By Jill Dalton,partner-in-charge, New York office,Dempsey Partners, LLC

For many businesses, the 2012 U.S. East Coast hurricane seasoncoincides with a particularly precarious time. Although the economyin some areas of the world appears to be edging toward recovery,budgets remain tight and insurance rates for property catastrophecoverage are up as much as 25 percent.

Against this backdrop, agents and brokers have a critical roleto play in supporting their clients. With catastrophic riskslooming, they can help clients with pre-loss planning. Should aloss occur, they can guide clients through the catastrophe claimsmanagement process. Agents and brokers who excel in both areasbring substantial value to their clients that can strengthenrelationships and enhance their business.

An effective property insurance program starts with a thoroughunderstanding of a client's exposures. Supplement what clientsshare in routine fact-finding meetings by gleaning information fromclient websites, financial filings, investor communications andthrough news sources. Google Maps can help verify clientlocations.

Capture all necessary information on client locations forunderwriting specifications, including all addresses, number ofbuildings at given locations, construction, occupancy, protectionand exposure details. Check the use of each building (warehouse,manufacturing facility, retail, etc.), fire protection, andavailable water supply. Report values for buildings, contents,inventory, machinery and equipment, business interruption and otherkey exposures. For properties located in catastrophe-prone areas,consider utilizing RMS or AIR catastrophe modeling software.Insurers will be inputting the data into their models so individualmeasurements can be useful predictors.

Read related: “Q&A: Karen Clark Discusses Cat Management as Hurricane SeasonArrives.”

In arranging coverage, be sure to understand the basis ofvaluation for each asset. Is it replacement cost, actual cash valueor selling price? Match the property insurance policy wordingsaccordingly. Compare any publicly available information tothe schedules in the policy, note any discrepancies and discussthem with the client. This is especially critical if the policycontains coinsurance provisions or margin clauses.

If the client is involved in manufacturing or distribution, noteany and all interdependencies among various facilities. Does theclient manufacture at one location and transport products toanother site for distribution? Assess any potential exposures,especially those involving time element issues. These are becomingchallenging for underwriters in light of the substantial losseslast year from Thailand and Japan.

Here are some items to include on your checklist:

• Know the client's key suppliers and customers and theirlocations to ensure that the policy territory encompasses allgeographies. Today, all time element exposures require carefulattention; many insurers are limiting these coverages in light ofrecent losses.
• Review the client's contractual obligations. Are there unioncontracts that require the client to pay employees for a specifiedtime period regardless of the client's ability to operate andcontinue their employment? Then match the insurance coverage to thecontract requirements.
• Check any lending agreements and related insurancerequirements. Also, be aware of landlord or tenant relationshipsand corresponding insurance responsibilities. When there's atenant, who is responsible for the insurance?
• To assess business interruption exposures you need a completeunderstanding of the clients' various operations, products,services and different revenue streams. Consider expensesassociated with each operation and walk through loss scenarios withthe client to determine expenses that will and will not continue ifa loss occurs.
• Understand ordinary payroll obligations, skill level of keyemployees, the job market in areas surrounding each location, andthe client's expectations regarding keeping its employees onsite inthe event of a loss.
• Check the client's business continuity plan (BCP) and assesshow each operation plans to mitigate a potential loss.

Use all of this information to help clients make decisions abouttheir insurance program, business continuity plans and supplychain. Keep in mind, however, that this is not a one-time task, buta process that should be repeated every year. Schedules must beupdated around the annual renewal strategy and more frequently asneeded.

Read related: “Customization Is Key in Writing Small-BusinessPolicies.”

Regularly discuss with your client any changes in their businessplan, including acquisitions, divestitures, and plans for expansionor joint ventures. Most importantly, as always, be sure to documenteverything in writing.

Pre-Planningfor Cat Losses

Begin pre-planning for a potential cat loss by reviewing theproperty insurance policy with the client and members of the brokerteam. Make sure everyone knows what's in the policy then moveforward with the following steps:

• Set up a claims team in advance of any potential event. Workwith the client to interview different experts ahead of time. Thatwill help everyone think through the process and set the protocolsbefore a loss.
• If possible, identify a claims adjuster that is agreeable toall parties and have them written into the policy. This isespecially important if there are multiple property insurers on aprogram.
• Help clients develop procedures and protocols for the businessunits so they can refer to them in the immediate aftermath of aloss.
• Use the value collection process every year to educate theclient on property damage and business interruption coverages sothey understand what's in their policy.
• Review all client locations in catastrophe-prone areas. Thiswill help you and the client assess the adequacy of limits and makeany necessary deductible calculations.
• Understand deductibles and how they work. The policy might havea straight dollar deductible, percentage deductible or aggregatedeductible. With a percentage deductible, know the values subjectto the percentage. Are they reported values or actual values? Willthe deductible be applied separately to buildings, contents andbusiness interruption? If there is a waiting period of 24 hours, isthat one day or three 8-hour shifts? Make sure everyone understandshow deductibles will be calculated in the event of a catastrophicloss.
• Review the business continuity and loss mitigation plans andask if updates are needed.
• Communicate the property policy obligations and opportunities.Each policy has provisions in the wording that your client needs tounderstand. There are policy provisions to get advance payments inthe event of a loss. Be sure claims preparation fees areincluded.
• Understand timing requirements for reporting a loss. Is it 30days, 60 days? If there is coinsurance or a margin clause, makesure the client understands where that is, what it means and how itwill apply in a loss.
• Document any exclusions or onerous conditions. There may bedefinitions for flood that delineate where the flood exclusions orother provisions apply. Document the covered property and thecovered perils.

Next week: Tackling a CatClaim.