies in the region. The meeting was sold out weeks prior for our presentation which was on Business Interruption Values and Exposures. It was an interactive presentation with an engaged audience. Contingent Business Interruption seemed to be hottest topic filled with questions and comments from the RIMS attendees. CBI has become a bigger part of the BI Values equation especially among companies who depend heavily on suppliers around the world.


International events such as the Japan earthquake and tsunami in 2011 from which the total damages are estimated at $300 billion dollars (about 25 trillion yen), according to the Japanese government have spurred the increased attention to this risk area. 


For more information about our presentations, click on the Sharing tab above.

Category: News 

Tags: Presentations 

By: Jeff Esper | September 30, 2015

When I started as director of marketing at RWH Myers, I asked a lot of questions of the partners. With the firm specializing in loss accounting, I wanted to understand the most important attributes in a successful claim. What I learned seemed too obvious at first, but I soon discovered why each component was essential.


The five keys to successful claims are not rooted in complex business interruption equations or piles of documentation. They are critical fundamentals. Fundamentals in any endeavor are easily missed and hard to execute without practice. But if you master the fundamentals, you’ll be on your way to a positive outcome. Get them wrong, and you’ll struggle to recover what you deserve. When millions of dollars are on the line, risk management cannot afford to come up short on recovery. Our firm exists to help policyholders in their attempt to be made whole after a loss, so we thought it would be valuable to share what we found to be most important.


Here are the five keys to successful claims:


  1. Define the Claim’s Priorities

When you have a loss, it is important for everyone to understand what is important to the organization at that time. Is it the recovery amount? Is it the speed of settlement? Is it a smooth process? Is it cash flow? Is it resource relief? It may be all of these and more. Risk managers should discuss the priorities with executives and other key personnel to ensure all considerations are accounted for. When cash flow is critical, the claim preparation strategy should incorporate interim claim filings. If the primary need is to get the loss off the books before financial reporting, the strategy may focus on speed of settlement. Knowing the priorities of the organization will enable a claim strategy that can meet those needs. As the old saying goes, “If you don’t know where you are going, any road will take you there.” With a property and business interruption claim, everyone involved needs to know where to go.


  1. Have the Right Team in Place

If you’ve been through a significant property claim, you know that your insurer(s) will have a team of experts whose job it is to adjust and audit your claim filings. Their goal is not to pay out the claim amount. It is to minimize the exposure to the underwriter to preserve profitability. Insurance companies are for-profit enterprises, and they take their profits seriously. Knowing what their priorities are should reinforce the need to have a skilled team representing you. You will undoubtedly need to involve internal personnel to assist you, but know that they do not have the experience to match the insurers team’s acumen. It is in your best interest to assemble your own team of experts ahead of a loss. Savvy policyholders may specify certain adjusters to be written into the policy in an effort to minimize potential claim issues. No matter what, you should avoid relying on the insurer’s forensic accountants’ calculations as the measure of your losses. An independent loss accounting firm can not only provide you with an accurate loss valuation but will be instrumental in guiding the claim to meet your goals.


Experience matters greatly, and you will need it to ensure success. Professional fees coverage is available for this service. It is there to pay for the experts you’ll need. Take advantage of it. Having your team in place in advance will make a big difference.


  1. Develop a Claim Strategy

The claim process involves many activities that could be daunting and burdensome to everyone in your organization, but the demand to achieve your priorities is relentless. It is critical to develop an effective strategy to get the best results from your claim. Engaging experts can help develop your strategy as they will know the obstacles you will face and can plan for them. The strategy should incorporate your priorities and the steps to achieve them. It should involve analyzing possible adjustments and ways to overcome them. To keep the claim moving, create a timetable that maps each milestone. It should include request for information (RFI) responses and feedback, interim claim filings and audit results, periodic meetings and requested settlement date. Don’t rely on hope or faith that your carrier will do the right thing. The carrier will do what’s right for it, not for you. Engage your experts immediately after a loss so that they can be involved in the design and execution of your strategy from the onset. If you are looking to recover millions of dollars, you better have a solid plan to do so.


  1. Give the Claim Appropriate Attention

At the beginning, claims get a lot of attention, but, as time passes, other items will distract from your claim. Managing an insurance claim is not a normal part of the job for anyone involved unless that is their job. For the insurer’s team, managing the claim is their job. It’s what they do everyday. If you engage a loss accounting firm that specializes in preparing claims for policyholders, the firm will help to ensure your claim gets the appropriate attention. Not only will the firm keep your attention on the claim, but the firm will hold the insurer’s team accountable to the timetable. Claims take time. You must be patient, but persistent. You can ill afford to lose attention. Don’t let your claim get lost amid all your other duties.


