Natural disasters cannot be prevented; however policyholders can be prepared to respond if a disaster occurs and get back to business as soon as possible.  The $225 billion of economic cost due to natural perils last year, as reported in the Aon’s Weather, Climate & Catastrophe Insights: 2018 Annual report, shows the extent of the risk to policyholders. It also highlights the importance of reviewing and updating your commercial property policy before a natural disaster occurs.

In addition to a broker, this exercise has most impact with the input of in-house finance, risk management and operations teams; plus outside resources including claims experts, underwriters and even the policyholder’s mortgagees and banking officials, especially when financing agreements are in place.

Ten important areas of insurance coverage where the wording should be clear and specific include:

1. Schedule of values – firstly ensure you complete this detailed accounting of assets to let insurers know the values at risk.  These locations are mapped on our ImpactOnDemand tool so we can assess any damage in real-time
2. An accurate Valuation clause – replacement cost versus actual cash value; and selling price if finished stock is involved
3. Definitions of the perils covered, exclusions and limitations – this can include named windstorm, flood, storm surge, collapse, earth movement
4. Deductibles – stated “dollar” deductible; % of value deductible; time period deductible; waiting periods as a qualifier
5. Determination and disposition of damaged property – the policyholder wants the right to determine the extent of damage; items to be salvaged; items to be discarded
6. “Cap-Ex” clause – allows the policyholder to spend the insurance proceeds anywhere within its system in order to receive the full replacement cost reimbursement
7. Ordinary Payroll – consideration should be given to retain the policyholder’s workforce and compensate them for downtime due to a catastrophic event.  Ordinary payroll can be considered for 30, 60, 90, 180 and even 365 days
8. Extended Period of Indemnity – this allows the policyholder a period of time to regain its market share and customers, and return to the level of sales that would been achieved had no loss occurred
9. Contingent Business Interruption / Extra Expense covers – these reimburse the policyholder for financial losses incurred because of loss or damage to supplies or customers
10. Claim preparation fees – this feature affords coverage to the policyholder for the reimbursement of professional fees and expenses incurred to engage claims’ preparers to assess, prepare and certify the details of the commercial property loss claim.  These professionals typically include accountants, engineers, building consultants, inventory specialists, etc.  Attorneys and public adjusters’ fees are usually excluded from this coverage.

Planning and preparation in a coordinated manner is the best recipe for handling a claim following a disaster. We hope these 10 recommendations ensure a successful settlement and payment for policyholders globally.

About the Author

Director and Lead Consultant Jim Errico prepares and reviews complex commercial claims including property damage, business interruption losses, and performs accounting project management. With 40 years’ experience in accounting for commercial insurance loss claims, he has worked on hundreds of fire losses and natural disasters since 1979 including the MGM Grand Hotel and the Las Vegas Hotel fire losses; Hurricanes Hugo, Andrew, Luis, Marilyn, Georges, 2004 Florida hurricanes, Katrina, Rita, Wilma, and Superstorm Sandy. He has also worked on numerous claims from the World Trade Center Disaster.