Allen Melton

Allen Melton is a partner and the leader of Ernst & Young LLP 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 [email protected]

Risk Insider: Allen Melton

A Watchful Eye on Tianjin Losses

By: | August 27, 2015 • 2 min read
Allen Melton is a partner and the leader of Ernst & Young LLP 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 [email protected]

As I write this, little is yet known about the total loss impact, both locally and globally, of the recent explosions in the port of Tianjin, China. Current estimates as reported in news media are that losses could exceed $1.5 billion.

Around the globe, risk managers are keeping a watchful eye on the escalating impact of this event. Potential losses continue to unfold within companies, and insurers are already being put on notice accordingly.

Given the nature of this event, it is likely that analyses of coverage and the various loss impacts will be vastly complex.

Some of the key areas to monitor include:

Supply chain / contingent business interruption impact

Damages to products and materials flowing through and stored at the port of Tianjin will likely impact companies throughout multiple tiers of the supply chain.

Similar to supply chain impacts following the earthquake/tsunami in Japan and flooding in Thailand, it could take some time for the full impact of losses from Tianjin to be realized by many companies.

This creates a critical need for risk professionals to communicate early and often with their organizations’ supply chain management and sales departments to identify potential business interruption, contingent business interruption and extra expense losses.

Marine cargo, stock throughput, and other property coverage

The myriad of different coverages maintained by most companies can create a complex mix, requiring careful analysis to determine how each applies to the situation in Tianjin.

Because the event encompassed direct destruction of product and materials, contamination due to toxic chemicals and quarantine of vessels at the port, unraveling the related coverage issues may be a daunting and lengthy task, particularly given the limited flow of information concerning the explosion and its impact.

It is essential that risk professionals work closely with their advisors to understand application of their coverage.

Civil authority and ingress-egress claims

The closure of the port by Chinese authorities has prevented companies from accessing or moving their assets, thereby creating causes of loss that may trigger business interruption coverage.

Insurers typically require explicit documentation, including government documents, to support these types of claims. The capture of necessary and crucial documentation should occur as soon as possible and continue throughout the claims process.

Local versus master insurance policies and related coverage issues

Companies need to be aware that differences in underwriting practices and policies by Chinese insurers may create gaps in coverage.

Additionally, any operating companies in China that are part of joint ventures with foreign companies may face issues regarding varying interests by the parties to the joint venture.

It is crucial to fully understand these interests and their potential impact on insurance recovery early in the claims process.

At this time, we anticipate losses resulting from Tianjin will continue to unfold over the months ahead. Risk professionals are well encouraged to closely monitor potential losses as discussed above and to consult with their advisors, as required, throughout the process.

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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 Ernst & Young LLP 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 [email protected]

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 Ernst & Young LLP 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 [email protected]

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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