Preparing for the Unexpected Crisis Management and Insurance Claims Recovery Services kpmg.com
b Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services Acrisis is any event that critically impacts a company and requires it to assign valuable operational resources in response. Companies faced with a crisis must deal with issues ranging from business interruption to damage claims to maintaining daily operations. Global companies with far-flung operations are especially vulnerable during these events, as they face increased regulatory and media scrutiny of their response. Due to the unpredictable nature of a crisis and the potential impact on a company s viability, companies should prepare in advance for crisis management and response.
Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services 1 KPMG s Crisis Management and Insurance Recovery Claims Services Crisis Management Services KPMG LLP (KPMG) has supported major corporations with numerous aspects of crisis management for high profile incidents. KPMG Forensic sm, a global network of more than 2,600 multidisciplinary professionals, assists clients with assessing the impact of the crisis on the business, developing a comprehensive crisis management plan, and managing the insurance claims process. Our global capabilities and significant experience working with other advisors allow us to provide a customized response. Our project management office (PMO) approach allows us to provide a broad range of services that enables our clients to focus on sustaining their business. Insurance Recovery Claims Services KPMG has also assisted corporations in seeking insurance claims for damages or business interruptions following a disaster. Throughout the recovery process, KPMG can help manage different aspects of an insurance claim, including understanding the insurance policy and its provisions, collecting appropriate documents to support a claim, and determining the availability of resources to manage the claim effort. KPMG s team is experienced in structuring, complete, and properly stated claims that can bring a rapid response from an insurance carrier.
2 Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services Crisis Management Services Stages of a crisis Each stage of a crisis presents a unique series of events that require active management. KPMG can help companies determine how to respond to each stage. PREPARATION AND PLANNING Before a crisis, KPMG can help companies develop a comprehensive crisis management plan. CRISIS RESPONSE During this phase, KPMG assembles a core team to assess the situation, activate the firm s emergency response plan, and communicate the plan to the entire organization. MANAGE RESPONSE At this stage, the situation is improving (or potentially becoming more complex), and the crisis team provides regular status updates to various interested parties. RECOVERY In the recovery phase, the organization focuses on getting its business back to normal and returning to pre-crisis policies and operations.
Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services 3 Preparation and Planning Although the response is a critical part of crisis management, what a company does before a crisis makes a significant difference in the success of its crisis recovery. KPMG can help companies develop a crisis management plan that not only includes an operational response to a crisis, but also prepares them to manage all of the ramifications of the event. This includes claims, financial and accounting issues, regulatory compliance, and potential litigation. KPMG also has experience working with other advisers that may be providing support during the crisis. Proactively preparing for a crisis requires establishing policies and procedures that can be tailored to specific issues. Clear lines of responsibility are critical, as normal decision-making processes can break down quickly in crisis situations. These policies should cover financial and accounting issues and must be adaptable to constantly changing conditions. KPMG recommends a five-step process when planning for a crisis: 1. Risk assessment: The initial step in crisis planning is performing a catastrophic risk assessment that includes such issues as incident types, country risks, capability risk (by geography), and logistical risks. 2. Claims manual: The next step is development and approval of a manual that describes how to handle the significant number and size of claims that are likely to occur. 3. Incident response plan: The response plan includes activities and needed resources and outlines clear roles and time frames. This should include governance, people, processes, systems, data, and assurance. 4. Plan testing: Companies should also undertake the necessary tests to help ensure that their crisis plan works. 5. Plan maintenance: With a crisis response plan in place, companies should review and test that plan at least every six months to help ensure that it is still viable and adapt the plan to any changes in the external environment. KPMG can quickly develop a response plan and outline an action plan that begins on Day One, has significant milestones after the first week and the first month, and includes continuous improvement as the crisis unfolds. While preparation is important, how a company responds to a crisis and implements its crisis management plan is a critical factor in mitigating damage to the business. KPMG offers a broad range of crisis management services to provide the needed support during a crisis. This includes project management, claims support, and the necessary back-office functions to maintain business operations. Case Study During an earthquake emergency in Abruzzo, Italy, in 2009, KPMG in Italy provided support for a government agency in planning and implementing an Expenditure Management Model to monitor emergency relief resources. As a result of this collaboration, KPMG won a tender to design a new planning model for the provision of resources for different types of emergency interventions. The project included a detailed quantification of financing needs to support the request for funds from the Ministry of Economy and Finance.
4 Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services Crisis Response Project management: As part of our crisis response, we quickly establish a PMO to coordinate daily activities, provide structure, and improve efficiency. The PMO includes on-site support by senior subject matter specialists and provides direct access to dedicated KPMG professionals, including full-time support by qualified professionals with experience in the management of complex transactions. The PMO can cover a range of important tasks: Program governance KPMG can help you maintain program governance with clear terms of reference and defined and formalized roles and responsibilities. RESPONSE PLAN DAY ONE Prioritize actions for first 24 hours Program communications We work with the program and business stakeholders to support the successful delivery of key messages and the resolution of issues. We can also help you develop a formal external and internal communication strategy and plan. Program tracking and control The PMO tools and techniques also include clearly defined risks and issues management and escalation processes to monitor and control all issues. Program reporting Reporting includes a centralized dashboard that filters input from across the work-streams. This also includes a mechanism for tracking program costs against a budget. Case Study Plan resource/logistics requirements Connect with claims intake, third party administrators, and other advisors. Mobilize response team within 24 hours In the wake of the September 11, 2001, terrorist attacks on the World Trade Center, KPMG was engaged by a government agency to establish internal controls, provide financial oversight, and prevent fraud during the emergency debris removal and disposal operations at the World Trade Center site.
Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services 5 The first month following an event is critical. Below is our approach: WEEK ONE Establish PMO (People, process, technology) Confirm protocols for working with stakeholders/claims intake/third party administrators/other advisers (communication, turnaround times, definition of activities) Form governance board Develop an error and fraud detection and remediation process Consider legal framework MONTH ONE Build out PMO Develop payment strategy (true-ups and documentation) Fraud oversight, internal controls, and deterrence procedures established Consider level of actuarial provision required Model funding requirements (timing, currency, amount) Refine IT and data requirements Coordinate with key functions (PR, legal, regulatory government/state liaison) Model likely volume and timing of claims by channel initial view of value Define management information metrics Agree on claims framework Definitions Types Intake mechanisms Evidence required Assess payment protocols (interim payments and settlements) and controls, overpayments/ set up bank relationships Governance meetings, decision making now routine Coordinate with other response teams: procurement, operations, HR Produce regular management information for all stakeholders working with claims intake and third party administrator Data analytics procedures now routine Review volume and value of claims and timing of payments Refine claims framework and extend to: Tax treatment Causation strategy Subrogation strategy
6 Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services Case Study Managing the Response Managing the response requires ongoing status monitoring and regular updates. After the first month, KPMG continuously monitors the changes in the crisis and claims activity and reevaluates and recommends adjustments to policies and procedures. This phase also often includes developing a strategy for supporting the inevitable legal disputes surrounding the claims activity. Recovery As the claims response winds down, the company must focus on getting its business back to normal and returning to pre-crisis policies and operations. This phase often includes a look back at lessons learned and a revamp of various departments policies and procedures, including procurement, legal, and finance. As our support efforts wind down, KPMG can assist in updating these policies and procedures and assess any gaps in governance and controls. KPMG served as the Integrity Monitor for two construction firms providing post Hurricane Sandy home repairs through a major, government-run recovery program. The program is a groundbreaking initiative undertaken by the city to mobilize dozens of contractors and thousands of skilled construction workers to make emergency repairs, free to homeowners, on residential properties affected by Hurricane Sandy. KPMG was engaged to help deter construction fraud, investigate instances of contractor/ subcontractor waste and abuse, and provide various analyses around potential contractor overbilling to the city. Specific areas of expertise Claims support: Crises are often followed by significant claims, both in size and number, being filed against a company. KPMG can help oversee and manage the entire claims process to help make it efficient and to limit fraud. This includes the rapid deployment of management information data collection and analytics to reduce the potential for errors, accelerate the pace of payment of accurate claims, and provide clear information about the execution of critical controls. Specifically our assistance focuses on: Claims handling and support: KPMG can evaluate the claims administrator s systems before a crisis occurs to help ensure they are prepared for claims processing. Claims must be handled in a timely fashion that does not compromise the outcome for either side. KPMG s team of accountants, economists, attorneys, and industry professionals have years of frontline claims experience specializing in the management and support of first-party property damage and business interruption insurance claims. We can provide a qualified perspective to help companies respond to even the most complex set of circumstances and reduce the strain on business operations. KPMG creates efficiencies in the claims handling function by segmenting claims by type, size, and complexity. We can also help in settling fundamentally legitimate claims quickly and fairly in compliance with agreed-upon policies and procedures. Claims modeling: KPMG actuarial personnel can develop models that assess the volume of and value of anticipated claims. This is critical in determining the financial and operational implications of the crisis on the company. In addition, KPMG can develop claims monitoring and improvement strategies as well as data analytics and scenario analysis that evolve as the type and volume of claims change. Claims dispute: Many claims brought during a crisis become disputed. KPMG can help companies dispute or defend claims with third parties, regulators, and local and federal government agencies. We can design and implement litigation readiness and strategies to preserve your subrogation and counterclaim rights and also provide ediscovery and expert witness services.
Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services 7 Antifraud programs and controls: Prevention, detection, and response controls and elements are critical to handling claims successfully. KPMG can provide a comprehensive antifraud, waste, and abuse risk management approach with respect to both operational and functional aspects of the claims handling process. This also includes establishing analytic metrics to identify fraudulent or duplicate claims. KPMG can also conduct investigations that perform all necessary due diligence to document fraud thoroughly. Maintaining business operations: An efficient functional back office is central to the success of front-office operations, including claims payments, management information updates, and daily business operations. KPMG can help provide a backoffice structure during a crisis that supports a range of functions, including accounting, financial, and IT functions. Accounting and financial: Companies often do not have a plan to capture costs or any other financial impact of a crisis, and tracing the economic impact of a crisis when systems are not already in place is costly and time consuming. KPMG can help companies capture the financial impact of a crisis with our use of sophisticated data analytics. This includes reconstructing information that has become unavailable due to damaged IT systems through a review of historical financials as well as financial projections and forecasts. Treasury and cash function: Responding to a crisis requires that you forecast cash funding requirements for claims and identify funding mechanisms and processes to lower costs. KPMG s cash management and forecasting experience can support these functions and can also help you develop detailed management information metrics to help with accurate cash flow reporting. KPMG can establish appropriate cash management processes, tools, and controls, including internal and external reporting, daily cash positioning, bank reconciliations, electronic and manual payment, and management review and approvals. Tax: Companies must often develop a tax strategy for the crisis that complies with reporting, filing, and payment requirements for each type of claimant. KPMG can draw upon our insurance tax experience to help you refine your assessment of the impact that claims payments will have on your federal, state, and local tax liabilities; develop the tax reporting requirements aligned to a claims-based business; and provide the tax capability to analyze and process requirements arising from claims. Internal controls: During a crisis, companies often lapse on their normal safeguards and controls with respect to crisisrelated procurement and expenditures. To combat this, they need to establish specific control policies to oversee the unique expenses connected with all stages of a crisis situation. KPMG can help you develop a control framework that balances prevention, detection, and response. Our team can help you evaluate your claims control environment, identify gaps, and implement a remediation plan. Case Study KPMG s Dispute Advisory team assisted an international oil and gas company with claims handling operations following a major environmental incident and contaminated fuel issue. We supported their claims assessment process by reviewing compliance with the company s compensability standards, reviewing calculations made by the adjusters as well as supporting documentation for the consideration of fraud and, in the case of business interruption claims, revenue, and cost assumptions. We performed due diligence on individuals and entities submitting the claims, as well as a quality control assessment of the company s government claims process.
8 Preparing and Responding to the Unexpected Crisis Management and Insurance Claims Recovery Services Insurance Claims Recovery Services A major disaster can cause significant losses from damage to property, damage to customers and suppliers, and supply chain disruptions. Post-disaster economic recovery, often entails the filing of complex property and business interruption insurance claims. KPMG s Claims Preparation Services can help companies with efficient and accurate filing to avoid the sorts of payment delays that often arise under complex circumstances. Understanding how an insurer will approach a situation is a key to successful claims preparation. Our professionals know how to structure a complete and properly stated claim that can bring a rapid response from an insurance company. Loss measurement is only the beginning of our comprehensive claims preparation services that benefit both the insured and the insurer. KPMG professionals also provide industry and property knowledge and experience in loss mitigation and reduction in loss periods. KPMG Forensic can advise on all aspects of economic recovery, including: Assessing the initial loss impact on the business, including identification of crucial systems and assets damaged and the impact on lost earnings The insurance claims process, including what to expect, who should be involved, duration, common roadblocks, cash advances, and settlement Gathering the documentation required from insurance carriers in connection with catastrophic property and business interruption losses Attribution of lost income to physical and non-physical causes. For example, damage to customers and suppliers can be recoverable under contingent time element coverage Assisting the company with securing timely progress payments prior to full and final settlement to ease or even eliminate cash-flow problems Re-creation of books and records under worst-case scenarios Assisting the company with determining the indemnity period Identifying lost sales and customers Establishing historical budget trends and analyzing economic factors. Case Study KPMG s Insurance Claims Recovery team assisted in providing forensic accounting services to a health care organization to support an insurance claim for damages and losses caused by Hurricane Irene. The assistance included aggregating costs related to damages, determining the business interruption loss suffered, and assisting the client to present the claim to the insurance company. Case Study KPMG provided forensic accounting services to multiple retail stores to support an insurance claim filed for damages and losses caused by Hurricane Sandy. The work included aggregating costs from flood damages, determining the total business interruption loss, and assisting the client to present the claim to the insurance company.
9 Acrisis requires a company to assign valuable operational resources in response to an array of issues that can strain daily operations. KPMG can help companies prepare for a crisis to limit business interruptions and associated costs, as well as manage crisis response efforts to enable our clients to focus on sustaining their business.
KPMG Dispute Advisory Services Crisis Management and Insurance Claims Recovery Team Bryan H. Jones Partner Dallas T: 214-840-6414 E: bhjones@kpmg.com Ginger Menown Partner Houston T: 713-319-2390 E: gmenown@kpmg.com Troy A. Dahlberg Partner New York T: 212-872-2976 E: tdahlberg@kpmg.com Douglas E. Farrow Partner Los Angeles T: 213-955-8389 E: dfarrow@kpmg.com Thomas R. Heck Jr. Director New York T: 212-872-6564 E: theck@kpmg.com Shirley Hudler Director Houston T: 713-310-3756 E: shudler@kpmg.com Carrie Malachowski Director New York T: 212-872-7832 E: cmalachowski@kpmg.com kpmg.com Due to Independence policies, these services are not available to KPMG s SEC audit clients and their affiliates. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. NDPPS 244077