Disaster Recovery

Irma’s Business Interruption Claims

Contingent business interruption claims from Hurricane Irma could take years to resolve.
By: | September 20, 2017 • 4 min read
energy industry

Hurricane Irma tore through Florida and the Caribbean destroying tens of thousands of homes and businesses, forcing people to be evacuated, and causing an estimated $25-35 billion in damage. On a commercial scale, however, the industries hardest hit were hospitality, retail and construction, as well as health care and manufacturing, say experts.

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But worse than the initial physical damage caused to their properties are the mounting business interruption (BI) and contingent business interruption (CBI) claims from companies forced to shut down because of the storm. At one point it was estimated that 62 percent of residents had lost power, exacerbating the problem and leading to issues such as mold.

And with further storms approaching, notably Hurricane Maria, there’s the added challenge for claims adjustors of scrambling to try and differentiate the damage caused by each event, particularly in the more inaccessible areas. That’s on top of trying to reallocate resources from other storm affected parts of the country including Texas.

“Hospitality clients and real estate clients including commercial condominiums and apartments have had some significant claims,” said Marsh’s U.S. property practice leader Duncan Ellis. “Then there are the school boards and retailers, from strip malls to individual big box stalls, a lot of whom have suffered significant damage.”

Estimating overall insured losses in the “tens of billions,” Lockton’s national property claims director Sheri Wilson expects tourism and hospitals, nursing homes and assisted care facilities to be the worst affected in terms of commercial losses.

Duncan Ellis, U.S. Property Practice Leader, Marsh

“Florida’s tourism industry is going to take a battering, not just because of the short-term damage, but with the high season just around the corner they are not going to be able to recover in time because of the lack of materials and manpower,” said Wilson.

“The hospitals are a bit unique in terms of business interruption because they have so many different sources of revenue, so it takes time for that to work itself through the claims process and we won’t know the true financial impact until later this year.”

Willis Towers Watson’s head of property broking Gary Marchitello also expects Irma to result in “significant business interruption losses” arising from extensive power outages, taking months to resolve.

“These business interruption claims could take months to calculate,” he said. “Even if a specific property is not damaged, the insured’s property may face other obstacles to its operations, for example it could be impaired by civil authority and/or it may not have a means of ingress/egress due to nearby road closures.”

Beazley’s head of property Mark Bernacki added: “A key part of the loss escalation will be what’s covered under the extended period of indemnity. This allows the insured, post the normal period of indemnity, to pick up additional business interruption loss until the business can resume full operations.”

Hospitality clients and real estate clients including commercial condominiums and apartments have had some significant claims. —Duncan Ellis, Marsh’s U.S. property practice leader.

While Irma has forced many businesses to shut, Kevin Kavanagh, a partner at Wilson Elser LLP, believes that the longer-term implications are much worse, including lost jobs.

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“How long can you be shut down and not be bringing in any money or paying your employees?” he said. “It’s just devastating for smaller businesses, a lot of whom don’t have contingent business interruption and barely enough business interruption to cover their losses.”

Given the scale of the storm, it could also have a knock-on effect on the supply chain for months or even years down the line, said EY’s Americas Insurance & Federal Claims Services Leader Allen Melton.

“Take for example a manufacturing facility that had to close before the hurricane, came back and discovered they have little physical damage to their facility, but they have suppliers that produce key components or raw materials that were either severely impacted or completely destroyed,” he said.

“If they have coverage for contingent business interruption in their policy, they could have a fairly complex claim that could continue well into next year.”

Another issue is mold. With its humid environment, Florida is susceptible to mold and other diseases like Legionella, exacerbated by the power outages resulting from Irma.

Sheri Wilson, national proprerty claims director, Lockton

Veronica Benzinger, chief broking officer at Aon Risk Solutions Environmental Services Group, said that mold has the potential to grow within 36 hours of water intrusion of a building. While many policies cover water intrusion, she said that they often don’t extend to mold.

“The chances are that you are also dealing with potentially contaminated water full of chemicals, petrochemicals or biologics including sewage and so the process may become more extensive that just simply drying out, replacing wall board or pumping water out of your property,” she said.

