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TOPIC: Disaster Recovery / Business Interruption
- Arnold F. Mascali, Executive Vice President & Chief Commercial Officer - InStar Services Group, LP
- Jeffrey M. Pollock Esq. – Partner, Fox Rothschild, LLP
- Frank Russo, Managing Director - Aon Global Risk Consulting, Property Risk Consulting
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Understanding of how to work with your insurance company and their experts
Legal Pitfalls to Avoid
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$380 Billion
– Economic Losses Globally (New Record), exceeding the previous record of $270B in 2005
$105 Billion
– Insured Losses Globally 2011 losses were 2.5 times 2010 insured losses of $42B
$72.8 Billion
– Economic Losses in the US - Represents a 129% increase over the $11.8 billion amount through the first half of 2010
$35.9 Billion
– Insured Losses in the US Arising from 171 CAT Events Fifth highest year on record. Represents 51% increase over the $23.8 billion total in 2010
2011 - Highest Loss Year on Record for Economic Losses Globally
Source: Munich Re; Insurance Information Institute.
Severe Weather Reports in New Jersey,January 1—December 31, 2011
4Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
NEW JERSEY
Total Reports = 172
Tornadoes = 1 (Red)
Hail Reports = 30 (Green)
Wind Reports = 141 (Blue)
There were 172 severe weather
reports in NJ in 2011 (none so far in 2012)
A devastating Earthquake and Tsunami in Japan A US East Coast Earthquake Hurricane Irene directly hits New York City
The improbable is becoming the norm
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Documentation of Japan CBI losses are complex...
Earthquake? Tsunami? Nuclear? Aftershocks? Power Outage? Rolling (Intentional)
Power Outage? All of the Above?
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Complacency sets in…
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A hurricane in New York City? We were lucky this time…
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Pre-Loss Preparation
Identify Your insurance adjuster, Insurance coverage and limits, deductibles, sub-limits, exclusions Valuation of Assets and Potential Lost Income (per location) Key revenue generating activities that may be impacted
Critical delivery points Any cash flow and financing concerns
Internal/External team that will lead the documentation of potential losses
Develop Comprehensive Business Continuity and Disaster Recovery Plans Agreements with restoration and other vendors Internal claims manuals and timely reporting measures Reporting & tracking claims procedures Interviewing and selection process for other required vendors
Track Loss history
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Legal Pitfalls to Avoid
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Ready? What’s your plan…?
For getting back to business For accessing critical recovery equipment and/or specialists For coordinating insurance recovery efforts For ensuring timeliness & accuracy of information from the loss site(s) For committing significant time to comprehensively monitor and manage the claim
process For monitoring and managing your vendors and experts For monitoring and managing insurers’ vendors and experts For adequately documenting your loss For expediting your financial recovery
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BuildingContractor
Architect/Engineering
Risk Manager
RoofingConsultant
LossAdjusters
Staff
InsuranceCompany
NormalOperations
CEO/BoardOther 3rd
Parties
RestorationContractor
Media
IndustrialHygienist
Following a Loss Event – Resilience Requires Coordination of Many Resources and Swift Action
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Legal Pitfalls to Avoid
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Surveying the damage with your adjuster
Be careful, take safety precautions Photograph and video footage are key Survey the damage with your adjuster
Sets the tone for the settlement process Discuss measurement of the loss period:
Strategies to expedite or mitigate Betterments Start-up problems
Provide a preliminary loss estimate / order of magnitude Request a partial payment based on expected short-
term expenditures and supportable costs
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YourCatastrophe Teams/
/External Partnership/Loss Consultants
Your Local Facility Operations
YourFinance/Risk Management Dept
“One Voice”Insurance Company/
Third Parties
VendorsRestoration Contractor
Building ContractorArchitect/Engineering
Roofing ConsultantIndustrial Hygienist
Lead and Control the Loss Adjustment…
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Loss Reserve is Key
Scenario 1
• Adjuster visits loss site unattended
• Adjuster sets Loss Reserve set at $10M
• Total Incurred Loss after all is known = $14M
• 12 months to settle
Scenario 2
• Adjuster visits loss site with a prepared risk manager.
