For many businesses, the 2012 U.S. East Coast hurricaneseason coincides with a particularly precarious time. Although theeconomy in some areas of the world appears to be edging towardrecovery, budgets remain tight and insurance rates for propertycatastrophe coverage 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 help clients with pre-loss planning. Should a lossoccur, guide clients through the catastrophe claims managementprocess. Agents and brokers who excel in both areas bringsubstantial 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 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.

Related: Read the article “Risk Management in 2012″by Carolyn McDonald.

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 to theschedules in the policy, note any discrepancies and discuss themwith the client. This is especially critical if the policy containscoinsurance 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 yourchecklist:

1. 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.
2. 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 tothe contract requirements.
3. 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?
4. To assess business interruption exposures you need a completeunderstanding of the clients' various operations, products,services and revenue streams. Consider expenses associated witheach operation and walk through loss scenarios with the client todetermine expenses that will and will not continue if a lossoccurs.
5. 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.
6. 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.

Related: Read the article “Assessing StructuralDamages After the Storm” by Thomas A. Mierzwa.

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-Planning for CatLosses

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:

1. 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.
2. 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.
3. Help clients develop procedures and protocols for the businessunits so they can refer to them in the immediate aftermath of aloss.
4. Use the value collection process every year to educate theclient on property damage and business interruption coverages sothey understand what's in their policy.
5. Review all client locations in catastrophe-prone areas. Thiswill help you and the client assess the adequacy of limits and makeany necessary deductible calculations.
6. 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.
7. Review the business continuity and loss mitigation plans andask if updates are needed.
8. 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.
9. Understand timing requirements for reporting a loss. Is it 30days or 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.
10. 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.

Tackling a Cat Claim

If your client has a catastrophic claim, work with the client tomanage the process. In many respects, managing a large catastropheclaim is like a football game. It starts with the quarterback—andyou want to avoid having the insurance company or the insurer'sadjuster play quarterback. You also don't want to put publicadjusters in that position.

The quarterback can be the broker, someone at the client, orsomeone with the forensic accounting team. Once you and the clientidentify the quarterback, put the insurance company on notice,identify the time requirements and mitigate the loss. Documenteverything. Assemble the claim team, open the communication linesand keep them open. Calculate the loss estimates and drive theprocess.

There will be many individuals involved in the claim, both fromthe insurer's side and your client's:

• On the insurer's side, there will be the claim adjuster, aswell as his account executive, underwriter and reinsurers. Theinsurer also will involve third parties, including engineers, claimauditors, construction consultants and coverage attorneys. Theirkeys to the game will be adjusting the claim, substantiating theloss, mitigation activities and understanding how operations aregetting restored.
• Your client's team likely includes the CEO, CFO, plantmanagement and possibly their legal and accounting departments. Inaddition to the broker or agent, your client also may involve otherthird parties including contractors, forensic accountants andoutside coverage counsel. Their goal is to expedite and optimizethe recovery. Their keys to the game are the safety of employees,restoring the business as quickly as possible, mitigating the lossand getting the insurance recovery paid as soon aspossible.
• Now, let's look at the playbook. The first part has to do withvaluation:
• Looking at the property damage, is the policy going to respondon the basis of actual cash value or replacement cost?
• Is the client going to repair buildings and equipment, orreplace them? Will they use internal work groups to get some ofthis work done?
• What's the valuation for inventory? Is it selling price?Replacement cost?
• Control of damaged merchandise is important. Who makesdecisions about damaged merchandise? You want the client to be inposition to make all those decisions.
• Is there debris to be removed? How will that be paid for? Whatbusiness interruption and expediting expenses will the client incurafter a loss?

Carefully consider the business interruptionindemnity period of the loss. Remember, the property damage andperiod of restoration will drive the business interruption.Notably, the period of restoration will change based upon whetherthe decision is made to repair or replace equipment—and it'scritically important to get that understood at the beginning of theclaim process.

You want to understand any expenses that will be incurred tohelp get the client's firm back into business as quickly aspossible. If there's a partial impairment, what issues are likelyto arise?

Look at the projections for sales and profit, and understand theclient's ability to make up sales (or not). For example, can salesbe generated via the Internet if a retail location is down? Theinsurers will look at the business interruption and the mitigatingexpenses in adjusting the claim. Which functions have beenoutsourced? Which have been performed internally? Review theclient's incremental costs of marketing, advertising, and logisticsand discuss any discounts offered by the client to retain marketshare.

Related: Read the article “Temporary Housing Options DuringCatastrophic Times.”

With all this work done, you're ready for the settlement. Keepin mind, the settlement process is a negotiation. For brokers andagents, it's important to understand the major issues for theclient, the major issues for the insurers, and their key arguments.During the negotiation, try to focus only on the weakest elementsof the claim. The elements that are not disputable should not bepart of the negotiation at the end of the claim. The good news:99.9 percent of physical damage and business interruption claimseventually settle.

When the claim has settled, go back over the process. Were therefailures in any of the steps? What went well and what didn't? Allof this needs to be reviewed with the client so the process can beimproved promptly in the event of another claim. Were the pre-losspreparations adequate? Was the communication flow positive and didit work? Did everyone work together toward the resolution? Werethere any issues with the client's expectations? How about at theplant level, the location level and all the way up to the CFO andsenior executives? Discuss how the process can be improved if thereis another event.

When the claim is closed, what should the broker or agent do as“Monday morning quarterback”? Take a look back at everything. Makeclaim service a key point during the next renewal if there's been amajor event. What is the promise of better claim service worth forthe agent/broker and insurer? What are the insurers prepared to doafter a loss?

From the client's perspective, the value of the agent or brokercan be greatly enhanced by strong support during the claim process,and the client may perceive you as a first-string member of theteam. Indeed, you can achieve both improved retention and newbusiness by providing value-added claims support before and after aloss. And that's a winning formula!