  1. Prepare a Logical Claim

When I worked for one of the largest brokers in the world, I often wondered what exactly our claims group did to help clients with claims. I was surprised to learn that the onus was on the client to actually put the claim together — all the financials, the calculations, all the invoices, the claim report, everything. This documentation is the basis of the claim. It’s what’s reviewed, audited and adjusted. As the broker, I thought our claims group did it. I came to realize it’s not our responsibility, nor should it be. After all, we’re the broker, not the policyholder. For the clients that used a loss accounting firm, the claims went much more smoothly and were resolved faster. I didn’t understand why until I joined RWH Myers. Putting the claim together is only half the battle. There is a technique to it that makes the difference from start to finish. As the claim progresses, there are always gray areas. Sure, you’ll recover some of your claim regardless of your approach, but that gray area may represent 20% or more of your losses. If recovery is important, that 20% matters greatly.


When claiming time element as business interruption, you are claiming earnings that you would have earned had the loss not occurred. There is an art to the model used to calculate these losses and a science to showcasing the logic behind it. A simple, logical and easy-to-understand claim will meet less resistance and recover more than a complicated, confusing and overbearing claim. Unfortunately, there isn’t a cookie cutter formula. You can’t just teach it. Experience is the only way to ensure this “key” will lead to a successful claim.


The bottom line is that claims have lives of their own. There are two opposing sides with opposing agendas. Claims ultimately come down to a negotiation. The amount remaining at the negotiation table tells the tale of how well the claim was prepared, including all the fundamentals — the priorities, the teams, the strategy, the attention and the claim report. It all matters to recovering your losses efficiently and effectively.



Category: Insights 

Tags: Claims 

By: Jeff Esper | August 25, 2015

New information is slowly filtering out of China about the Tianjin explosion and many companies are trying to figure out how their operations and business income will be affected. As the proverbial dust is settling, the one certainty is that a critical cog in the international supply chain wheel has been crippled and will not likely be fully functional for some time. The insurance implications are expected to be substantial according to Reuters analyst Arian van Veen, “It is still very early to determine the level of insured losses, but the event is likely to be large with initial insured loss estimates of $1-$1.5 billion and a large number of insurance companies affected,"

If you expect to have a loss stemming from Tianjin, here are some tips that may be helpful:

Policy Communication

Communicate with your claims team, from brokers to forensic accountants, so they are ready to respond.  They also may have some information you do not have as they likely are speaking with many other companies in the area.  Review your policy for coverage availability and/or limitations.  What are the details of your CBI coverage, ingress/egress, civil authority?  Discuss potential claim strategies and prepare internally for documenting your claim.  

Internal Communication
Now is the time to communicate and gather information as best you can.  Your internal groups, from supply chain to finance, need to know you are a resource for them, but you need to stay in the loop with regular updates on what effects the company is feeling.  The more information you can gather right now, the better positioned you will be when discussing with your carriers how your policy applies to the loss.  

Adjuster Communication
You are likely in contact with the local adjuster regarding the possibility of a claim. Let them know that you are on top of things and that you’ll keep them informed. If information is requested be sure to maintain control of the information that is shared.

Category: News 

Tags: Claims 

By: Jeff Esper | August 18, 2015

It’s okay to get help!
Recently, we hired a business development professional. In learning our business model and marketing strategy, he asked, “Who is your biggest competitor?” We said: our customers — the “do-it-yourselfers.” This struck him as odd, but it is the absolute truth.We are in the business of preparing property claims that usually involve physical damage and business interruption. This is a very specialized practice that is part accounting, part insurance and part art. However, the companies we approach often feel they are in the best position to handle this process and do not need outside assistance.

Why is that? 
When a claim is reported, the insurance company will assign an adjuster to the claim — either an inside adjuster or an independent adjuster — sometimes both. The adjuster is hired by and paid for by the insurance company to make sure the claim fits within terms and conditions of the insurance contract. The adjuster will rely on specialists of his own — usually forensic accountants and forensic engineers. The specialists allow the adjuster to focus on his job of interpreting the coverage, reporting back to the insurance company and negotiating settlement on behalf of the insurance company. The specialists are there to verify the details of the claim that is presented to them by the policyholder. The insurance adjuster alone cannot and does not take on all of the responsibilities. The adjusters are the experts at this process — it is their business and they do it every day — but they still get specialized help.