• Risk Manager provides detailed order of magnitude
• Adjuster sets Loss Reserve set at $17M
• Total Incurred Loss after all is known = $14M
• 7 months to settle
Major fire at a retail distribution center
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How claims become complex
Delays in repair / reconstruction Cause & Origin Investigations Subrogation analysis
Result from delays Mold Additional damage from rainfall & other perils
Second event prior to completion of repairs Difficult to quantify / segregate
Code upgrade issues Identifying code issues can take time
Delays in analysis and adjustment of damage by insurers occurs during widespread catastrophes
Pricing and timing of repairs increase significantly following widespread events
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Business Interruption – What is Usually Covered?
Physical damage by an insured peril to insured property triggers the time element coverages Contingent BI for insured damage to direct suppliers and customers Interdependency losses between internal operational areas Service interruption - damage to property of the type insured, by an insured peril (that is not
excluded for SI) Civil authority – limited to a number of days Ingress/Egress – limited to a number of days Other exposures in your organization (ex. H1N1 Flu) – insured or not insured?
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Recovery and Settlement Expedited by Aligning the Appropriate Experts
Sh
areh
old
ers/
Inve
sto
rs
CFO
Risk Manager
Operations
Construction
Legal
Accounting
Rein
surers
Other Experts
Legal
Underwriters
Insurer Account Executive
Insurer Claims Manager
Insurer Claims Dept.
Loss Mitigation Consultant
Specialty Consulting
Estimator/ Engineering
Forensic Accountant
Salvor
Specialty Consulting
Estimator/ Engineering
Auditors
Project Manager
Adjuster
Insured Team
Insurer(s)Team
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Legal Pitfalls to Avoid
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Restoration and Remediation – The Basics
Coverage Areas – national, regional, local
Equipment – owned, leased, rented
Services Offered – emergency response, restoration, rebuild
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Restoration & Remediation – Beyond the Basics
• National Network – Local Response
“black dots vs. black hole”
• Specialty Certifications
• Project Management & Subcontractor Standards
• Continuing Education Requirements
• Financial Strength (timing of payments)
• Leverage of Relationships- fuel, power, & access
• Accounting Methods and Billing Processes
• Look for Innovation
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Legal Pitfalls to Avoid
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Restoration & Insurance = Hand-in-Glove
Marrying Terms & Conditions with Disaster Response
– Ex. Extra Expense vs. Expediting Expense vs. Expense to Reduce Loss
– Number of Deductibles
– Sue & Labor
Collaboration Not Confrontation
- Work with insurance adjuster and carrier on scope
- Demonstrate loss mitigation mindset
Act with Due Diligence & Dispatch
- Reasonable conduct under the circumstances
- Period of Indemnity – Actual vs. Theoretical
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Presentation Overview
Pre-loss Planning
A Loss Occurs
The Property Claims Process
Selecting a Recovery Vendor
Tailoring Response to Policy Terms & Conditions
Legal Pitfalls to Avoid
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Planning for Catastrophe
Types of Coverage to Consider: • Business Interruption Coverage• Contingent Business Interruption Coverage• Contingent Extra Expense Coverage• Legal Expense Insurance• Claims Preparation Coverage• Civil Authority Coverage• Ingress/Egress Coverage• Punitive Coverage
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Areas Requiring Immediate Consideration
You will be addressing claims under bad conditions—get some help from an insurance professional
Providing Notice Bermuda Form Coverage (be careful) (Integrated occurrence
trigger) Preserving claim while repairing damage
Claims preparation is complicated
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Front-End Litigation Considerations
Notice Forum—in tough cases, forum is decisive Documentation (counsel should coordinate with broker and client.
Don’t repair without documenting!) Think team (risk manager/claims adjuster/counsel must work
together)
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