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

In arranging coverage, be sure to understand the basis of valuation for each asset. Is it replacement cost, actual cash value or selling price? Match the property insurance policy wordings accordingly. Compare any publicly available information to the schedules in the policy, note any discrepancies and discuss them with the client. This is especially critical if the policy contains coinsurance provisions or margin clauses.

If the client is involved in manufacturing or distribution, note any and all interdependencies among various facilities. Does the client manufacture at one location and transport products to another site for distribution? Assess any potential exposures, especially those involving time element issues. These are becoming challenging for underwriters in light of the substantial losses last year from Thailand and Japan.

Here are some items to include on your checklist:

1. Know the client's key suppliers and customers and their locations to ensure that the policy territory encompasses all geographies. Today, all time element exposures require careful attention. Many insurers are limiting these coverages in light of recent losses.
2. Review the client's contractual obligations. Are there union contracts that require the client to pay employees for a specified time period regardless of the client's ability to operate and continue their employment? Then, match the insurance coverage to the contract requirements.
3. Check any lending agreements and related insurance requirements. Also, be aware of landlord or tenant relationships and corresponding insurance responsibilities. When there's a tenant, who is responsible for the insurance?
4. To assess business interruption exposures you need a complete understanding of the clients' various operations, products, services and revenue streams. Consider expenses associated with each operation and walk through loss scenarios with the client to determine expenses that will and will not continue if a loss occurs.
5. Understand ordinary payroll obligations, skill level of key employees, the job market in areas surrounding each location, and the client's expectations regarding keeping its employees onsite in the event of a loss.
6. Check the client's business continuity plan (BCP) and assess how each operation plans to mitigate a potential loss.

Use all of this information to help clients make decisions about their insurance program, business continuity plans and supply chain. Keep in mind, however, that this is not a one-time task, but a process that should be repeated every year. Schedules must be updated around the annual renewal strategy and more frequently as needed.

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

Regularly discuss with your client any changes in their business plan, including acquisitions, divestitures, and plans for expansion or joint ventures. Most importantly, as always, be sure to document everything in writing.

Pre-Planning for Cat Losses

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

1. Set up a claims team in advance of any potential event. Work with the client to interview different experts ahead of time. That will help everyone think through the process and set the protocols before a loss.
2. If possible, identify a claims adjuster that is agreeable to all parties and have them written into the policy. This is especially important if there are multiple property insurers on a program.
3. Help clients develop procedures and protocols for the business units so they can refer to them in the immediate aftermath of a loss.
4. Use the value collection process every year to educate the client on property damage and business interruption coverages so they understand what's in their policy.
5. Review all client locations in catastrophe-prone areas. This will help you and the client assess the adequacy of limits and make any necessary deductible calculations.
6. Understand deductibles and how they work. The policy might have a straight dollar deductible, percentage deductible or aggregate deductible. With a percentage deductible, know the values subject to the percentage. Are they reported values or actual values? Will the deductible be applied separately to buildings, contents and business interruption? If there is a waiting period of 24 hours, is that one day or three 8-hour shifts? Make sure everyone understands how deductibles will be calculated in the event of a catastrophic loss.
7. Review the business continuity and loss mitigation plans and ask if updates are needed.
8. Communicate the property policy obligations and opportunities. Each policy has provisions in the wording that your client needs to understand. There are policy provisions to get advance payments in the event of a loss. Be sure claims preparation fees are included.
9. Understand timing requirements for reporting a loss. Is it 30 days or 60 days? If there is coinsurance or a margin clause, make sure the client understands where that is, what it means and how it will apply in a loss.
10. Document any exclusions or onerous conditions. There may be definitions for flood that delineate where the flood exclusions or other provisions apply. Document the covered property and the covered perils.

Tackling a Cat Claim

If your client has a catastrophic claim, work with the client to manage the process. In many respects, managing a large catastrophe claim is like a football game. It starts with the quarterback—and you want to avoid having the insurance company or the insurer's adjuster play quarterback. You also don't want to put public adjusters in that position.

The quarterback can be the broker, someone at the client, or someone with the forensic accounting team. Once you and the client identify the quarterback, put the insurance company on notice, identify the time requirements and mitigate the loss. Document everything. Assemble the claim team, open the communication lines and keep them open. Calculate the loss estimates and drive the process.

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

• On the insurer's side, there will be the claim adjuster, as well as his account executive, underwriter and reinsurers. The insurer also will involve third parties, including engineers, claim auditors, construction consultants and coverage attorneys. Their keys to the game will be adjusting the claim, substantiating the loss, mitigation activities and understanding how operations are getting restored.
• Your client's team likely includes the CEO, CFO, plant management and possibly their legal and accounting departments. In addition to the broker or agent, your client also may involve other third parties including contractors, forensic accountants and outside coverage counsel. Their goal is to expedite and optimize the recovery. Their keys to the game are the safety of employees, restoring the business as quickly as possible, mitigating the loss and getting the insurance recovery paid as soon as possible.
• Now, let's look at the playbook. The first part has to do with valuation:
• Looking at the property damage, is the policy going to respond on the basis of actual cash value or replacement cost?
• Is the client going to repair buildings and equipment, or replace them? Will they use internal work groups to get some of this work done?
• What's the valuation for inventory? Is it selling price? Replacement cost?
• Control of damaged merchandise is important. Who makes decisions about damaged merchandise? You want the client to be in position to make all those decisions.
• Is there debris to be removed? How will that be paid for? What business interruption and expediting expenses will the client incur after a loss?

Carefully consider the business interruption indemnity period of the loss. Remember, the property damage and period of restoration will drive the business interruption. Notably, the period of restoration will change based upon whether the decision is made to repair or replace equipment—and it's critically important to get that understood at the beginning of the claim process.

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

Look at the projections for sales and profit, and understand the client's ability to make up sales (or not). For example, can sales be generated via the Internet if a retail location is down? The insurers will look at the business interruption and the mitigating expenses in adjusting the claim. Which functions have been outsourced? Which have been performed internally? Review the client's incremental costs of marketing, advertising, and logistics and discuss any discounts offered by the client to retain market share.

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

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

When the claim has settled, go back over the process. Were there failures in any of the steps? What went well and what didn't? All of this needs to be reviewed with the client so the process can be improved promptly in the event of another claim. Were the pre-loss preparations adequate? Was the communication flow positive and did it work? Did everyone work together toward the resolution? Were there any issues with the client's expectations? How about at the plant level, the location level and all the way up to the CFO and senior executives? Discuss how the process can be improved if there is another event.

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

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