Spotlight on Employee Theft
Fraud costs the typical organization about 5 percent in revenue each year, and the median loss from employee theft overall is about $280,000. That amount is roughly equivalent to what a small company (less than 500 employees) earns in net profit.
“For these smaller employers, [employee theft] has the potential to knock them out,” said Doug Karpp, senior vice president and national underwriting leader, crime and fidelity, at Hiscox.
And smaller employers are the most likely targets, according to a report recently released by the specialty insurer, “A Snapshot of Employee Theft in the U.S.”
An analysis of federal actions involving employee theft in 2014 showed that 72 percent of cases occurred at companies with fewer than 500 employees. Within that subset, 80 percent of incidents occurred at organizations with fewer than 100 employees, and more than half of those had fewer than 25 on staff.
“Smaller companies just don’t have the resources to have robust internal controls,” Karpp said. “They run lean. Losses tend to be more devastating to them.”
Fifty-eight percent of the cases surveyed for this report recovered none of their losses.
That finding isn’t surprising, but even larger entities with more protections in place are not immune. The financial services sector, for example, constituted 21 percent of employee theft incidences. The second-most targeted industry was real estate and construction at 13 percent.
Despite reporting the largest share of employee thefts, however, the median loss for financial services institutions was less than the overall median at $271,000.
“The financial services sector has more resources to detect and deter fraud,” Karpp said.
While the retail industry suffered only 5 percent of total fraud cases, it sustained the highest median loss of $606,012. That may partially be due to “idiosyncrasies with the way the study was done,” Karpp said.
Federal Court Cases Studied
The report examined only federal court cases, and retailers may very likely encounter many smaller thefts — especially outright theft of funds — that are handled at a local level and thus would not be counted in this study. Those that do get federal attention are more likely to be very large, more complicated losses.
The most common types of theft were outright funds theft (38 percent of losses) and check fraud (34 percent) — when a fraudster alters, forges or makes checks payable to himself.
Or rather, herself. Women were the perpetrators in more than 60 percent of cases, especially outright funds theft and payroll fraud. However, the median loss from schemes carried out by women was about $243,447 — 30 percent less than their male counterparts, who typically committed vendor fraud. Hiscox’s report defines vendor fraud as “a perpetrator diverting employer funds through the creation and submission of false invoices issued by fictitious companies.”
The typical thief was also around 50 years of age and worked in a senior level position in an accounting or finance role, typically with a long tenure.
Many employers miss signs of fraud because they believe their employees to be content in their jobs and generally trustworthy. In fact, according to Karpp, upticks in fraud — or at least its discovery — tend to happen during poor economic times, which may drive employees to divert extra funds to themselves, and also motivate employers to look more closely at their accounting processes
“One goal of the report is to raise awareness of fraud prevention techniques” during good times and bad, Karpp said, explaining that even companies with tight margins can adopt simple practices to mitigate the risk of employee theft.
Best practices include keeping certain tasks separate, such as record-keeping, issuing checks and reconciling bank accounts; no individual employee should be in charge of an accounting process from start to finish. Any checks written or wire transfers should receive approval from two senior managers or executives before completed.
Small business owners can also have all statements sent to their homes to be personally reviewed before any accounts are reconciled.
Many companies also wrongfully assume that traditional business and property policies cover internal theft. Fifty-eight percent of the cases surveyed for this report recovered none of their losses.
Having a crime policy in place that includes coverage for losses caused by through cyber deception, social engineering, vendor theft, funds transfer fraud, computer fraud, telephone toll fraud and other types of theft is the best way to ensure that road to recovery exists.
Earning Respect and Trust
Mickey Brown and his team won the opportunity to restructure an insurance program for a synthetic siding products manufacturer. For workers’ comp, Brown’s request for a change in governing classification was initially rejected by the NCCI, but he successfully appealed and obtained a lower-rated code. He also suggested a change in general NAICS (or SIC) coding, which put the client into a more appropriate grouping for credit analysis.
For trade credit insurance, Brown’s marketing presentations provided a creative solution to insure key customers, at desired limits and terms, at a lower rate. The hedging opportunity provided by trade credit insurance permitted an extension of higher credit amounts and sales growth.
