What would happen if one of your
administrative offices went up in
smoke or a production facility lurched to a screeching halt due to a catastrophic event? Could your company survive the set-back? How would you minimize the negative impact?
“Considering typical business property
and casualty risks, such as fire, explosion,
or computer system malfunction, one major
loss that disrupts operations could knock
out profit margin for the company’s current
accounting year — or longer,” says Mitch
Bryan, partner at Levenfeld Pearlstein, LLC.
“The business’ successful recovery depends
number one, on whether it has sufficient
insurance to cover the interruption to operations and repair or replacement of damaged or destroyed facilities and two, on the
prompt receipt of insurance proceeds and
restoration of production.”
Smart Business discussed with Bryan
how you can prepare your organization to
respond to disasters by developing effective
internal and external loss recovery teams.
How can preparation minimize unexpected
losses?
Preparedness allows you to effectively
accomplish the two basic necessities of
recovering from a major loss: the ability to
receive insurance payouts in full, and to
minimize disruption to the business.
On the insurance recovery side, a properly organized administrative team should
have the capacity to quickly and accurately capture necessary information to complete the insurance claim. This group
needs to have enough data about the basic
event and how the company responded to
reliably quantify true losses resulting from
the covered incident.
On the operations end, preparation
allows the loss recovery team to mobilize
quickly to make adjustments to operating,
production and distribution processes.
This could include the ability to use previously identified alternative supply sources
temporarily, and to effectively communicate with customers that measures are
being taken to minimize disruption to fulfillment of their purchasing requirements.
Who should serve on internal and external
loss teams?
Loss management and claim and recovery teams should involve the vice president
of the division that would be affected by
this loss. Internally within the company,
the chief risk management officer, the
CFO, an internal accountant, or an internal
insurance specialist should lead the recovery teams. It’s critical to have someone
with a dedicated responsibility to risk management to enable efficient, unified efforts
in the event of a substantial loss. This
leader must organize the team participants
and coordinate communication so rapid
changes in your operations cause the least
amount of confusion with customers, the
general marketplace and the sales force.
This component of the team also should
include an internal or external legal adviser familiar with the company’s insurance
coverage. And an IT director and a facilities manager bring an in-depth understanding of the organization’s assets to the table.
An outside group of individuals also
should be consulted regarding preparation
for and responding to a loss. This includes
discussing your major casualty risks with
your insurance broker, loss management and recovery consultants, and outside legal
counsel. When an incident occurs, you
should inform independent auditors about
the event and the adjustments and actions
taken. You should also have outside loss
investigation and facility restoration experts
available to consult on an as-needed basis
— and to work with a Certified Public
Insurance Claim Adjuster that will examine
and pre-approve the Sworn Proof of Loss
that must be submitted to qualify the claim
for payment by your company’s insurer.
An external public relations professional
can be an important resource for advice on
how to communicate the event and expected
consequences to the market your company
serves, and implement spin-control to minimize negative connotations and perceptions.
What plans should loss recovery teams
develop to ensure an optimal response?
Typically, organizations need a two-part
plan that includes both preparedness and
response action components. On at least an
annual basis, the casualty risk team should
review the preparedness plan with key
strategic people to carry out specific responsibilities within the company and also identify potential strategic partners outside of the
business. Schedules of brokers, insurers,
policies, and limits should be created and
periodically updated. A current list of physical property and inventory and their values
should always be on file. The business should
also have a safe, secure offsite backup for
both electronic information and other vital
data, such as formulas or printed documents.
The response action portion of the plan
outlines what to do once a loss occurs.
This should include an investigation checklist with directions on whom to contact to
implement the strategy, determine and
document the extent of the loss, and manage claim information. Other essential
tasks include reviewing policies, notifying
insurers, collecting evidence, identifying
key people, and developing a formal claim
strategy designed for the particular circumstances existing immediately after disaster has stricken.
MITCH BRYAN is a partner at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7553 or [email protected].