So if the insurer handles claims this way, why would the insured not get expert help?
Think of the “do-it-yourselfer” project at home. Let’s say you’re pretty handy around the house, so you look at that bathroom that needs remodeling and decide, “I’ll do it myself this weekend.” Technically, you CAN do it yourself — you can take your crowbar and sawzall and do the demolition; you can handle laying the tile; and, with a little research, you could figure out the plumbing. The first weekend you go out to buy the extra tools you need and some supplies, and you get to work. Maybe the demo will go easily, but if you’ve ever tackled a home project, you know nothing is as easy as it seems, and it always takes more time than expected.If you make it through the demo, you spend the rest of the weekend figuring out your strategy for the new bathroom. Because you have a day job, each evening that next week you try to make progress, but by the end of the week you are bleary-eyed from the stress of this unfamiliar work and the late nights of trial and error. 

The next weekend, you cannot get back to the work, because you have family activities. When the vanity arrives, you realize it does not quite fit the way it should. Next, you realize you need more tools. Your weekend project turns into months of disarray. If you stay the course, months later you’ll have a functional bathroom, but there are usually a few steps that you decide you’ll have to get to eventually. At this point, you’re getting busier at work, and you just don’t have the bandwidth to get back to the myriad of subsequent bathroom issues, so you consider bringing in an expert to bail you out.

Preparing a claim is very similar, if you do it yourself. In addition to saving time, stress and compromising the results, your claim preparation expert has the tools of the trade, the skills and the experience to achieve an accurate and timely recovery. In contrast to the home improvement example, though, your claim preparer’s fees should be covered, in part or in full, by your property policy. So, if you’re not saving time or money by doing it yourself, and an expert will get you a better result, why would you not engage a professional claim preparer?That question seems like a no-brainer, yet so many still take the DIY approach to property claims.

To sum up, it is okay to ask for help. The policyholder is not expected to be able to “do it yourself.” That is why you have professional fees coverage. The insurance company assigns its experts to adjust and audit your claims, and they’ll be better-equipped to meet their objectives than you will if you take the DIY approach. They are the insurers experts, so it is advisable for you to bring in your experts to represent your interests.Here are a few suggestions of what to look for in a firm to prepare your claims.


  • A loss accounting specialist, because insurance accounting is a unique trade. Typically, the firm will identify itself as forensic accountants.
  • Experience with the types of property claims you have, in your industry or similar ones, and with at least 10 years in the field.
  • Independence. This will ensure the firm is on your side with no conflicts of interest. Avoid allowing your insurer’s accountants to calculate your losses. The same hold for any other party that may have a conflict.
  • A firm that qualifies for professional fees coverage. The fees should be based on an hourly rating scale, not on contingencies. Property policies will have specific exclusions, such as public adjusters and broker affiliated services.
  • A firm that is respected by insurers, adjusters and brokers. Your accountants should not threaten your relationships to achieve the result.

If you see the benefit of engaging a team to prepare your property and business interruption claims, do your due diligence ahead of a loss. Interview any qualifying candidates and make your choice. The firm should be involved in your claim from the very beginning.If you take this advice, your claims will go much smoother, and the claim will be free of leaks and loose tiles.


Published 8-18-15: InsuranceThoughtLeadership.com

Category: Insights 

Tags: Property Damage 

By: Christopher Hess | July 15, 2015

The world is getting smaller. Companies of every size do business around the globe. This poses business interruption risks both direct and indirectly. Recent examples include the devastating flooding in Thailand and the Tohuku earthquake and subsequent tsunami in Japan. Property claims can be hard enough when they are at home; adding distance and language differences can make things more time-consuming and add expense to resolving a claim. There is good news, though: International claims are not that different than any other claim. 


For example, in 2013, when Ingersoll Rand suffered an $11 million-plus flood loss at a manufacturing plant in Shanghai, we calculated the property damage and business interruption loss amounts, prepared the claim and worked with the loss adjustor and the insurance company’s forensic accounting team. We effected a settlement within three months of the end of the loss. 


Experience is the key. 


The Language 

The insurance world speaks English. The first question we are asked about preparing international claims is whether we have someone who speaks the local language. While this might have some benefit, it is far more important that someone understand the process and the numbers. On the rare occasion where a translator is necessary, that is all that is needed: a translator. It is not necessary to have a claims practitioner who is fluent. You are much better off with practitioners who know what they are doing on a property claim. 


