14 Questions for RWH Myers’ Sharon Wolfe
In October, Risk & Insurance® caught up with Sharon Wolfe, the co-founder of RWH Myers, to discuss some of the commercial insurance claims dynamics in the aftermath of Hurricane Ian. What follows is a transcript of that discussion, edited for length and clarity.
Risk & Insurance: Just for the benefit of our audience, why don’t you talk to us about the main drive or focus of your company?
Sharon Wolfe: RWH Myers is a forensic accounting firm. We quantify damages from the policyholder and help the policyholder to seek financial recovery after events such as Hurricane Ian.
R&I: When you think about Hurricane Ian, we’ve seen some pretty big losses there. In your experience, Sharon, what do you think are the key challenges businesses are facing in recovery related to Ian?
SW: There is a wide variety of businesses impacted by Hurricane Ian, and it runs the gamut from small companies and businesses to large, sophisticated Fortune 500 companies, and the challenge is quite different depending on the perspective or the policyholder.
For smaller entities, the challenges there are that you may have a small company or small business that has property damage, or you may have a small business that does not have property damage, and the challenge is equally great depending on those dynamics.
For example, a small business that has physical damage, we know the challenge: They have to quantify the physical damage, estimate their loss, seek recovery. But there is another dynamic going on right now for the small businesses throughout Fort Myers that do not have property damage.
That’s a unique challenge, and we’ve seen this frequently. The challenge is that they may have a contingent business interruption loss. Contingent on other people’s property — CBI, as we like to refer to it, is contingent business interruption.
That’s really very unique. You may have a small policyholder who states, “I do not have physical damage, I don’t have a loss, I’m fine.” And then they realize 30, 60 days later that the demographics have changed drastically within the Fort Meyers area, and the consumer base has drastically shifted and changed, and they do have a financial impact, and now they may be looking for financial recovery under those circumstances.
R&I: One example might be that a road has become impassable, a key road into a business, correct?
SW: Exactly, and this is quite a challenge for a policyholder, proving the link between the causation from Hurricane Ian, the damage — whether it’s to a road, or other people’s property, or whatever sort it may be — and the actual loss to the policyholder.
The physical damage from Hurricane Ian is around a particular geographical region, but the policyholder may be located five miles inland, and may not have had physical damage. This is the challenge we’re seeing right now, and a lot of it has to be with smaller middle market policyholders and where they are impacted. They are now addressing their concern about the impact in their business and how they trigger coverage under their policy.
Do they have coverage? Is it ingress/egress coverage, or is it a supplier or a customer that’s damaged? And how do they prove that to trigger financial recovery under their particular policy?
R&I: What are some tools that businesses can use that will better quantify the loss?
SW: In order to quantify the loss, the first step is to understand the impact on the business, identify the entire scope of loss, and begin to document it. Policyholders need advice from experts who are in this industry.
What really matters most in this situation is for the policyholder to work with experts who do this for a living — whether it’s Sigma7 and their companies, such as RWH Myers, or others. But the most important thing in this situation is to have experts who do this for a living every day and can advise a policyholder on how to go about the financial recovery. These matters are complicated, and the policyholder really needs to seek expert advice; that’s what we recommend most.
R&I: What lessons learned are you seeing so far in terms of what businesses are experiencing? Beyond the need to get expert advice, which I think they would all agree they probably do need.
SW: One issue we are seeing is the hospitality industry — hotels large and small are impacted. This is your classic property insurance business interruption issue, which will be what happens post-loss after Ian comes through, and the impact to the surrounding areas, and how that’s handled in the particular claim.
Insurance companies may like to take credit for the business increase for a hospitality firm after the event. Say there’s a gain from all the activity post-loss, and is the hospitality entity better off now than it would’ve been if the storm didn’t occur? This is your traditional issue with hospitality claims when a hurricane strikes: Will the insurance company review the situation and determine part of the increase after the hurricane is a gain post-loss, therefore eliminating your business interruption loss?
It’s always a very difficult question to evaluate that, and it depends on a case-by-case basis whether the insurance company is entitled to that gain to mitigate the business interruption loss after a storm such as Ian.
R&I: It sounds like battle of the accountants to me, Sharon.
SW: After every hurricane, that is definitely what we see, whether it’s the floods from Harvey, or the wind versus flood issue from Katrina, or the situation surrounding Ian.
The issues we see right now with Ian are typical of what we’ve seen of other major CAT losses, and what we’re seeing right now is potential make-up issues in the hospitality world. We’re also seeing contingent business interruption losses, which always pose unique challenges to prove and demonstrate the loss.
We’re also seeing complex windstorm deductibles, percentage deductibles — which is percentage of total insured value. So right now, what we’re seeing in the marketplace are all of those challenges from Ian and not one more or less. We’ll have to see how this shakes out over a period of time.
We do have your traditional TID windstorm deductible issues in terms of, does my loss exceed my percentage deductible? A lot of our clients are larger Fortune 500 companies, and they are assessing their damages to determine, do they exceed their windstorm percentage deductible?
R&I: There’s also the issue, of course, of “Was it the wind? Was it the water?” And how well put together was that policy to address those dynamics, right?
SW: Most likely policyholders have more than one policy, which makes it complicated again, so there may be a property policy with windstorm coverage, and then there may be a stand-alone flood policy. That’s typically what we see in the commercial world of insurance.
