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By Ryan Pratt
The destruction wrought by Hurricane Sandy and the ensuing chaos have challenged everyone in the affected region, but in the immediate aftermath those businesses that suffered the most damaging losses must be prepared to address their insurance claims.
A large, complex property and business interruption claim is a series of negotiations between the insured and the insurance company beginning the day of the loss. The recovery process can take months, even years, making communication—both internally and externally—a critical part of the process.
In this instance, estimates by forecasting firms suggest the damage from Sandy could exceed $50 billion, second only in history to Hurricane Katrina. For those in business, diligent attention throughout the claim process is critical to drive claims forward. Most insurers are forthright in their business practices and ultimately pay claims; persistence on the part of the insured can be the difference in your claim being on the top of the pile. The onus is on you.
Physical Damage Immediately Following Disasters
The Consumer Federation of America last week said that payments by private insurers for wind damage to homes and business properties from the storm will exceed $10 billion dollars. For those that suffered loss, this means that the claim process starts now—or more accurately last week. The day after damage is discovered, the decisions made in the early stages of the claim will affect the amount and the speed of recovery.
As a claimant, your most pressing responsibility is documentation. Before you begin cleanup or even cosmetic repair, take plenty of photos of all affected portions of your property. Work with the insurer to understand the magnitude of the damage and document decisions made with the adjuster about what needs to be repaired or replaced. Be involved in the process. You and your personnel know your business and should go alongside the insurers’ experts to understand their assessment of the damage and the property’s condition.
Document everything. Insurers may require documentation of all expenditures for verification of what product or service was purchased and the rate at which it was procured. Early in the claim process, companies should set up separate accounts to track loss-related expenses, so that they can be easily identified and documented in the claim.
Loss of Business
While the roof ripped off your building or the standing floodwater in your lobby is clear evidence of losses, some loss is less visible—but just as important.
Business losses occur whenever business is impeded. Properly measuring and analyzing these losses in the wake of a disaster is complex and time-consuming. Claim preparation, a science our team regularly practices, must take into account the comprehensive income lost from the disaster. Contingent business interruption resulting from loss to suppliers or customers is one example of invisible-yet-tangible loss, one many companies indemnify against. Consider: How many hours of revenue did Sandy swallow because you did not have power, your servers were down or your operation was immobile?
In helping with the processes of preparing, presenting and resolving complex insurance claims, we have often found that businesses are preoccupied with the cosmetic harm done to their façade while failing to take into account the true financial loss they sustained. Was your revenue affected by the storm? Did government edicts prevent you from doing business? Can these factors be tied to something that triggers your policy? All of these questions should be asked when assessing whether or not your company has a recoverable loss.
Insurance claims can be as stressful as 90-mile-per-hour winds and rising tides. While filing a claim is an infrequent occurrence for most companies, adjusting them is everyday practice for insurance companies. Our team has a wide breadth of experience assisting companies to develop and present claims to their insurers. In short, we do this every day.
If the insurance claim process becomes contentious, some companies’ first inclination is to litigate. This is sometimes an emotional response, and it may not be needed. Litigating a claim can be a costly proposition that can make both parties more guarded and less inclined to resolve the claim amicably. We advise our clients to resolve their claims and reach recovery through a more constructive claim process.
Don’t forget, after this ordeal is over, you still need insurance. Maintaining that relationship is key to your future success.
Ryan Pratt is a principal with EY LLP’s Insurance Claims Services group. He has a wide range of forensic experience including fraud investigations, litigation advisory, forensic technology and insurance claims.
The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP. This material has been prepared for general information only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.