The Location  
The time and cost to fly consultants around the world is a real concern. Often, policyholders will be inclined to hire less experienced professionals because of their proximity to the loss. This is a mistake. For the most part, information can be transferred electronically and explained over the phone. For companies based in the U.S. with operations abroad, all information necessary to prepare a claim can be transferred through headquarters. 


There are certain elements of a property claim where on-site assistance is needed (physical inventories, building or equipment inspections, etc.) This type of specific technical assistance can be coordinated with the insurance company and local resources. As with accounting information, the results of these physical inspections can be documented and sent back home. There is usually no need to send someone from here to there. 


As real examples, we have prepared and settled dozens of claims around the world without setting foot on the loss site. This is accomplished by sharing information electronically and communicating by phone, web meeting, web sharing portal, etc. The alternative of using local, less experienced professionals would undoubtedly add confusion to the process. Experience is the most important requirement in preparing any property claim. Don’t get the wrong impression – we have traveled all over the world for our clients when asked. Sometimes, the parties involved require the travel, or the loss simply demands it. However, this type of travel is less frequent now. If required, travel should be scheduled to maximize productivity to reduce the amount of travel needed. Again, experience and expertise allow this to be accomplished most efficiently. 


The Local Policy  
Local policies that cover losses abroad may have some differences from the global policy. If these differences affect recovery, in general the master policy can be invoked to make up any differences. You will want to prepare the claim according to the local policy, but be aware of differences. Your broker should be able to help sort out any differences and the reasons for those differences.

 

The interpretation of the local policies by local adjusters can create confusion. Just be aware that the intent of the local policies should fit in with your global program – to indemnify for the loss. 


Summary  
Losses happen all over the world. Just because you are in New York and the loss is in Paris, France, does not mean you should treat it any differently than if it were in Paris, Texas. Language and location are not a barrier in this day and age. If you compromise expertise for proximity to the loss location, in the end it will cost you more. Look for a team that has had success managing international claims throughout the process, leading to results for clients.


Published 7-9-15: InsuranceThoughtLeadership.com

Category: Insights 

Tags: Claims 

By: Jeff Esper | July 06, 2015

The 4th of July has come and gone, but we should not forget the reason we celebrate this holiday- Independence. The freedom and liberty we enjoy in our lives started with the need for independence. It is also a critical part of business, law, medicine, accounting and insurance.

In the insurance industry, policyholder’s insure against business risks in order to protect their financial integrity. When these risks become a reality, claim recovery is the return on investment. Unfortunately, it’s not quite that easy. Claim recovery is a process that requires expertise to secure a fair settlement. As you know, your carrier has experts assigned to adjust and audit your claim, so in turn, you should have experts to help you quantify your losses and prepare a well-documented claim. But expertise is not enough. If you want the best chance to be made whole, independence matters.

As service providers to insurance policyholders for several decades, the partners of RWH Myers have remained the independent specialists, free of conflicts of interest, and devoted to policyholders. This means that your interests, needs and objectives are all that matters. Many companies promote themselves as focused on client needs, but in claim preparation, it’s more than a slogan. It’s a matter of ethics and a code of conduct.

“According to AICPA Practice Aid 08-1, Independence and Integrity and Objectivity in Performing Forensic and Valuation Services, before accepting a forensic accounting engagement, one should carefully evaluate their relationships, if any, with all parties to the action to identify potential actual and perceived conflicts of interest. These parties include named and potential adverse parties, and counsel for the parties on the opposing side.” Richard Fletcher, Accountingtoday.com

In the claim preparation business, true independence isn’t as common as you might think. So why does independence matter so much in claim preparation? Independent loss accounting is the only way to preserve “client interests,” professional integrity, and freedom from conflicts. The partners of RWH Myers understand the code, but to us, it’s really a matter of principle. How can you put your clients interests first if you have other interests and influences? The only way is to remain independent.

Is your loss accountant independent? The most common claim preparers are forensic accountants. Let’s take a look at where they exist in the insurance industry:

    •   Insurance company forensic accountants
    •   Insurance Broker forensic accountants
    •   Consulting firms with forensic accounting service offering
    •   Accounting firms with forensic accounting service offering
    •   Independent loss accounting firms

It should go without saying that the firms hired by insurance companies cannot provide independent and unbiased service to policyholders, but many still do rely on the insurers accountants to measure their losses.  If asked, the insurers accountants would likely recommend the insured retain an independent firm to assist them, yet there are those who don’t know and don’t ask. For the policyholders in this category, hopefully, you see the light after reading this article.

