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Allen Melton

Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

Risk Insider: Allen Melton

Top 10 Tips for Submitting a Claim

By: | August 26, 2014 • 2 min read
Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

Napa residents and businesses were awakened early Sunday morning to the ground swells of a strong 6.0 earthquake. Buildings crumbled, glass shattered, gas and water lines ruptured, and other destruction ensued.

Now begins the unfortunate task of completing the repairs and, in many situations, preparing an insurance claim.

Below is a top 10 list of items to consider when faced with an impending claim:

1. Read your insurance policy.

Understand what types of losses are covered (earthquake damage, fire damage, water damage), what is insured (building, equipment, stock and supplies, business interruption, extra expenses), what deductibles apply, and whether there are any coverage limits that might apply?

2. Assemble a claims team.

All areas of your business may be affected and you should get the details from all facets of your operations. Impact to building and equipment, operations, sales, finance, and logistics should all be considered when trying to understand how your business has been affected.

3. Establish procedures to capture expenses.

Develop charge codes, purchase orders, or accounts to capture all claim-related expenses.

4. Designate a single point of contact.

Information about a loss has a tendency to change as more facts are known. Having a single point of contact providing information to insurers can avoid confusion about the details of your loss.

5. Manage expectations.

Keep management apprised about the details of the loss such as claim estimates, and timeframe to rebuild/restore operations as well as details regarding the claims process including the amount of time and effort that is required to adequately document and support a claim.

Be cautious of loss estimates and recovery timeframes that are too low or overly optimistic, which can result in a false sense of security and mismanage expectations internally and externally.

6. Prepare for meetings.

Coordinate your claim team in advance of insurer meetings to set the agenda, assemble supporting documentation, and ensure that the right people are present to answer questions that might arise.

7. Explain your business model.

Don’t assume that others have a thorough understanding of your business. Explain your business model so that the adjuster and his/her team will have better context around the measurement of the loss.

8. Help the insurance adjuster set the loss reserve.

Explain the areas of loss and provide sufficient information to allow the adjuster to set an appropriate loss reserve. Setting a reserve that is too low or too high can cause issues down the road.

9. Document substantive discussions with insurers.

Confirm discussions or verbal agreements in writing to maintain a record of the loss.

10. Request a cash advance.

Once the magnitude of the loss is determined, request an advance from the insurance company to offset expenditures you already incurred. Obtain additional cash advances as claim items are agreed to. This will limit the amount of open claim items at the end of the process.

Read all of Allen Melton’s Risk Insider contributions.

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Risk Insider: Allen Melton

Are You Properly Evaluating Cyber Exposure and Recovery?

By: | August 19, 2014 • 2 min read
Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

In a lunch discussion with the director of finance at a large health care corporation, we discussed the recent data breaches where Russian gangs had stolen in excess of a billion logins/passwords.

Her concerns, or lack thereof, focused on the fact that her organization did not maintain credit card information since they were a patient research facility, and payments came from the large drug companies, not individuals.

In reality, their chief research facility maintained records on thousands of patients every week. This information included name, birth date, Social Security, health information, etc.

“Cyber” is Misleading

All too often when people hear the term cyber crime, thoughts spring to mind of some clandestine techno geeks trying to hack into banking information and wire funds into overseas accounts. However, the information subject of a cyber attack does not have to be located on a network. Data can reside on an old discarded hard drive, a smart phone, iPad or a printed report unconcernedly dropped in the trash.

What Data Does Your Company Have That “They” Want?

While credit card information is probably the most sought after form of data, aggressive spammers, such as the recent headlining Russian gang, are often happy to just get a new email address and the account’s contact list in order to push their enlargement pills.

Some cyber criminals are looking for browser history or any personal information on employees, clients, etc., that can be sold to disreputable advertisers. Some data thieves are looking for your draft invoices, so they can swap out your banking information for theirs to defraud your customers. Other data thieves will try to take over your network and ransom it back to you.

What Can You Recover From Insurance?

