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 firstname.lastname@example.org.