Floods 2013: What to remember when dealing with insurance claims
The quality and scope of the insurance cannot be changed now, but much can be done to achieve the maximum compensation from the existing insurance. Companies should now focus on correctly calculating and documenting the amount of the damages.
Michal Kohoutek, Director of the Forensic Services practice in Prague, answers the most common questions companies may have in relation to insurance claims, especially on the insurance of interrupted business operations, crucial for a number of companies.
What can be insured?
In our experience of the 2002 floods, only a small number of companies have insurance which can be described as complex risk insurance. In principle, it’s possible to insure two areas. Firstly, assets are the usual subject of insurance (buildings, factories, machinery, supplies, physical money, etc.) However, don’t forget about the insurance of intangible assets. This includes risks associated with the interruption of services. Such insurance usually covers the current income of the company (usually the gross profits), which the company lost due to an accident or natural disaster. Ideally, this type of insurance also covers the above-mentioned aid aimed at saving property and salvaging the enterprise.
What are the first steps that a company should take?
Protect the undamaged property. Separate the damaged and the undamaged property and begin recovering operations. Generally, it’s best to keep any damaged goods on hand until an insurance adjuster has visited the premises. If the material is seriously damaged and exposure to the elements won’t make things worse, it can be moved outside. In case of doubt, simply use your common sense and act as you would if it were your own house.
Begin accounting for damage-related costs. Secure evidence of the damage extent. This includes not only photo documentation of damaged assets but also financial, warehouse and production data which will be used to calculate business interruption and other losses.
In respect of the business interruption, it may be difficult at first to determine how long operations will be curtailed. In the case of a partial loss, consideration should be given to resuming operations by having work in the affected areas performed on the outside by a specialist, competitor, sister plant, or by your company at a temporary location. For more serious losses, protecting valuable equipment, supplies and finished goods may be all that can be done for the moment.
Then it is important to do everything possible to quickly re-establish supplies of electric power, water and fuel to the plant. This means either working with the local utility or using temporary sources, such as portable generators. This is especially important in the instance when the company's business interruption insurance only covers the period you would have been able to operate, had your property not been damaged. While some policies contain an endorsement eliminating this exclusion, reducing the loss always makes sense.
Who will help me with the preparation of the insurance claim?
Loss adjusters may be unable to assist you due to their other commitments. Most probably in the current situation, they will be swamped by dozens of different claims. At the same time, it should not be forgotten that their primary duty is to insurers.
A qualified and experienced expert will allow the management that is unfamiliar with the claims process to concentrate on restoring business to normal. A lot of insurance contracts even allow for covering the expenses related to liquidation of the insurance event, including external support.
Calculating and filing the losses related to business interruption is not easy. An external expert normally documents and processes all insurance claims from their occurrence through to settlement. It closely cooperates with the insurer’s agent and makes sure the company gets the compensation fast and in full according to the insurance conditions. During the insurance claim processing, it is possible to negotiate timely interim payments, in order to sustain cash flows through a critical period.
During the 2002 floods, PwC successfully assisted a number of clients in preparing and recovering monies via business interruption insurance claims.