Broker owned accounting firms have their own set of potential conflicts starting with the strategic relationship they have with insurance companies.  As a former broker, I can tell you these relationships are sacred and, for the most part, one cannot exist without the other. The carrier’s profitability is directly related to claims paid and they will reward their brokers for profitable accounts with a bonus commission, aka contingent commissions. If you are on a fixed fee arrangement, it does not mean there’s no contingent commission in play. Your broker wants to serve your needs and will work hard for you, but when you have a loss, they have a conflict of interest. It’s also important to remember, your claim can last longer than your broker agreement. It’s hard enough to end a relationship with your broker, but if they’re preparing an outstanding claim, it will prolong your dealings with them. If you change carriers and your broker at the same time, it can make it harder to resolve. If you are using your broker for claim preparation, consider an independent option that only serves one master, you.

The large accounting firms with consulting practices will scale back their consulting activities when faced with financial debacles that cause regulators to scrutinize their independence.  The inherent conflict of an auditing firm preparing a claim for a client should be obvious.  The audit firm will have a direct impact on creating an asset and/or revenue stream, which they would then audit the financial results.  Those two activities need to remain separate to maintain independence. Also consider what it means if your claim preparation firm is also the auditor for your insurer. As you can see there are potential conflicts on both sides. Why not avoid potential conflicts and work with an independent specialist?

Hiring consulting firms present similar conflicts to consider. Are they a provider of another service to your company? Do they also serve your carrier in some capacity?  Making this determination can be time consuming and conflicts can be easily missed. Any firm you consider should be clear about possible conflicts, but it’s your recovery at stake so it’s best to do the proper vetting.

In the insurance industry, it’s the policyholders right and obligation to value their own losses for submission to their insurer. Your insurer will be happy to help you measure your loss, but is that what is best for your company? Recovering your losses is the reason policyholders invest in insurance, so be sure to hire a firm that knows how to prepare a claim and is working on your behalf. Loss accounting is a specialized craft that comes as a result of experience and expertise with insurance claims. Seeking an independent, third party, valuation of your losses is not only smart business but may be a fiduciary responsibility, especially with a large property and business interruption claim.

RWH Myers stands by our declaration of independence and we’re proud to support your interests and your success. It’s clear, Independence matters to us. If you like the idea of conflict free claim preparation, then Independence matters to you too.

Category: Insights 

Tags: Claims 

By: Jeff Esper | June 04, 2015

This article might seem out of place coming from a policyholder advocate who is often at odds with property adjusters. However, I feel for them. Their job is not easy and is further complicated by the system that has evolved.

Having prepared property claims for more than 20 years, I have seen the process change into what it is today — and the change is not favorable to the policyholder. Historically, the adjuster was the point person for the insured to interact with. The adjuster was given authority to make judgments as to coverage and measurement of property and business interruption claims, often relying heavily on their expert accountants and engineers to form their opinions.

Today, the adjuster is still the point person, but there is a group in the shadows that makes most of the decisions. Much of the authority has been taken away from adjusters, oftentimes putting them in the middle between the ultimate decision makers and the insured. This leads to confusion, delay and frustration by all parties involved. I liken it to the “Telephone Game” — where you get a group together in a circle and whisper something to the person next to you; by the time the message makes it around the circle, whatever you said has been distorted into something completely different. Just like the game, the insurance process suffers from a communication breakdown that confuses issues and delays resolution.

Some would say this evolved out of necessity for the insurance companies. They do need to be on alert for fraud, so close management of the process by those paying the bills is reasonable. However, the point of assigning an adjuster is to avoid micromanaging the process and to delegate some of that authority. Additionally, the adjusters are the closest to the loss and need to be able to make decisions on ambiguous issues. Having them go back to their superiors to clear every agreement defeats the purpose of having an experienced adjuster.

There are better ways to prepare for the challenge of claims than pointing fingers:
1. Adjuster Selection – the policyholder may be able to specify certain adjusters and even have them written into the policy. Even though they are subject to the same system, experienced adjusters are more likely to have clout with the insurance company. This may allow them to have more freedom than those adjusters who are less experienced. Additionally, the adjuster will appreciate being a part of your program and will be less likely to create problems.
2. Leverage Underwriters – the insurance business has two sides: sales and claims. These sides do not necessarily communicate. Often, the policyholder can feel that one thing was sold and another is being adjusted. Make sure that the claims side knows that you are willing to involve the sales side if differences arise. While this is not something you want to do on every claim, it can be an effective way to correct the claim adjustment team on issues you feel strongly about.