For property insurance, Brown developed quality engineering data and moved mechanical breakdown perils to a separate policy, due to risks involving heavy press machines. This strategy proved successful in achieving cost savings and favorable coverage terms, including terrorism and other catastrophic perils. He also developed alternatives for supply chain risks and contingent business interruption.
“I have tremendous amount of respect for Mickey,” said Jim Shaffer, vice president and treasurer at Tosoh America Inc.
“The differentiator with Mickey is that if he wanted to, he could keep pushing different products, but he doesn’t. He introduces them to me, but it’s not a strong sales push.”
Two Green Thumbs Up
Justin Buren was able to convince an A+ carrier to provide coverage to fill an existing gap for chemical applicators within the lawn care industry, by helping the carrier to build a comprehensive green industry tailored program.
“We had two holes in our coverage that had to do with damaging individual lawns,” said Sam Morgan, owner of Weed Man in Charlotte, N.C. “Justin went to our insurers and presented on those gaps, not only to help me, but also the rest of the lawn care industry. He was able to create a policy around the missing coverage and get us protected.”
“Our insurance policy was cancelled in November 2013, even though we had not done anything wrong,” said Brandi Kellis, president of Kellis Vegetation Management Inc.
“We called Justin in a panic about what we were going to do, as there are not a lot of insurance companies covering our niche industry, industrial weed control. Justin was like, ‘Don’t worry about it — I’m on it.’ Not only had he seen this coming, he had done the legwork and already had a solution. We have more coverage now than under our old carrier.”
“A year or two ago I thought about expanding my business to also include fertilizing and lawn treatment,” said another lawn care client. “Justin explained to me the type of liability that would be involved as well as some of the nightmares that have happened to other companies. After talking to Justin, I decided to do what I do best – lawn maintenance and landscaping.”
Creative Carrier Liaison
One of Cara Cortes’ clients was sued several years ago, triggering an insurance claim. As settlement discussions between the client and the plaintiff solidified last year, the carrier issued an adverse coverage position citing very controversial interpretations of the policy.
After several tenuous discussions, the carrier compromised and participated in settlement discussions, resulting in a favorable claim outcome. But then at renewal, the carrier raised the client’s premium by 50 percent, and so Cortes had to remarket a directors and officers tower that exceeded $100 million in less than six weeks. The result: a program with a 30 percent lower premium than the incumbent market.
“Cara worked very hard to come up with effective carrier alternatives and insurance solutions for our executive liability programs during our renewal,” the client said. “Her creative ideas and strong negotiation tactics helped us to build an effective coverage tower with significant cost savings.”
“Cara did an absolutely fantastic job and we really appreciate her hard work,” a grocer client said. “This year we had tricky litigation issues and the endorsements weren’t as clear as we had hoped. We didn’t foresee those types of issues, but she fixed everything with her ability to negotiate with the carriers. She probably saved my job!”
“Cara Cortes does a great job for us,” said Tony Cosentino, director of risk management at Highmark Health. “She’s very detail oriented, very customer focused, and she not only understands the lines of business she services for us, but she also understands our business.”
Going Beyond Insurance Coverage
A large corporation was spinning out two entities that were being merged by Oaktree Capital Management. Its broker, Tiffany Davis, established a competitively priced, comprehensive insurance program that was fully running when the deal closed. She also created an attractive benefits program, including an online portal and call center to streamline communications, which facilitated full employee participation.
“Tiffany helped us navigate through the various delicate and complex employee-related matters and made the transition seamless,” said Jimmy Lee, vice president of Oaktree Capital Management.
Another client, Neuberger Berman, purchased a bankrupt property that had sustained material construction defect losses. Davis secured wrap coverage reaching back to inception and did not exclude prior work. She developed a manuscripted policy, addressing the unusual situation for a realistic price. “Tiffany consistently works through complex insurance issues, identifying risks and helping us mitigate them, increasing coverage and usually decreasing our expense,” said Michael Holmberg, managing partner at Neuberger Berman.
Another client acquired a family-owned business that had not fully disclosed many important issues. After coordinating with multiple experts to better understand the acquiring risks, Davis convinced the client to adjust the purchase price accordingly. She then developed a comprehensive integration strategy for the two companies’ workers’ comp and benefits programs. “Tiffany is … dedicated to providing first-class service,” the client said.
