Category Archives: Business Interruption

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Recovering from Hurricane Matthew

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Many organizations in the southeastern United States recovering from Hurricane Matthew are still dealing with downed power lines, swollen rivers and blocked roads. As soon as they are able to, business owners should start assessing damage to their property and begin their insurance recovery process. They will need to assess not only physical damage to their property but also any income losses that may have occurred as a result of flooded and blocked roads and bridges, interrupted shipping and air transport, evacuations, and closures by civil authority.

They need to gather the information they’ll need for their insurer, and also be familiar with their policy and policy language. “In the runup to a storm, we always hear insurance executives on the news assuring the public that they will take care of things—that policyholders can rest assured,” Marshall Gilinsky, a shareholder in the insurance recovery group at Anderson Kill P.C., said in a statement. “But it’s vital for businesses not to assume everything’s going to be taken care of automatically. Storm-related claims can run into a snarl of unclear policy provisions, sublimits and exclusions, and occasionally obstreperous insurance company adjusters. A false sense of security leads easily to lost insurance proceeds.”

Businesses impacted by the storm that have flood insurance, he said, “should look for coverage not only for physical damage to their premises due to any flooding, but also business interruption and contingent business interruption coverage.” For best results, they should be sure they are up-to-date on how their insurer defines and invokes sublimits for “flood,” “storm surge” and “named storms” and how their insurer deals with claims that include damages from both wind and flood, Gilinsky said.

According to Galinsky, the following coverages (and coverage limits) will apply in a storm’s aftermath:

Business interruption or BI covers businesses for losses stemming from unavoidable interruptions in their daily operations.  BI coverage may be triggered by circumstances including a forced shut-down, a downturn in business due to damage to premises, or a substantial impairment in access to a business’s plant or premises.

Businesses that are not themselves forced to close may be able to tap contingent business interruption coverage, triggered when policyholders do not themselves suffer physical damage but still lose revenue after a property loss sidelines a major supplier or customer base.  Contingent BI is a standard provision in many property insurance policies, though many small businesses are not aware of it.

Also in play will be coverage for evacuation by order of civil authority, triggered when authorities close off access to a damaged area – and ingress egress coverage, which insures lost profits due to difficulties in accessing the insured premises due to the storm. Again, damage to the insured’s own property is not required to trigger coverage — though typically, the losses must result from property damage of a type covered by the insurance policy.

“Too many businesses do not think about insurance unless their premises are damaged—or if they do, they fail to calculate the full range of loss,” Gilinsky said. “Small businesses in particular may not even be aware of their civil authority, ingress egress and business interruption coverage, let alone their contingent business interruption coverage.”

He also noted that many commercial property insurance policies provide different sublimits for losses caused by “flood,” “storm surge” and “named storms.” How the policy defines these key terms can be critical in determining the amount recoverable for the policyholder’s loss.

The Property Casualty Insurers Association of America offered the following tips to help businesses through their recovery process.

Business Recovery Information

  • In the aftermath of natural disasters, businesses should take immediate steps to minimize damage, speed up the claims process and accelerate business recovery. Assess the damage and report all damage to your insurance company agent as soon as possible.
  • Take pictures of your building and contents to document the damage.
  • Check for safety hazards, such as downed trees, branches, downed power wires and leaking gas.
  • Keep all receipts for anything purchased for that purpose so they can be submitted to your insurance company.
  • Be prepared to list the “replacement cost” of each item and its actual cash value.
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    Replacement cost is what it would cost today to replace an item with another one just like it. Actual cash value is what the item is really worth after deducting for depreciation and wear.

  • Restore your utilities, phone service, gas lines and other important links as soon as possible.
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  • Business interruption coverage is complex and will vary by insurers. It is important to read your policy and understand what is and is not covered.
  • As you seek contractors to make repairs, deal only with reliable, licensed professionals.
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    Get written bids from the contractor, but don’t sign any contracts or give a deposit until you have seen your insurance adjuster.

  • If you or your employees get involved in clean-up efforts, use safety items like proper eyewear, gloves, hardhats, dust masks and respirators.
  • Keep detailed records of business activity and extra expenses during the interruption period, and prepare records to show the income from the business both before and after the loss.

Ransomware Threats Jump 300%

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Businesses have seen a huge increase in ransomware threats—300% from 2015, according to the FBI, which also reports there were 2,400 ransomware complaints in 2015. In addition to its growing frequency, the means of attack have also improved significantly, as hackers get better at social engineering and at developing malware.

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Unlike other types of cyberattack, ransomware attacks are not about extracting data, they are about freezing access, holding businesses functionally hostage, according to Risk Management. When this type of malware infects a system, it encrypts files and documents and demands a ransom, typically in the form of digital currency such as bitcoin, in exchange for a decryption key.

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The most frequent targets of attacks, 23%, were government entities, according to Hiscox. The category of business services was second at 18% and finance and insurance institutions followed with 13% of the attacks.
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Because the encryption can be crippling and circumventing it is difficult, the FBI advises that businesses may be better off paying the ransom, especially if the company’s system backup has also been infected.