You really need to look everywhere in your program for recovery. The inconsistencies between cyber policies make this a very inexact science.

Some CGL, first party property or crime/fidelity policies have limits but can represent the only methods of recovery. Policyholders may also have potential recovery through D&O, E&O, and professional liability coverage, depending on the nature of the perpetrator and what actually occurred.

While these policies often contain relatively insufficient coverage limits, each may contain potential recovery sources that need to be thoroughly vetted.

In recent years, newer policies have evolved to address the unique risks of cyber crime. Policyholders can potentially look to cyber risk policies for coverage of damaged equipment, stolen equipment, business interruption and extra expenses, costs of notifying impacted parties, reputational damage, remediation costs, third party claims, and cyber extortion.

Take Action Now

Cyber risk is a reality for practically every organization and the sophistication of those trying to access your sensitive data grows daily.  It is important to understand the breadth of this risk as it extends well beyond simply a remote hacker gaining access to your network.

Evaluate the insurance policies you have in place to understand what coverage may be responsive to a cyber attack or breach and where necessary, take the appropriate steps now to fill those gaps in coverage.

Read all of Allen Melton’s Risk Insider contributions.

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Risk Insider: Allen Melton

Are You Ready For the Big One?

By: | April 30, 2014 • 2 min read
Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

On March 10, 2014, a 5.1 earthquake rattled the Los Angeles area – with a 4.1 aftershock following the next day – reminding state residents of the ever-looming “big one” that California has been anticipating for many years. The quake likely caused senior management of more than a few companies to see what earthquake coverage they had in place.

It has been two decades since the Northridge earthquake shook Los Angeles, registering a 6.7 on the Richter scale and causing an estimated $42 billion in damage, and Californians are more unsettled than the ground beneath them. The most recent tremors have prompted many questions. What has changed since 1994, and how would companies and insurance markets react if another 6.7-plus earthquake struck the West Coast? According to the U.S. Geological Survey, there is a 99% chance it will happen in the next 30 years.

Learning from the past

If we have learned anything from events such as the 2013 Japanese earthquake and Superstorm Sandy, it’s that they clearly can have a significant, if not catastrophic, effect on companies well outside the “danger zone.” Over the past 20 years, markets, industries and companies have become increasingly interconnected and interdependent. The components manufacturer in Asia, for example, affects the technology company in California, which in turn affects the retailer on the East Coast.

The mega events of the past decade and a half have opened the eyes of global organizations to the need to recognize and plan contingencies for catastrophic events – even the need for a backup plan for their backup plans. In response, companies have become more sophisticated in understanding and developing their supply chains and crafting continuity plans to mitigate some of the inherent risk of operating interdependently with others in these high-hazard areas. As the world economy continues to shrink, with companies expanding globally via partnerships, joint ventures and operating agreements, the level of operating specialization and interdependency has dramatically increased, and the need for a safety net for these risks has increased in importance.

Enter the insurance carriers

The eyes – and pockets – of the insurance markets have also been opened as a result of the last 20 years of catastrophic events. This is evidenced by changes in insurance policies and endorsements available in, or eliminated from, the market.

Billions in losses resulting from storm surges after hurricanes resulted in more expansive flood exclusions. Massive earthquakes that result in large contingent losses drive more restrictive sublimits on contingent business interruption coverage. From terrorism exclusions to limits on asbestos claims, the list goes on. As insurers experience more complex losses, they become wary about the risks they take on, which affects their willingness to underwrite.

Planning for recovery

Ultimately, events like the one in Los Angeles highlight the importance of preparedness – and not just operational preparedness. It is also crucial to understand that as a business changes, expands, acquires or divests, the risks of catastrophic loss change with it. Financial recovery is a critical element of the disaster recovery plan, and one that is not always considered until after it is too late. An otherwise well-crafted plan that fails to consider the liquidity needed to implement, is not a “recovery” plan at all. Are you ready for the big one?

The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP. This material has been prepared for general information only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

Read all of Allen Melton’s Risk Insider contributions.

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