3. Policy Acumen – Do not assume the adjuster knows how your policy should respond better than you do. Involve your broker and coverage counsel when facing interpretation issues. Often, we see an adjuster make claims of fact about adjustment methods that conflict with our experience with previous claims.

4. Claim Stance – It is the duty of the policyholder to prepare the claim. Prepare your claim as you see it and be prepared to defend it. Do not leave it up to the adjuster and his team to tell you the number. Understand the areas of your claim that might be subject to debate and prepare your best arguments. Recognize the strengths and weaknesses of your claim and anticipate adjustment attempts.

5. Empathize – It is common to think that the adjuster is out to get you and just wants to minimize your claim. Though it does happen, for the most part, the adjuster is just doing her job. If there are unreasonable positions coming from the adjuster, she is likely just the messenger. Working with the adjuster instead of against her, showing empathy, may just get her to empathize with you and your position. Help her help you!
Like with anything, preparation is the key to success. Add a dose of a positive attitude, and you might even enjoy the process. It’s a better approach than the blame game. When you are faced with an insurance claim, having the right perspective, a little understanding and being prepared will make a huge difference. Incorporating these steps will improve your claim outcomes and will help make the most out of any claim situation.


Category: Insights 

Tags: Claims 

By: Jeff Esper | May 28, 2015

The major storm and flood waters in parts of Texas and Oklahoma have caused death, destruction and despair affecting residents and businesses.  Those in Houston certainly remember similar experiences from Tropical Storm Allison in 2001.  Just like Allison, the waters will eventually recede and properties will be restored, but the impact will be felt for years to come.

To rebuild and restore businesses after an event like this involves time, effort and a good strategy. When it’s time to file a claim, having the right strategy will relieve much of the financial burden to your business. Coverage for the property damage may involve FEMA, Commercial Insurance, and other forms of aid. Maximizing recovery from all applicable sources is a daunting task, especially in the aftermath of catastrophic events. This is why informed policyholders turn to RWH Myers.

Just like the rebuilding and recovery effort itself, the financial recovery requires a team approach, but involving the right team is imperative. There are always those looking to take advantage of a disaster, so be cautious of who you hire for any service. It is always best to work with people you can depend on and trust. It is almost impossible to completely prepare for a disasters like this, but when it comes to preparing your claim, involving an experienced team will make a huge difference in both the process and the outcome.

The partners at RWH Myers have been through every named storm in the last three decades-including Allison, Ivan, Katrina.  We know how to accurately measure your losses, prepare your claims and recover what you deserve. Recovery may not come easily, but with the right team, it will be easier on you and your organization.

If you are in need of financial recovery assistance - including the preparation of insurance and FEMA claims related to this event - please contact the specialists at RWH Myers.  We are independent and devoted to the policyholder.

For more helpful information or to contact us visit- www.rwhmyersinsights.com.

By: Jeff Esper | May 07, 2015

It was another exciting RIMS Annual Convention last week! New Orleans is always a great destination and with the city filled with insurance professionals, it was really bustling. 


The RWH Myers exhibit booth had frequent visitors. Some came by to learn about our company and several friends and clients stopped by to say hello.  And, everyone wanted a chance to win our booth prize, The Parrot Bebop Drone. With a fish bowl filled with business cards, the winner was pulled: William McBain, Assistant Treasurer at Samsonite. Congratulations William!


After each day at the exhibit hall, the nights were spent at industry events from The French Quarter to the Superdome. We capped off the week with our annual client dinner Wednesday night at Bayona which was a brilliant venue for a relaxing and delectable evening.


Well, another RIMS Convention is in the history books so we're looking forward to next year in sunny San Diego!

Category: News 

Tags:

By: Jeff Esper | April 15, 2015

When a property claim occurs, with or without business interruption, it is very common to assume that it will be straightforward. Just submit your invoices, and your insurer sends you a check. You may think, “We can do it ourselves,” or, “We have it under control.” If this has been your approach, you need to read on.


There are many potential issues when preparing a property claim that are commonly overlooked or misunderstood. The challenge is even greater if there is a business interruption component to your claim.


From experience, my partners and I have identified the most common property claim issues that can slow down the claim process and have an adverse affect on recovery.