One of Michael Dellova’s clients, MetLife Inc., in 2013 acquired a subsidiary of Provida’s pension management company in Chile, with the intention to combine pension management services with already existing financial services such as annuities, life insurance and health benefits.
In July, Dellova traveled to Chile with Richard Barquist, the company’s vice president of corporate risk management, to meet with all stakeholders and explore the possibility of integrating the subsidiaries into the corporate master controlled property program.
Due to regulations, the former Provida and MetLife operations had to remain separate entities, each with their own business interruption/contingent business interruption exposure.
Given the program covers all locations outside the United States and Canada, additional capacity and sub-limits were warranted. During renewal, Dellova and MetLife convinced the carrier to seek additional capacity from both its home office underwriting and within the facultative reinsurance market, to increase capacity and sub-limits for business interruption, contingent business interruption and earth movement.
Another client said that Dellova is a “seasoned professional, and is extremely knowledgeable concerning all international insurance matters.”
“He is dedicated to providing his clients with exceptional service, and is easily accessible and reliable,” the client said.
Enabling Executives to Lead
One of Andrew Doherty’s clients — a Fortune 500 insurer with private equity-type investments in various non-financial industries — last year ramped up its acquisition of companies and spin-off of non-core business. This activity created a new risk profile for the firm, leading to a variety of complications regarding its directors and officers coverage, particularly over the question of whether underlying subsidiaries should purchase their own D&O coverage versus relying on the parent’s coverage. Doherty and his team also analyzed whether the companies should purchase run-off or tail coverage.
The brokers put multiple policies in place to address key management liability exposures, coordinating overlaps in coverage to ensure that any claims would be adjusted correctly under each policy and that all D&Os are adequately protected.
“Andy’s attention to detail is second to none,” said a client that provides private mortgage insurance and related risk mitigation products and services to mortgage lenders. “He takes the extra time to listen and understand our needs and often makes suggestions for program enhancements or additions that strengthen our various executive risk programs. The few issues that have come up over the years are often resolved within 24 hours. His knowledge of the marketplace is immense and has a very collegial and collaborative way in which he works with the carriers.”
“Andy is forthright, diligent, and he delivered very positive results for the company,” a cable network client also said.
The risk manager for one of Larissa Gallagher’s clients, a large automotive parts supplier, said that after Gallagher had already “beat up on our carriers — in a nice way, of course — for a 10 percent drop” you’d think it would be tough to squeeze another 10 percent out of the markets, no matter how soft they might be.
But, Gallagher has been able to consistently beat market conditions. “She is probably the best property broker I have worked with,” the client said.
“She may have the best relationship with the markets of any broker I know. Gallagher’s strategy is to leverage the account — keep the incumbent carriers on board, but add some first-class competition to the mix. Push for rate and price reductions, but look for enhancements to the program. Increase capacity.
“She presented us with three options,” the risk manager said. The first was the status quo: Keep incumbent carriers only. Next was the cheapest pricing, and the third was the strategic option, priced between status quo and cheap.
The strategic option positioned the client far better if the market turned hard.
“That would give us the best position for future renewals,” the risk manager said. “We chose the strategic option.”
The risk manager added, “She’s so young, less than 30 years old. But she’s detail oriented and mature; she understand the markets and provides great service. I don’t know how she does it.”
Covering Counsel Across the Globe
Stuart Girling restructured a $250 million legal professional liability program for a law firm with 1,000 attorneys, which wanted to move out of a risk retention group program and into a more cost-effective solution. This required Girling to match the coverage exactly, while adding some improvements, and to structure the tower in the most effective way possible to achieve maximum savings.
This restructure allowed the firm to move out of the restrictive RRG/captive program, broaden its coverage, and realize more than $2.5 million in cost savings. The program also includes a rolling gate guarantee enabling for the calculation of savings over a two-, three-, and four-year period. Going into year two, the savings will exceed $5 million.
Girling has extensive broking and client service experience with law firms in the United States and Europe, and has leveraged his years of experience and targeted knowledge to provide specialized programs that account for the unique risks faced by today’s law firms.