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Making the Most out of a Crisis

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CALGARY, ALBERTA, CANADA—Suppose your company experiences a major hurricane, tornado or fire: Property is destroyed and your business is stalled, meaning customers are left waiting.

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But there are buildings to be rebuilt and equipment to be replaced, and the claims process hasn’t even started. This is when the risk manager’s skills at placing the company’s insurance coverage and negotiating for the best payout can not only demonstrate their true value, but can put the company back on course, according to experts here at RIMS Canada’s annual conference.

“When there’s a serious property loss, this is the time for the risk manager to shine, because up until then it’s about premium, premium, premium,” Tom Parsons, manager of risk management at Fairmont Raffles Hotels International in Toronto said during a RIMS Canada Conference session. “Up until a serious loss occurs, I don’t think you feel the impact that you can give back to the company. Because what we do is buy insurance, so it has to work.

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It is what you helped craft and build into your policy through the years. You have created a policy that is robust, and that is going to cover everything—you hope.”

Among the examples cited was a soft drink bottling plant flooded with eight feet of water following a hurricane. While the company’s high-speed bottling equipment was damaged and would need to be replaced, explained Jeffrey Phillips, managing director in PwC’s U.S. forensic advisory practice, the issue was that floodwaters were highly contaminated due to a number of chicken and hog farms in the area. As a result, the company determined that the building could not be used for any type of food processing and would need to be demolished. The insurer, however, argued that the walls could be sealed, containing any contaminants. The company had found a competitor to do some of the bottling, but it wasn’t enough to fill their orders, Phillips said.

Because delivery of the new bottling equipment was slated to take months, there was also a large business interruption period being covered, he said. This is when innovation came into play. The bottling company was able to show the insurer that buying another plant rather than rebuilding would put them back in business sooner, cutting back on their losses. The insurer agreed and sent them a check. As a result, the company purchased a larger facility in a better location.

“They were up and running in six months—the business interruption had stopped,” he said. The better location also meant reduced shipping costs and the company gained market share. Because the company was able to make the case to its insurer, both came out ahead in the long run.

Phillips recommended that companies negotiating after a crisis “communicate, communicate, communicate” with their insurers.

They should also get their insurers to sign off on major contracts such as scope of work, rates and overhead and discuss changes to operations or facilities with the adjustment team and agree on scope of property damage repair or replacement whenever possible.

Insurers will typically push to return the facility to pre-loss condition, “unless you can prove the changes will save them money,” he added. “Insurers will not be creative for you, they don’t know your business or your goals.”

Terrorism Incidents Down, Disruption Up in 2015

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A number of high-profile terrorism attacks worldwide have raised people’s fears this year, but the reality is that the number of attacks and deaths from such attacks actually decreased in 2015, according to Marsh’s 2016 Terrorism Risk Insurance Report.
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The report summarizes terrorism risk insurance trends, benchmarks terrorism insurance take-up rates and pricing, and offers risk management solutions for terrorism exposures.

The more current attacks, often perpetrated by a single individual or small group, are different from those carried out in the 1990s and 2000s when high profile locations were targeted. Individuals carrying out the more recent attacks may have no direct contact with a known terrorist organization, but could be drawn to them through writings and video, particularly on the internet, Marsh said.

These events can be very disruptive to operations in some companies. In the travel industry, for example:

  • About 10% of American travelers canceled booked trips due to the recent attacks in Egypt, France, Lebanon and Mali, which impacted $8.2 billion in travel spending, according to a survey by YouGov.
  • Booking losses for Air France were estimated to be €50 million ($56 million), the company said in a statement.
  • Airlines, hotel chains and travel websites experienced drops in their stock prices after this year’s airport bombing in Brussels.

In the United States, the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) offers businesses a federal backstop against terrorism-related losses. While the overall take-up rate for TRIPRA coverage in the U.S. increased slightly in 2015, it has remained in the 60% range since 2009, Marsh said.

Managing terrorism risk requires a combination of strategies that protect people, property and finances. On the financial side, the choice is whether to retain or transfer the risk with insurance. But the changing pattern of terrorism risk has some companies asking if they are adequately insured for business interruption and related losses. They also wonder how to prepare for potential losses from cyber terrorism and other events.

Other key takeaways from the report include:

  • As small group and “lone wolf” terrorist attacks appear to be the changing face of terrorism, many organizations are assessing their coverage for indirect losses stemming from business interruption risks.
  • Following the 2015 passage of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), take-up rates in the US edged up for TRIPRA terrorism coverage embedded in property programs.
  • Among industry sectors, media organizations had the highest take-up rate for terrorism insurance in 2015.
  • Workers’ compensation markets for terrorism risks generally stabilized.
  • The number of Marsh-managed captives accessing TRIPRA increased by 17% from 2014 to 2015, but many captives that could offer a terrorism program do not.
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