 


1. Repair vs. Replacement

Repair vs. replacement comes up in almost every significant property claim. The issue arises when it becomes a battle of opinions and assumptions. We all know the humor on opinions and assumptions — but your property damage claim is no laughing matter, so let’s explore what can happen.


If you have a replacement policy, you have the option to repair or replace. If it makes more sense to replace with a new and improved item, then you should do what’s best for your business. However, if repairs are possible and at a lower cost, the adjuster will undoubtedly dispute the claim, and you’ll be debating a matter of opinion. When the adjuster’s experts recommend repairs that you know are not guaranteed to work, especially long-term, you face a challenge. As a business, you cannot afford to risk a failed repair, so you elect to go with new equipment with a warranty. The repair option will now be a theoretical scenario that your insurer can leverage to adjust your claim payment. Regardless of the adjuster’s position, you did what was best for your business, but there’s a way to neutralize this potential adjustment.


    •    First, the worst thing you can do is proceed on a plan without sharing your logic with the adjuster. Include the adjuster in the initial assessment and decision-making process. While you have the right to do what is best for your business, the adjuster’s involvement and buy-in early on will make them part of the decision and can help to avoid an issue down the road.
    • Next, get several (at least three) independent quotes to repair or replace the equipment — these quotes should include the time, expense and predicted reliability of the repair. If you only get a quote from the original manufacturer, there could be a perception that it has an ulterior motive. Armed with data, you will have an easier time justifying your decision. For example, the repair option may be cheaper, but if it takes longer to complete, it will add to your business interruption claim and ultimately cost more.
    • Finally, perform a realistic analysis of various failed repairs scenarios and the potential impact on timing and costs. Discuss your findings with the adjuster to ensure any subsequent repairs and resulting business interruption would be covered as part of this claim and not a separate occurrence. After all, everything is technically repairable — it is just a matter of determining the most practical solution given all the circumstances.

2. Betterments

Losses often present opportunities to make useful changes and improvements to operations. Adjusters anticipate this and will be prepared with reasons to limit recovery by labeling certain repairs, reconfigurations, and replacements as betterments. Most of the time, newer is better, and that is why you pay for a replacement policy. However, just because something is better does not mean you should not get full replacement value.


Let’s say you are replacing a piece of production equipment that was damaged as part of your loss. In searching for a replacement, you find that the as-was capacity replacement for your equipment is no longer available and that the alternative equipment has a 10% greater production capacity than the damaged property. In this case, the adjuster may argue for a credit for the increased capacity. Though the new equipment is clearly a benefit to your business, because the exact model that is being replaced is no longer available, you don’t have an equivalent alternative. If required to justify and validate your decision, simply compare the cost/time differential between your decision and a custom order built to spec. In cases like this, you should not be penalized for the betterment.


There are valid adjustments for betterments, but it’s important to understand the difference between a betterment and your rights to a replacement of like kind and quality.


3. Property Damage vs. Extra Expense

From a policyholder perspective, the types of expenses related to the claim do not really matter because they are necessary to get back in business. The insurance company, however, needs to see expenses segregated into their proper insurance claim buckets. To ensure a smooth claim process, knowing how best to account for expenses is critical to the outcome of your claim. Let’s say you have payroll expenses for cleanup and remediation. If you consider that property and extra expense are subject to different limits and deductibles, it makes good sense to claim them according to your coverage limits. As a rule of thumb, look at the property bucket first for expenses related to cleanup and repair of the property because the extra-expense bucket will offset business interruption, thus allowing you to operate as normally as possible during the indemnity period.


As an example, assume you have production labor working overtime to keep production going and to clean up and repair damage from the loss. This time should be separated as normal labor, property damage cleanup and repair and extra expense. To complicate things further, both normal rates and overtime rates need to be factored into each calculation. Finally, you have to keep detailed records that document the who, what, when and where that is involved in the work being done.


Remember, when appropriate, it’s best to claim expenses as property damage, provided the costs can be documented. It is a more tangible approach and will avoid conflicting with the business interruption calculations for extra expense and inefficiencies, which are based on assumptions and subject to debate.


4. Actual Cash Value

Immediately after a loss, you are entitled to recover the documented actual cash value (ACV) of your damaged property. You may claim ACV as the amount you are due before exploring replacement options. This is a good tactic if you want to get the cash flowing early in the process while the replacement values are being determined and decisions on replacement are made. However, accurately determining ACV can be challenging.