“Stuart is relentlessly attentive,” said Barry Chasnoff, partner and general counsel at Akin Gump Strauss Hauer & Feld LLP. “He does a great job of negotiating on my behalf, keeping me informed, coming up with alternatives with coverage and helping me service my clients.”
“Stuart Girling is such a breath of fresh air because he does everything he says he’s going to do,” said Donald Ridge, managing partner at Morris Polich & Purdy LLP. “He never says no, he assists in client development, he assists in insurance questions — for us, he’s been the epitome of client service.”
Prioritizing Risk Management
Many of Alexander Gold’s small law firm clients are having much greater difficulty in procuring malpractice insurance coverage than ever, especially since several of the carriers that were previously writing coverage for small firms recently exited the market. Compounding the issue is that the remaining carriers have increased their rates, tightened their underwriting criteria, or both.
One of Gold’s clients was not renewed, and the firm could not obtain admitted terms for its area of practice — personal injury/medical malpractice. Gold then had the client complete a detailed claim prevention questionnaire on the firm’s existing policies and procedures, used that to recommend improvements and claim prevention techniques, and then positioned the firm as a safe one to insure from the perspective of the carrier. The result was admitted coverage at a 20 percent lower premium than the carrier’s original quote.
“Our insurer decided to no longer underwrite in New York, but Alexander was able to find another carrier and negotiate a lower price, in part because he had us conduct a risk management assessment,” the client said. “He’s the first broker I’ve had that talked to us about how to better manage risks, taking time to clarify the process, discuss minimizing risks, etc.”
“Alex is an energetic young man, intelligent and perseverant,” another law firm client said. “He’s an agent who understands the importance of client service — fast, competent, responsive and fighting for competitive rates.”
Customer Service at the Forefront
Scott Gronholz had a client that was acquiring a company with specific indemnification requirements, which presented a significant exposure that neither party was comfortable assuming — nor one that most industry experts would feel was insurable.
After countless hours, conference calls and due diligence, Gronholz and his team were able to provide specific data points to enable the carrier to be comfortable in providing terms and conditions to the client, because Gronholz convinced the client to retain a portion of the exposure. The client was able to proceed with the $2 billion deal.
“Scott Gronholz has given us exceptional service,” said a client that provides workers’ compensation and risk management solutions to transportation industries. “First, he was successful in finding a hard-to-place litigation buyout policy, which other brokers were unsuccessful in placing. Second, he put together a team of claim service consultants and they were successful getting a large, international insurance company to accept an alternative process for handling our claims. This will result in material cost savings for us.”
“Scott has done an outstanding job, going above and beyond,” said a client that distributes automotive parts for commercial uses. “He spent lots of weekends, he was on call at all times, very responsive. He came up with some very creative solutions working with the carriers directly, as well as myself. We had conferences with the carriers developing modified products.”
According to a client that provides integrated audio visual solutions, “Scott Gronholz is very diligent in satisfying our needs and our insurance requests.”
Sandra Gulick is a veteran of the car wars. She’s been handling auto and related manufacturing accounts for 27 years for some of the largest auto companies in the world. Her specialty — mergers and acquisitions. The latest deal involved a foreign manufacturer that merged with another related company. As with any merger, she had to make sense of the two different insurance programs — different terms, different renewal dates, different coverage and retentions and, of course, different risk management departments.
Gulick, after extensive internal and external negotiations, was able to restructure and improve the program, lower retentions and improve cost structure. An important part of the process was convincing and educating the new risk management team to better understand the options and benefits that she proposed. That was a challenge because the longtime incumbent carrier was an insurance company based in the company’s home country.
When faced with the assignment, she introduced market competition into the process despite the fact that it was acknowledged that the client already benefited from lower than market rates. The result — premiums were reduced substantially and the relationship with the incumbent carriers remained strong.
Gulick is the manager of Aon’s local client service team and she’s committed to providing excellent service. She has a record of excellent client retention. Said one client: “She’s a true professional and she’s done a great job for us.”
Passionate About Insurance
Under Kenneth Mackunis’ lead, the American Institute of Certified Public Accountants’ comprehensive member benefits program has expanded from one to 15 solutions. Mackunis and his team also developed a robust risk control program to help CPAs mitigate their exposure to data breaches and employee theft risks.
