Brokering Risks and Claims

Your plant burns down, the site is still smoldering and everyone – including management – is in a panic. Now what?

When rational, coherent thought returns, the first thing that invariably comes to mind is insurance. At that time, the insurance buyer or risk manager is likely to face some tough questions: Are we covered? Where are the policy documents? Who are the insurers?

If nothing else, you would probably know the name of your broker and, after fumbling through the phone book and locating a number, it is likely that is who you will call. After all, your broker took you through what may have been a complicated process of buying the insurance coverage, so it follows they should be able to guide you through the complexities of a claim. But can they? And what exactly are they going to do? What is the role of the broker in a claim? These appear to be fairly simple questions, but the answers can vary widely.

CLAIMS PROFESSIONALS IN BROKERAGES

As a former risk manager, I have always been surprised at the rather low profile most brokerage firms have regarding the whole area of claims. I’ve always been aware that the brokerage firms that I’ve dealt with had a claims department. However, in some cases I’d never been invited to visit them. And the ones I had visited were often located in the back recesses of the office – as if to say they were a necessary evil, that is best kept out of sight and out of mind. This always struck me as odd: when I was a risk manager and insurance buyer, one of the only reasons I purchased certain forms of coverage was because of the service I expected to receive if and when there was a claim. That being the case, if the intent of purchasing an insurance policy is to receive protection and indemnification in the event of a loss, shouldn’t your insurance broker be proficient in the resolution of claims and promote their claims expertise? If you’re unclear about this, it’s time to ask yourself what should you expect from your broker when you have a claim.

There can be many different reasons for selecting one particular brokerage firm over another. One of the most common – and key – considerations is whether the broker understands your risks, your exposures and the issues that cause you and your management team to stay awake at night. Arising from this understanding is the broker’s ability to consider how a claim could impact the continued operation – or even the continued existence – of your organization.

To foster this kind of understanding, it only makes sense to have a claims manager as a key member of your brokerage team – a claims professional who brings a wealth of experience and knowledge to the table. The claims group should be represented and involved at the very early stages of the client-relationship and your claims representative should and must, be an involved and participant of your service team. By being part of the service team and understanding the impact of a claim on your organization, brokerage claims professionals can assist in structuring the proper protocols to respond when a loss occurs. This involves being more than simply a mailbox or information conduit to the underwriters: it requires active participation and regular communication with the team members.

PRE-LOSS

In a pre-loss environment, having a claims professional as part of your brokerage team from the outset can help ensure that the proper procedures and protocols are established to facilitate the timely reporting of losses – a critical component in effecting a timely recovery from a loss. Equally important, your claims representative should be able to assist you in developing a loss management team that can be immediately called upon when a loss occurs. Depending on identified needs, he or she should be able to recommend various specialty service providers you can call upon when a loss occurs. Your broker should facilitate developing relationships with one or more of these service providers.

As an example, wouldn’t it be better to know who the specialists that can assist you in quantifying a business interruption loss before that loss occurs? Wouldn’t it make sense for that specialist to know your operation before being called to look at a loss? Often immediately after a loss, much time is wasted trying to locate qualified professionals; once they have been found, more time is lost as they get up to speed on the ins and outs of your organization. Your broker’s claims representative should be consulted and used as a resource to help identify those specialists that can be part of your loss management team and who will be ready to respond when a loss occurs.

Mitigating the effects of a loss should also be a key pre-loss goal; to this end, a seasoned and experienced claims professional can bring real value to the table. Invariably, your claims representative has experienced a number of different types of losses. When armed with an understanding of your business operations and exposures, he or she can assist you in developing loss mitigation strategies. This can include assisting in sourcing providers of replacement equipment, for example, allowing you to continue your operations following a loss and providing you with assistance in developing a strategy to expedite its delivery.

POST-LOSS

In a post-loss environment, the claim becomes everyone’s focus. This is where your claims representative, as part of the brokerage team, brings a real value-added service and function to the table. This is why you, the insurance buyer, bought insurance in the first place; this is where you get to prove the value of the insurance that up until now has simply been a premium expense.

Historically, many brokers have simply acted as a liaison between the insured and the carrier because they were unfamiliar with the claims process. However, having an experienced claims professional – a person who has a clear understanding of the nuances and subtleties of the claims settlement process, and who understands the insurer’s settlement requirements – as part of your brokerage team will help to maintain control and manage the outcome of the loss.

As one of the first points of contact after a loss, your claims representative will provide notice to the carriers and work with you and the insurers to coordinate the activities of all those who will now descend upon the loss site. However, even before the insurers and contractors arrive at the site, your brokerage claims representative should assist you in determining how best to protect the property from further damage. Drawing on experience, the resourcefulness of your claims representative can help to both minimize the loss and keep the business operating.

At the same time, your claims representative should immediately undertake a complete review of the policy and advise on the coverage afforded under the program, including any applicable exclusions. He or she should reaffirm policy deductibles or retentions, waiting periods and any notice requirements. Providing the risk manager with advice – such as coverage inclusions and exclusions – helps them better manage the expectations of their management team (particularly when such expectations relate to what is going to happen and when).

CLAIMS STRATEGY

An experienced broker’s claims representative will also work closely with you to maintain control over a situation that sometimes is seemingly spiraling out of control.

To do this, a determination must be made as to what is best for the business; thereafter, a schedule or timetable can be created that details a critical recovery path. A recovery timetable should endeavor to indicate not only when tasks are to be completed, but also who is responsible for completing them. It should also include a defined claims strategy.

Defining a claims strategy can be as simple as outlining the steps that the insured needs to take in the claims process – from inspections through to the submission of a proof of loss. Or it can be extremely complex; it might consider, for example:

* Whether or not the insured will rebuild on the same site or seek a new one.

* Whether a cash settlement should be considered versus repairing or restoring the premises.

* How the loss is to be valued.

* Timing of interim payments.

The last point can be critical, as interim funding may be required for re-building efforts. It is important to remember the claims professional can assist in the development of this strategy to ensure that no critical gaps occur post-loss.

For many risk managers or insurance buyers, the challenges they face upon the occurrence of a loss can be daunting. Indeed, the “first” loss for any organization can be the most complex and confusing situation imaginable.

No two claims are ever the same, and the same holds true for claims professionals on your brokerage team. These team players understand the claims process, the roles of the parties involved, and have experience handling claims of all shapes and sizes and as such their role is critical in ensuring that the settlement process runs as smoothly as possible. Proper planning during the early stages of the client/broker relationship, open communication and an understanding of the needs and expectations of all parties to the transaction are fundamental principals in effective claims handling. An invitation to participate is all that is required.