PUTTING OUT THE FIRE Preparing Successful Property and Business Interruption Insurance Claims. Presented by Chris Brophy and Tony Moraes

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1 PUTTING OUT THE FIRE Preparing Successful Property and Business Interruption Insurance Claims Presented by Chris Brophy and Tony Moraes February 5, 2015

2 Presenters Chris Brophy New York / / christopher.brophy@fticonsulting.com Chris is a Certified Public Accountant with over 25 years of experience preparing insurance claims for policyholders. He has helped clients with claims resulting from hurricanes, typhoons, floods, fires and explosions. He has helped his clients to recover billions of dollars. He also has prepared insurance claims associated with builder s risk, contingent business interruption, fidelity, political risk, and product recalls. He has prepared dozens of claims for restaurants and hotels. Anthony Moraes San Francisco / /anthony.moraes@integrogroup.com Tony is a property broker within Integro s global property practice. He has over 14 years of experience in the large and complex risk space. He has worked with a number of industry sectors including large technology, real estate and hospitality. Notably has handled a number of restaurant chains including Applebee s and IHOP. He was named a Power Broker in 2014 by Risk and Insurance Magazine as well as 40 under 40. Prior to joining Integro Tony was with Marsh in San Francisco. 2

3 Putting Out The Fire: Preparing Successful Property And Business Interruption Insurance Claims Four keys to a successful claim: 1. Establishing an Effective Property Insurance Program and Setting Proper Limits 2. Strategic Management of the Claims Process 3. Preparing a Convincing Claim 4. Reaching a Favorable Settlement (Without Damaging the Renewal Process) 3

4 Establishing an Effective Property Insurance Program Properly Identify Financial Exposures Identify and quantify exposures: Business Interruption ( BI ) Values Business interruption worksheets BI Limits and Sublimits Knowing your business 4

5 Establishing an Effective Property Insurance Program Properly Identify Financial Exposures BI Values: The Worksheet BI covers lost net profit plus continuing expenses or lost net sales less discontinued expenses Goal of the worksheet: estimate a company s future revenues and expenses Typically required by insurers for each store location Standardized worksheets are available; however, these do not necessarily apply to all companies General assumptions Catastrophic loss disrupting 100% of revenue generation for an entire year Project 12 months net income plus costs/expenses that would continue during the period 5

6 Establishing an Effective Property Insurance Program Properly Identify Financial Exposures BI Values Considerations Most recent budget/forecast Change in company conditions subsequent to most recent budget/forecast (e.g. new locations, location closures, acquisitions, etc.) Macroeconomic conditions affecting the business (e.g. change in competition, loss of a supplier, etc.) Assessment of both variable and fixed expenses Period of restoration how long to restore operations 6

7 Establishing an Effective Property Insurance Program Properly Identify Financial Exposures Policy Limits and Sublimits Property damage Business interruption Extra Expense Expediting Expense Service Interruption CAT Losses (e.g. Flood, Earthquake) Location Limits 7

8 Establishing an Effective Property Insurance Program Negotiate Favorable Policy Terms Additional coverages Replacement Cost (even if not replaced) Extended Period of Indemnity Spoilage Attraction Property Service Interruption Ordinary Payroll Civil Authority and Ingress/Egress Leasehold Interest Extra Expense Contingent BI Professional Fees 8

9 Deductibles Establishing an Effective Property Insurance Program Negotiate Favorable Policy Terms Dollar deductibles Per location or per occurrence Percentage deductibles Waiting periods Average Daily Value (ADV) 9

10 Strategic Management of the Claims Process Take Charge! Can we just prepare the claim ourselves? We have great resources internally. Big Mistake Best practice: Level the playing field with the insurers. Assemble the best claims team and manage the claims process. 10

11 Reaching a Favorable Settlement Understand the Parties Policy holder Risk Manager CFO General Counsel General Manager Broker Coverage Counsel Forensic Accountant Contractors Insurer Underwriter Adjuster Coverage Counsel Forensic Accountant Construction Consultant 11

12 Strategic Management of the Claims Process Take Charge! Manage the process Set deadlines for both policy holder and insurer Request advances often Manage expectations internally and externally 12

13 Strategic Management of the Claims Process Communicate Early and Often Manage expectations internally and externally! Internal (CFO, Board) Provide frequent updates regarding claims process and timing Explain strengths and weaknesses of claim Provide range of likely recovery Do not book a receivable on a BI claim External (Adjuster, Underwriters) Ask for feedback and objections frequently Alert adjuster ASAP if claim will be larger than prior estimates Communicate all significant activities (demolition, installation, key purchasing decisions) 13

14 Strategic Management of the Claims Process Take Charge! Make business decisions Property: Demolish/replace or repair? Workforce: Ordinary payroll, performance bonuses, relocation costs Do not (necessarily) wait for approval from insurers. But communicate. 14

15 Strategic Management of the Claims Process Strategically use the Insurance Broker Coordination with the broker is critical Giving timely notice to all insurers Requesting advances Advocating for policy holder Leveraging relationships Managing expectations Assisting with coverage issues Keeping the adjuster focused Assisting in settlement of claim 15