The two coverage enhancements launched after the 2014 tax season were CPA NetProtect, a comprehensive solution to protect firms in the event of a data breach, with privacy event expense coverage and network damage claim coverage; and employee theft coverage, which provides cover for employee theft of firms’ properties or third-party properties.
As a result of these enhancements, more than 25,000 CPA firms are insured nationwide under AICPA’s program. CPA NetProtect extensions to professional liability policies increased by more than 93 percent from 2013 to 2014, and employee theft extensions to professional liability policies increased by more than 70 percent.
“Ken is the ultimate professional when it comes to an insurance broker,” said Kevin Murphy, chairman, AICPA professional and personal liability programs committee.
“I think Ken is extremely conscientious, intelligent and innovative,” said Jack Finning, chairman of AICPA’s life and disability insurance trust. “He really focuses on timely client service.”
“Ken is passionate about insurance — I really haven’t experienced anybody who loves being in the insurance industry like he does,” said a client at a trade group.
Taking a Team Approach
Scott Meyer recently took over a multimillion dollar premium program with a publicly-traded consulting firm. The firm had previously experienced a significant claim that was not covered by insurance due to poor policy language; additionally, the client had just undergone a major internal reorganization and needed to be assured they would be adequately insured in new endeavors.
Meyer leveraged key resources including attorneys and subject-matter experts to provide suggestions, employed benchmarking and analytics, and solicited feedback from the client to ensure he understood the goals the client had for its business under its new structure.
Meyer and his team tailored a program with effective policy language and relationships with global insurance carriers that had not previously been included in the client’s program. These efforts saved the client nearly $1 million upfront. Even more importantly than initial cost savings is the assurance the client now has that they will not face another uninsured loss that would carry significant economic and reputational damages.
“Scott is phenomenal,” said Anne Oliva, chief financial officer at Consecra Corporation. “He has a lot of integrity and wants the best for his clients. Scott’s knowledge and professional expertise continues to help us manage our portfolio in the best possible way.”
“Scott responds unbelievably quickly to any inquiries, and is efficient, thorough and concise in all he does,” said Drenna Shive, human resources manager at RHC Holding Corp.
Helping Clients Hit the Books on Coverage
Kathy Phillips had placed D&O coverage for Ventura County Law Library for many years. While shopping the renewal, she discovered that the county was passing on insurance costs to the law library.
After making several phone calls, Phillips determined that there was no memorandum of understanding in place. In fact, no one truly understood the nature of the coverage or if there was duplicate coverage in place. She then coordinated discussions between the library’s board of trustees and the county’s risk manager to determine whether the library should continue its coverage or cancel it.
“Kathy used due diligence and initiated an exploration of our risk management relationship with the County of Ventura, and through her perseverance, discovered that we actually had insurance coverage through the county,” said Stuart Comis, a member of the board of trustees of Ventura County Law Library. The library was able to cancel its coverage “which saves us substantial money and enables us to better meet the public’s needs by the purchase of many additional books.”
“Kathy continually goes above and beyond the expected level of service, often offering creative solutions, answering calls and emails off-hours, and providing rapid turnaround of requests,” a parking management client said. “Whether negotiating extended policy terms, assisting with the management of overall claims experience or a particularly difficult claim, or providing us with proactive solutions, we have always been able to count on Kathy to deliver far more than just another policy.”
Sure of Surety Approach
Energy Solutions was required to provide nearly $145 million in financial assurance security to various state agencies for environmental liabilities. The firm was utilizing mostly letters of credit, which were costly, tied up cash and impaired availability on its credit facility.
The firm’s broker, Tom Rhatigan, learned that the firm’s treasurer, David Nilsson, had explored surety as an option, but the large aggregate size of the various obligations was seemingly too much for a single surety to handle. To maximize the use of more economically attractive surety bonds, Rhatigan introduced a multi-surety approach that spread the various risks over eight markets, building enough capacity to use surety to cover all of the firm’s financial assurance obligations.
“Tom successfully got $140 million of market capacity from the surety companies, which netted us $108 million in restricted cash that was released to pay down our debt,” Nilsson said. “Through Tom’s skill and efforts, this project was a huge success and is saving the company $4.5 million on an annual basis.”