R&I: What we are hearing about are challenges just in the insurance markets themselves, going back to the condo collapse and everything else we heard coming out of Florida; how challenging is the coverage environment in Florida, and how does that impact what we’re seeing from Ian?
SW: The coverage environment from Hurricane Ian likely will face the current hard market challenges in claims recovery. What we are seeing from an accounting firm basis, where we are quantifying losses every day of our life, is the continuing challenge of recovering these losses.
The hard market in the insurance world has impact in claim recovery; claims are processed more slowly, and it takes longer to get through the documentation process. We are seeing this across the board.
Our clients are sophisticated policyholders that we have worked with for years, and they are slower to recover their losses now than they were 20 years ago. It’s the insurance environment that we’re in.
We are anticipating those same claims challenges going forward with Ian. So again, under this situation that we know was difficult before Ian, in order to recover your loss, you really need your experts lined up, because going in alone will take even longer than if you have experts in your corner.
I know I keep saying that you need your experts lined up, but in today’s world, it’s difficult because of the hard market we live in, and it hasn’t changed. And it’s very difficult to predict when that hard market will change, but under this particular year that we’re in, when this hurricane strikes, it’s still a challenging claims recovery market right now.
R&I: For the benefit of our readers who might be starting out, when we talk about this difficult hard market, it’s not simply the price of the coverage, and it’s not simply the availability of limits, as you just got through saying — it’s also that the claims piece is just more arduous and more involved.
SW: Yes, absolutely. It’s not just the premium increase, and it’s not just the changes to the market capacity; it has to do with how quickly claims are processed and paid. So the hard market in the insurance world impacts claim recovery from a timing standpoint and a dollars paid standpoint. It’s the entire impact in the marketplace.
I’ve been in this industry for over 32 years, and I have never seen such challenges in the claim market as what we have been facing over the past two years. It’s a culmination of impacts in the marketplace, I should say. It’s not just one factor — it’s all of these factors on the insurance market that make claims more difficult to recover for every policyholder. Small, middle market, sophisticated and large clients — every policyholder is impacted by this very tight insurance market that we’re involved with right now.
R&I: You meant that nationally, not simply in Florida, correct?
SW: I do mean that nationally, not just in Florida. We work on claims all over the country, and all over the world. And Ian is very specific to the impact of Fort Myers, Naples, the surrounding area, along with the Carolinas, and the entire impact and region from Ian will face the same claim challenges that are impacting the insurance market right now.
R&I: Could you help us understand, Sharon, how the entity of FEMA and what it can do intersects with the work you’re seeing with insurance recovery and claims?
SW: FEMA reimburses entities for their losses from CAT claims, such as Ian; the municipality, nonprofits and certain tribal organizations may be eligible for FEMA reimbursement. The complexity is, those entities may have insurance coverage and may also be eligible for FEMA recovery, and balancing the financial recovery of both sources of funds may be challenging.
With a FEMA recovery, it may take years for the entity to recover those funds. So now you have an entity, such as your municipality, which may be entitled to some insurance proceeds as well as FEMA proceeds, and [the challenge is] understanding the complexity of how both organizations may reimburse the municipality for its losses.
FEMA is a source of recovery depending on the entity. Another challenge we see is that, in the health care industry, there are quite a few health care entities that are nonprofits, and they may have an insurance policy, and they may also be entitled to FEMA recovery.
So which comes first, insurance or FEMA? Well, that’s always the challenge, and then getting through that process of ultimate recovery is, frankly, an accounting exercise that may go on for quite some time.
R&I: If you are a nonprofit, you are insured through a private insurer, but there may be a clause or some language in your policy saying, “Contingent upon what you receive from FEMA, you may receive X.” Or does that not happen?
SW: It’s actually the inverse. Insurance comes first. So from a federal government and FEMA standpoint, insurance must be exhausted first before FEMA reimburses you for your losses.
R&I: That same accounting, then, has to apply, right? You’ve got an insurance payment, and FEMA has its own process it has to go through.
SW: Yes, absolutely. The complexity is in the period of time through which the funds are ultimately reimbursed. If FEMA reimburses losses first, there is a true-up, so to speak, and then a reconciliation, so to speak, of the ultimate funds that are settled between the two organizations — private insurance and FEMA. And that may take two or three or four years, depending on the size of the loss and the complexity surrounding the scope of damage and the ultimate recovery.
R&I: Sharon, as you were thinking about talking to us — or in general about the work that you do in the aftermath of this very costly storm — was there anything that you wanted to express to our readers that we didn’t ask you about, or that you would like to have a chance to express? Either from the lessons learned standpoint, or just things to keep in mind going forward?
SW: The one piece of advice I would stress most is to read your policy, read your policy again, and then read the policy again. When you think there is no cover, read the policy again and leave no stone unturned.
Rely upon your experts. There are many policyholder experts out there available to you, and do not take no for an answer. Whether you’re dealing with FEMA or private insurance, the first reaction in many situations is for these organizations to say no, so always think outside the box, and read through the policy and think again, because there may be ultimate recovery there.
Time also contributes to that as well, such as the policyholder who does not understand their financial impact until three months after the storm, and they realize they do not have physical damage, but they have a contingent business interruption loss. &