16 Strategic Management of the Claims Process Do Not Ignore the Coverage Issues Anticipate. Identify. Respond. Anticipate: Work with broker to discuss potential issues and coverage options Identify: Strategize how to address potential coverage issues after a loss Respond: Communicate with the adjuster and address potential coverage issues 16

17 Strategic Management of the Claims Process Do Not Ignore the Coverage Issues Common coverage disputes Efficient proximate cause Business interruption after widespread damages Wind v. flood Extra expenses Civil authority Ingress/egress Repair/replacement Interruption and restoration periods Deductibles 17

18 Preparing a Convincing Claim Logical Approach / Insurer Accepted Adopt three column approach for the BI claim. It will capture: Lost sales Mitigation Non-continuing expenses Continuing expenses Extra expenses 18

19 Preparing a Convincing Claim Logical Approach / Insurer Accepted Business Interruption Claim - Three Column Approach Column 1 Column 2 Column 3 Projected Actual Difference A B C = A - B Sales $ 20,000,000 $ 12,000,000 $ 8,000,000 Cost of Goods Sold $ (6,000,000) $ (4,000,000) $ (2,000,000) Gross Profit $ 14,000,000 $ 8,000,000 $ 6,000,000 Operating Expenses $ (10,000,000) $ (9,000,000) $ (1,000,000) Gross Earnings $ 4,000,000 $ (1,000,000) $ 5,000,000 Extra Expenses $ (2,000,000) $ 2,000,000 Total $ 4,000,000 $ (3,000,000) $ 7,000,000 19

20 Preparing a Convincing Claim Logical Approach / Insurer Accepted Fire Claim for Retail Store - Date of Loss: December 1, 2004 Business Interruption Claim Actual and Projected Net Income 20

21 Preparing a Convincing Claim Logical Approach / Insurer Accepted Key factors in the projected column: Planned changes in store design, theme, or menu Planned operational moves to improve costs Joining OpenTable Staying open on Mondays Seasonality Competitor changes New supplier agreements 21

22 Preparing a Convincing Claim Tell Your Story and Document Your Loss Avoid red flags: Match claim to policy language Strategic bucketing Document the claim in gory detail Discuss documentation and descriptions with contractors, subs and vendors before they issue invoices 22

23 Preparing a Convincing Claim Tell Your Story and Document Your Loss Be sure to include: Narratives Summary schedules Detailed schedules Trend charts, photos, industry stats, news articles Support documents for everything 23

24 Preparing a Convincing Claim Make It Easy For the Adjusters XYZ, Inc. Date of Loss: October 10, 2013 Property Damage Schedule 1.2 Category Vendor Description Amount Invoice Support Office Restoration JC Restoration Cleaning of office contents 59,433 Invoice American Door & Dock Repair of damaged dock doors 350 Invoice Security Metro Overnight security due to damaged alarm system 31,449 Invoice Tyco Alarm inspection and repairs 274 Invoice HVAC All Points HVAC HVAC inspection and repairs (warehouse/office) 8,746 Invoices Filter Services, Inc. Replacement of filters in rooftop units 606 Invoice Industrial Hygienist Bussey Environmental Inspection and certification of office space 3,350 Invoice Field Ops Restoration Service Master Cleaning of contents related to Field Operations 405 Invoice TOTAL $ 104,613 Schedule

25 Preparing a Convincing Claim Tell Your Story and Document Your Loss 25

26 Reaching a Favorable Settlement Maximize the Recovery Solutions: Reconciliation analyses Negotiation strategies 26

27 Reaching a Favorable Settlement Maximize the Recovery Item 1 Description Insurer assumed a lower sales growth rate at the restaurant Difference $1,000,000 2 Insurer failed to adjust margins for seasonality $ 500,000 3 Insurer projected higher operating expenses $ 250,000 4 Insurer discounted the benefit of the planned restaurant refresh $ 150,000 5 Other $ 100,000 Total Differences $2,000,000 27

28 Reaching a Favorable Settlement Maximize the Recovery Negotiation strategies Timing of concessions Good cop, bad cop Long term relationship Threat of lawsuit 28

29 PUTTING OUT THE FIRE Preparing Successful Property and Business Interruption Insurance Claims Presented by Greg Thaler and Tony Moraes THANKYOU February 5, 2015

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31 Replacement Cost (even if not replaced) The Actual Cash Value if such property is: a) useless to the Insured; or b) not repaired, replaced or rebuilt on the same or another site within two years from the date of loss. The Insured may elect not to repair or replace the insured real and/or personal property lost, damaged or destroyed. Loss settlement may be elected on the lesser of repair or replacement cost basis if the proceeds of such loss settlement are expended on other capital expenditures related to the Insured's operations within two years from the date of loss. As a condition of collecting under this item, such expenditure must be unplanned as of the date of loss and be made at an Insured Location under this Policy.

32 Business Interruption After Widespread Damages D. In determining the amount of loss payable, the Company will consider the experience of the business before and after and the probable experience during the PERIOD OF LIABILITY. The probable experience will consider any increase or decrease in demand for the Insured s goods or services during the PERIOD OF LIABILITY, even if such increase or decrease is from the same event that caused physical loss or damage starting the PERIOD OF LIABILITY.

33 Preparing a Convincing Claim Tell Your Story and Document Your Loss Documenting Ingress/Egress Claims

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