“Tom has almost single-handedly resurrected the surety program for us and made it a responsive outstanding program with superior sureties,” said Lisa Nargi, vice president at Foster Wheeler.
“Tom is fantastic – extremely knowledgeable, easily reachable,” said a client at a specialty contractor. “He has spent countless hours with me teaching me the ins and outs of bonds. That, to me, is the key to a superior broker.”
Quick Turnaround on Global Challenges
One of Xiaomei Rodrigues’ clients had a few significant liability claims several years ago, which caused some insurers to be unwilling to provide capacity, resulting in premium hikes. When Rodrigues and her team were appointed to the account, she conducted risk finance modeling that helped the client understand the inefficiency of its insurance program retention, layer pricing and limits. Rodrigues helped the client achieve significant premium savings by restructuring its casualty program.
For another client that acquired a multinational company, Rodrigues and her team were only given a few days to place product recall coverage with a very high limit. Working closely with Marsh’s recall team, she successfully obtained the capacity and also secured broader coverage. Moreover, Rodrigues helped the client integrate all its existing product recall policies in Europe into its global recall program, resulting in significant premium savings.
“Xiaomei is phenomenal,” said Gene Surrett, director of risk management at Hubbell Inc. “She has excellent control over the entire account and transcends multiple offices — she’s even been to China and Europe on business trips with us. She is extremely helpful in coordinating things. Without her I would still be in the Beijing airport.”
“Xiaomei is really diligent in terms of bringing resolution to any issue, whether big or small,” said an energy management client. “She will step outside the normal parameters to find the right resources, which can be very time-consuming for her. She’s very good at getting back to me with an answer or an explanation about why something is being delayed.”
Martin Serbins received a midterm broker of record letter from a former client that was unhappy with their current broker and the results of the last renewal. This client’s property insurance program had a number of different expiration dates with various carriers and the client was displeased with the fragmented structure. The client’s foundries were the main exposure, as they were all in foreign countries, including countries such as India that posed particular business challenges.
Serbins contacted all the major insurers that had global capabilities and there was little interest in the account. He also contacted the carrier that had declined the prior broker in the past, since Serbins believed that broker hadn’t adequately presented the risk to the carrier. This carrier that had previously declined, then stepped up and provided a very competitive quote and was willing to work with Serbins and the client to consolidate the program.
“Marty is consistently a top performer, with the ability to facilitate a relationship directly with the carrier which results in better service and more customized coverage,” said a client at a diversified global manufacturing, marketing and distribution company.
“With his help, we were able to consolidate with one carrier to provide global property insurance needs. With that purchasing power, we saw significant premium savings, and we continue to see premium reductions.”
“Marty has done a very good job for us,” said a client at a company that offers maintenance services to companies that own and/or lease rail rolling stock.
Better Service, Better Protection
Cyber security and privacy have been major topics of conversation with one of Nicholas Warren’s newspaper publishing clients. Warren and his team worked with senior management, along with finance, IT, business continuity and risk management, to analyze the company’s exposures in order to tailor policy language to meet the company’s needs. Warren and his team also educated the managers on what they should do in the event of a business interruption or crisis management event.
“Nick is a great broker, in terms of responsiveness and in terms of getting the right people in front of us,” the client said. “When I took over risk and insurance responsibilities, I was brand new to that area. He was able to provide me the education that I needed on our industry and our particular business. He was proactive in terms of addressing future issues.”
For another client, Bertelsmann SE, dust explosions have been a major focus given some issues at specific plants. Warren and his team assembled meetings with the various plant managers, provided loss control and preventative loss services to not only focus on mitigation of such claims, but maintenance protocols to assist the plant managers and their teams.
“Nicolas Warren provides very excellent service,” said Jurand Honisch, Bertelsmann’s senior vice president, corporate risk management and insurance.
“Nick is very responsive,” said a wheat exporter client. “He was able to expand our coverage this year in an area that we had been somewhat deficient in, which strengthened our policies so that we’re better protected than prior years.”
