Are October Hurricanes becoming the Norm? Hurricane Gonzalo Update & Business Interruption Insurance Primer
Most in the Caribbean Islands were unprepared. In fact, one emergency operations manager downplayed the storm over the radio so much that thousands were caught off guard as they did not take the necessary precautions to protect their properties from Hurricane Gonzalo. It is rumored he will soon lose his job. At the request of some clients, I flew to the Caribbean the day after the storm passed.
Hurricane Gonzalo spawned up quickly from a small tropical storm to an intense Category 2 hurricane on the islands of St. Maarten, Anguilla, St. Barths, St. Kitts, and Antigua before heading up to Bermuda. While the property damage was extensive, it was by no means catastrophic. These islands learned their lesson back in 1995 after Hurricane Lewis roared across as a powerful Category 4 storm with sustained winds of 135 mph for a period of two (2) days. Hurricane Lewis accounted for 19 deaths, left nearly 70,000 homeless, and wrought roughly $3 billion in property damage. Since then, many of the buildings have been reconstructed using reinforced concrete block and metal roofs that are nearly indestructible. (Something the United States should adopt instead of building with plywood.) However, as most of us weather types know, these hurricanes can also spawn many intense tornadoes or micro-bursts, which can cause major damage no matter how strong a building is. Thus was the case here (see photo above) where the roof was completely ripped off causing extensive water damage to the interior ultimately closing the hotel.
As these islands (most with widespread damage) get ready to salvage what they can from their upcoming tourist season, they will soon learn about business interruption insurance claims. Beyond the physical property loss, these businesses will incur significant additional costs and will not be as profitable as before. That is why most businesses have business interruption or (BI) insurance to protect against these risks. However, getting a proper claim prepared and paid will likely be a challenge.
Here are some tips for or best practices for proper claim preparation:
Identify a Leader – Claim preparation and management should be supported with someone who has the authority to marshal resources within your company. The leader will need to have broad knowledge of the business. Usually, someone from the risk management or accounting functions, supported by executive management, will take this responsibility. Consider getting a public adjuster on your team. They will work on your behalf and understand estimating and these type of claims.
Get an Advance – Negotiate a funding arrangement that advances cash to allow your business to start its recovery. Insurers will generally agree to such advances. However, make sure that these advances are not a final settlement of claims.
Create a Timetable – Business property and contents claim preparation will likely involve multiple functions within your company, each which requires coordination. Your employees will be busy getting your operations back to normal, so it’s easy to delay insurance claim preparation tasks. If not controlled, these delays will keep your company from getting a timely settlement and may even cause you to miss deadlines required under your policy. Having an outside public adjuster will provide additional short-term resources that will help keep your claim on schedule.
Gather Documentation – To obtain a smooth and rapid settlement, you will need to support your claim with detailed business records. Your policy will not specify the records that you will need to produce to document your claim. Most likely, the insurance company’s adjuster and outside accountant will demand substantial documentation before any claim is allowed. Your claim calculation and documentation will need to be much more than a computer-generated spreadsheet. Each key variable will need to be supported with contemporaneous business records and related analysis.
Use Multiple Approaches – Claims can be prepared based on specific identification, and trend, statistical and other analyses. By looking at your claim from multiple perspectives, your business is more likely to address all claim amounts and have a more comprehensive and convincing analysis.
Use your Accounting System to Capture Extra Costs – Policies often contain coverage for extra expenses that would not otherwise have been incurred. These costs can vary considerably and should be recorded in a wide range of your regular accounting codes. Simplify the claim preparation process by creating accounts that are used only for extra costs relating to the claim. You will need to show that these costs are incremental. So record the reason that all related costs were incurred and why it was a result of the storm damage.
Identify a Single Point of Contact – All requests of your company by the insurance company’s team should be channeled through a single individual. Do not let the insurance company’s accountants or other representatives meet with anyone at your company unless this single company claims representative is also present. Make sure your point person is a good communicator who files frequent reports with all those involved.
Prepare a Formal Claim – The insurance claim will ultimately be reviewed by several parties, some of who do not understand your business or the background of your loss. The claim should be a stand-alone document in an easy-to-understand format. When we prepare a document for a client, we prepare the claim as if there will be a dispute and the document will need to be presented in a court of law. This may help avoid further disputes and additional requests for information.
Communicate in Writing – To avoid misunderstandings, have the insurance company’s accountants provide their information and document requests in writing. Maintain a written log of everything that has been provided. It isn’t uncommon for the insurance company representatives to otherwise request the same information on multiple occasions. Once the insurance company’s accountants have prepared their analysis, get a copy so that your claims team has time to understand the differences in approach and/or analysis. This will make meetings to discuss the claim more productive.
Following these tips will hopefully expedite a prompt, equitable, and amicable recovery and also minimize your frustration.
If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster or insurance claim experts.
This beautiful boat couldn't hold up to Gonzala's storm surge.