Typically, the starting point is the asset ledger that shows a depreciated value of the asset. However, this number is usually used for tax purposes and may not represent the actual value of the asset. Other options to value the asset include pricing based on what a willing buyer would pay or replacement less physical depreciation based on the actual life of the asset. These methods vary state by state. Do your research to value the asset appropriately under the circumstances and know that there is not one right answer.


Additionally, some policies allow you to recover full replacement value for assets even if you do not replace them. The policies usually require that you spend the money on a capital project that was not approved at the time of the loss. The capital improvement does not necessarily have to replace capability of the lost assets. If this is of interest, check with your broker about adding this option to your program.


5. Period of Indemnity Impact

In general, the period of indemnity is the length of time it takes (or should take) to make property repairs. Once repairs are complete or should have been complete, the period of indemnity terminates. While you can, and should, attempt to settle portions of the property claim as you go, any agreements related to the property side of your claim can have a costly impact on the indemnity period for the time-element portion of the claim. It is critically important to address property issues in tandem with time element, to avoid unnecessary recovery issues.


This can be a little confusing. As an example, let’s assume you have a total loss to a piece of equipment, and the replacement cost is known. It would be reasonable to settle for the replacement cost of that equipment. However, the adjuster assumes an aggressive timeline to order and install the equipment, not considering how installation might affect continuing production. When this happens, make sure the timeline and assumptions for installation are clear and acceptable before settling on the cost to replace the equipment. Otherwise, you might get what you want on the property settlement and then lose on the time element.


If you have a separate team working on the property and time-element claims, collaboration is essential to avoid assumption-based adjustments, This becomes especially important when repairs are theoretical, as this will be the basis for the time-element recovery. Always remember to consider all assumptions needed for time-element claims as part of any property settlement.


6. Residual Value Adjustment

If you have a significant property claim, you may need to purchase equipment or supplies on a temporary basis. The validity of these purchases is not in question, but their use once permanent repairs are made is. For items such as this, the adjuster may look to take a residual value credit. Essentially, the adjuster agrees that you needed that item, but when the permanent repairs are made (and paid for), you will no longer need it. This may be true, but this does not always mean you should not get full value for the item.


For example, you have an electrical loss that will keep you out of business for an extended period. You purchase a generator to provide basic power to areas of your business. When repairs are complete and power is restored, you no longer need the generator but still have the unit. Because you still have it, the adjuster takes a residual value credit. Is that fair?


The first question you need to ask is whether you want to keep the generator. If there is some value to you, a fair credit can be negotiated with the insurance company. If you do not want to keep the item or do not feel the credit is reasonable, you can have the insurance company take possession — after all, the insurer paid for it. If the insurance company thinks it can get value from the generator by taking possession and selling it, the company will probably take you up on this. More often than not, this is not cost-effective, and you can minimize or eliminate the residual value credit.


7. Documentation

If you have never been through a significant property claim, you might not appreciate the level of detail that is required to document your claim. The general perception is that you gather some invoices and quotes on a sample basis, and that should be enough. Unfortunately, the requirements for an insurance claim are more detailed than most capital projects and audits. Quotes and estimates need to be extremely detailed, and proof of payment needs to be documented almost entirely — if you cannot properly document a claim, it will likely not be paid. It may not be acceptable to the insurance company to use a dollar threshold for charges because the company will insist on auditing 100% of the charges.


To demonstrate the level of scrutiny that claims come under, I refer to an experience I had on one of the largest claims I worked on. The property portion of the claim was close to $200 million. Months of work and tons (literally) of paper were presented to support this claim. During a meeting between the accountants and engineers, one of the engineers made copies for everyone of one invoice presented for payment. He adamantly pointed out that the invoice had been duplicated in our claim submission. It was for one $5 roll of duct tape.


The point is that handling and organizing all the documentation required to support your claim can be daunting. To avoid mistakes, it is advisable to assign a dedicated person or team to locate, scan, print and manage all the support documentation. Bringing in an expert forensic accountant is always a good option to consider, especially for larger, complicated claims or just to relieve your team from these tedious and burdensome tasks. Forensic accountants that specialize in claim preparation may be covered in your policy to work on your behalf. Though you will still have some work to do, your claim will go more smoothly, with fewer pitfalls.


Now you know why property claims are not as easy and straightforward as you might expect. After decades of preparing claims for policyholders, we can attest that what you don’t know comes at a cost in both time and money. We hope the information above can help you prepare for at least some of the issues you might encounter should you have a future property damage claim.



Published 3-31-15: InsuranceThoughtLeadership.com

Category: Insights 

Tags: Property Damage 

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