Preparing for and Navigating the Claims Process
All of a sudden – it happens. The huge explosion in the plant. The executive scandal that leads the evening news. The discovery that one of your company’s leading products has led to multiple consumer deaths due to a previously undiscovered fault in its design. Your business and its reputation, along with your own, are on the line. You had hoped this day would never come, but it’s time to file a major claim.
Is your company ready? Do you know – for certain – how you would proceed, both internally with your own employees, and externally, with your insurance provider? What data will you need to provide, and how quickly can you pull it together? Do you know – and understand – the exacting wording of your policy? Are you sure you are covered for this type of incident? And even if you are a multinational with a global policy, how old is it, and is your coverage in concert with any recent changes in the laws of the country and local jurisdiction in which the incident occurred?
As should be clear from these few questions, if you organization is hit with a major event and you need to make a claim, just knowing that you are current with your premium payments is not enough. Preparation before the event ever occurs, strong relationships with your insurance team, and a thorough understanding of what needs to happen throughout the claims process are all essential to reaching a satisfactory claim settlement quickly, so that a long business disruption and further damage are avoided.
Get Ready before Disaster Strikes
The Boy Scout motto, “Be prepared,” applies equally well to organizations that may suddenly be faced with the need to navigate the complexities of the claim process – especially for large claims following a major crisis. Crises are by nature emotional events. Taking the following steps ahead of time, before disaster strikes, will help avoid the sense of paralysis and tunnel vision that often follows in their wake.
Open up a dialogue with your insurer – today.
For risk managers and others who will be called upon to interface with your insurer in the event of a crisis, establishing open and honest lines of communication now will save trouble and time in the claims process. Regular communication with your insurance team and keeping them up to date on recent developments in your organization, business and manufacturing processes, etc., will provide them with a better understanding of your risk profile and make it easier to explain what has happened, and why, in the event you ever have to file. It will also help in the process of updating and refining the wording in existing policies to reflect important changes that may impact a future claim.
Conduct pre-loss workshops to stress-test your readiness to handle a major loss.
Firefighters conduct frequent drills to ensure their teams know what to do when confronted with different types of emergencies. Commercial airline pilots do the same. Your organization should be no different. Thinking through potential loss scenarios and conducting workshops around them will help you identify where the gaps are – in personnel, reporting structures, contact lists, data maintenance, etc., before a real crisis occurs. If at all possible, you should include your insurance team and broker (if you have one) in these workshops. This will not only help cement important relationships, but it will also serve to further educate them about your organization and on what you will need from them in a crisis; and vice versa. The value to your organization can be significant, because your risk management team will not be starting from zero when you have to make a claim. Knowing what to do first, whom to call at your insurer, what data they will need to begin the claims process, etc. – all of this will save time and help get you on the road to a settlement much more quickly.
Know what your policy covers, before you need it.
This advice may sound obvious, but experience has shown that all too often, companies are not aware, in detail, of what their policies cover and don’t cover. As Noona Barlow, AIG head of financial lines claims Europe has noted, particularly in the case of small to mid-size organizations, “it is amazing how often directors and risk managers don’t actually know what their policy covers them for.” This can have dire consequences. In the case of D & O insurance, for example, even a “global” policy many not cover all situations, because in some countries, companies are not allowed to indemnify their directors. Obviously, these kinds of facts are important to know before rather than after an incident occurs. So it is important to have an insurer with both a broad and deep understanding of local laws and regulations wherever you have exposure, in addition to an understanding of the technical details of working through the claims process.
Make sure your data management policies are in order.
Successful risk management depends on having consistent, high-quality data on all of your risk-sensitive operations (manufacturing, procurement, shipping, etc.), so that you can quantify where the greatest risks sit in the organization and take steps to reduce them. Good data, complemented by strong analytics, will also help you to identify potential problems before they occur. It will also help you to maximize the effectiveness of your insurance purchasing decisions. Frequent, detailed conversations with your insurer will help you to identify any areas where additional data might be needed in the event of a crisis.
No one ever wants to find themselves in the midst of a crisis. But if and when such an event does strike, if you have taken the steps above you will be much better positioned to work through the claims process – and reach an effective resolution – as quickly and as smoothly as possible.
For more information, please visit the AIG Knowledge and Insights Center.