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Claims Strategy

Fast Action Helps Complex Claims

Brokerage claims experts urge fast action to mitigate loss and substantiate claims.
By: | February 20, 2018 • 6 min read

Despite the popular television commercials featuring bizarre instances of property damage, risk management professionals say that the real troublesome complex claims arise out of multiple, overlapping events, not from odd single occurrences.

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In one situation, for example, an already complex acquisition was thrown into a state of confusion when a major hurricane damaged some of the assets, and the underwriters who had quoted on the buyer’s placement backed out.

In other instances, there were succeeding claims from multiple hurricanes that swept the U.S. Gulf Coast and Caribbean. And then there were the homes left damaged but standing after the wildfires in southern California only to be swept away by mudslides.

“Just in the past few months we have had four major hurricanes, a volcano, an earthquake, wildfires, and just recently mudslides,” said Charles Martin, chief claims officer for Marsh. “At the height of that, I was spending two hours a day, every day, writing updates for senior management on claims volume and severity.”

Martin and his colleagues at other brokerages said there are best practices for handling complex claims — beyond the obvious points of keeping accurate records and open communication. But that “standard” procedure for complex claims is essentially an oxymoron.

“Every one takes different turns. It’s not like you can say that something similar will happen tomorrow.”

Benefits of Overlap Analysis and Communication

Brokers’ best efforts to ensure that their clients are thoroughly covered may even be counter-productive. “The most complex claims tend to be those with overlapping coverage,” said Jill Dalton, managing director of property claims, preparation, advocacy and valuation at Aon.

“When there are multiple policies that can respond — boiler, property, marine, cyber, political, local versus international, multiple carriers, even multiple silos within the brokerage and the owner — untangling all that is the most complex.”

Charles Martin, chief claims officer, Marsh

Gap analysis is a common practice for brokers, especially when bringing in a new client or revising a program. But Dalton’s caution suggests that the reciprocal, overlap analysis may also be wise. If overlaps are deemed to be desirable, then the differentiation among them should be clear.

It is important for brokers to manage communications with insureds before a loss, and Dalton added that it is best if multiple levels within the client can be involved.

“Too often we see where coverage is not clear to everyone at a client. The risk manager, the plant manager, the executives all may have different understandings. In particular we see complications around waiting periods, percentage deductibles, retentions and multiple locations.”

Ideally there would be a time for the broker to speak to multiple levels at the insured. “Some clients invite us to meet with all their division heads or plant manager,” said Dalton.

“That is a great opportunity to brief them on how the whole program works. But not every company culture is open to that. Or there are geographic or language barriers.” In those cases it falls to the risk managers to try to communicate the essentials of the program across their organization.

“Multiple losses create complex claims and stretch the internal resources of even the best organized owner. Gathering information and monitoring claims can be extremely draining.” — Jill Dalton, managing director of property claims, preparation, advocacy and valuation, Aon

Still, life is what happens when risk managers are making plans. “We have seen cases where owners have had losses from multiple hurricanes,” added Dalton.

“There was an earthquake in Mexico, and the wildfires across California. Multiple losses create complex claims and stretch the internal resources of even the best organized owner. Gathering information and monitoring claims can be extremely draining.”

Hurdling the Unexpected

There are cases where an insured with complex claims may choose to lift the day-to-day responsibilities of a risk manger, or even a small team, and let them focus solely on the claim.

Susan Garrard, a managing director with Beecher Carlson in Boston, believes that complex placements and claims are normal for the energy sector. Still, she has seen some remarkable situations.

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In one case, a bankrupt company was eager to get assets off its books. A sale was in the final stages when last year’s hurricanes came through and caused damage. The claims were already filed with the seller’s carriers, but agreement had to be added that the buyer could adjust the claims after the sale was complete if necessary.

Then the carriers that had quoted on the assets informed Garrard that they had a moratorium on writing new risks in the zones affected by the hurricanes. All the underwriters from the lead to the trails backed out.

“We called them all and got the same response,” she said. “That was very surprising. Usually there is a carrier willing to write at some price, but to have carriers come back and just say ‘no, not at any price,’ was very surprising.”

Taking a moment to step back, redirect and focus, Garrard went to the carriers on the seller’s program and asked them if they wanted to stay on. “After all, the claims were already on their books,” she reasoned. “Staying on gave them a chance to make some of that back. Or they could just pay and walk away.”

Susan Garrard, managing director, Beecher Carlson

There was one carrier that did want to stay on. That was unexpected because the underwriter tended to handle only large placements, which the seller’s program had been. But the buyer’s program was only a portion of the seller’s assets.

In another situation, a builder completed a project and turned over the facility to the owner. Or thought it had, because the owner had not yet accepted delivery. That night there was a flood that damaged the facility.

The builder asserted that its responsibility ended when it signed off the project. The owner asserted that its responsibility did not begin until it accepted delivery. Policy language was not clear.

Preparing for Complexities

Most brokers are reluctant to speak in detail about complex claims, for obvious reasons of confidentiality, but examples are legion. Broadly, Martin said that in cases of multiple losses, the most important thing for the insured is try to identify actual damages and tie them if possible to a direct cause.

Second, said Martin, “gather as much documentation as possible to validate and substantiate non-physical loses. You can see damage, but you cannot see lost business in cases of business interruption. It also helps to pre-arrange with contractors and even forensic accountants so you do not have to dial around at the same time that everyone else in the area is also.

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“Carriers are going to question everything anyway, and will get estimates from their own contractors. But it helps you, and helps the claim, if you are doing everything you can to get back on your feet. Build speed into the process.”

Martin also stressed that insureds have an obligation to mitigate loss. “That is required by the policy. The best way to prevent a claim from becoming complex is to do everything you can to mitigate loss and maximize recovery. That is our goal as brokers as well. To mitigate loss and maximize recovery.”

He also urged insureds to over-report. “Tell everyone who might be involved, excess carriers, everyone at every level of the tower. If they are not called upon, then fine. But you don’t want to have to loop people in later.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]