“The protracted period of no power will also add to the severity, potentially, of the loss, which combined with the humid environment and organic material to feed on, will only encourage mold to grow.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

In the Fast-Paced World of Retail, This Risk Manager Strives to Mitigate Risks Proactively and Keep Senior Leaders Informed

Janine Kral works to identify and mitigate risks, building strong partnerships with leaders and ensuring they see her as support rather than a blocker. 
By: | October 29, 2018 • 4 min read

R&I: What was your first job?

My very first paid job was working on my uncle’s ranch in British Columbia in the summers. He had cattle, horses and grapes — an unusual combo. But my first real job out of college was as a multi-line claims adjuster at Liberty Mutual.

R&I: How did you come to work in risk management?

Right out of college I applied for a job that turned out to be a claims adjuster at Liberty Mutual. I accepted because they were offering six weeks of training in Southern California, and at the time that sounded really fun. I spent about three years at Liberty Mutual and then I spent a short period of time at a smaller regional insurance company that hired me to start a workers’ compensation claims administration program.

I was hired at Nordstrom as the Washington Region Risk Manager, which was my first job in risk management. When I started at Nordstrom, the risk management department had about five people, and over the years it has grown to about 75. I’ve been vice president for 11 years.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I would say that technology has probably been the biggest change. When I started many years ago, it was all paper and no RMIS.

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R&I: What risks does the retail industry face that are unique?

We deal with a lot of people — employees and customers. With physical brick and mortar settings, there are the unique exposures with people moving in and out in a public environment. And of course, with ecommerce, we have a lot of customer and employee data, which creates cyber risk — which is not necessarily a unique risk in today’s environment.

R&I: Can you describe your approach to working with senior leaders and front-line staff alike to further risk management initiatives?

It starts with keeping the pulse of what’s happening with the business. Retail moves really fast. In order to identify and mitigate risks proactively, we identify top risk areas and topics, and then we ensure that we have strong partnerships with the leaders responsible for those areas. Trust is critical, ensuring that leaders see us as a support rather than a blocker.

R&I: What role does technology play in your company’s approach to risk management?

Janine Kral, claims adjuster, Nordstrom

We have an internal risk management information system that all of our locations report events into — every type of incident is reported, whether insured or uninsured. Most of these events are managed internally by risk management, and our guidelines require that prevention be analyzed on each one. Having all event data in one system allows us to use the data for trending and also helps us better predict what may happen in the future, and who we need to work with to mitigate risks.

R&I: What advice might you give to students or other aspiring risk managers?

My son is a sophomore in college, and I tell him and his friends all the time not to rule out insurance as a career opportunity. My advice is to cast a wide net and do your homework. Research all the different types of opportunities. Read a lot — articles, industry magazines, LinkedIn. Be proactive and reach out to people you find interesting and ask them about their careers. Don’t be shy and wait for people and opportunities to come to you. Ask questions. Build networks. Be curious and keep an open mind.

R&I: What are your goals for the next five to 10 years of your career?

I have always been passionate about continuous improvement. I want to continue to find ways to add value to my company and to this industry.

R&I: What is your favorite book or movie?

My favorite book is Shantaram by Gregory David Roberts. It’s a true story about a man who was in prison in Australia after being convicted of armed robbery, and he escaped to India. While in India, he passed himself off as a doctor in a slum. It’s a really interesting story, because this is a convicted criminal who ends up helping others. I am not always successful in getting others to read the book because it’s 1,000 pages and definitely a commitment.

R&I: What’s the best restaurant you’ve ever eaten at?

Fiorella’s in Newton, Massachusetts. Great Italian food and a great overall experience.

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R&I: What is your favorite drink?

“Sister Carol.” I have no idea what is in it, and I can only get it at a local bar in Seattle. It’s green but it’s delicious.

R&I: What is the riskiest activity you ever engaged in?

Skydiving. Not tandem and without any sort of communication from the ground. Scary standing on a wing of a plane, but very peaceful once the chute opened, slowly floating down by myself.

R&I: If the world has a modern hero, who is it and why?

I can’t think of one individual person. For me, the real heroes are people who have a positive attitude in the face of adversity. People who are resilient no matter what life brings them.

R&I: What about this work do you find the most fulfilling or rewarding?

It’s rewarding to help solve problems and help people. I am proud of the support that my team provides others. &




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]