In August of 2022, the Risk and Finance Magazine of Bolivia in its No. 61, has published an interview to Roberto Revenga, CEO at VANTEVO CLAIMS ADVISORS.
You can read the complete interview here.
Risk Management can be defined as being the set of measures an entity undertakes in order to deal with possible future contingencies, an entity being understood to be an individual or a corporation.
Some organisations tend not to consider the need to handle the risks that their activity implies, often generating negative consequences for business continuity. This presumed saving brings in its wake serious damage that in some cases can generate major losses or even the shutdown of the business.
All human activities involve risks. From the simplest actions through to the complex business operations, there is always an inherent component of uncertainty that must be understood and correctly managed.
Despite their best efforts, most organisations fail to correctly assess and quantify the risks and the impact that they might have upon their activities, bringing about a scenario in which they face risks for which they have lack the procedures and resources to weigh up and handle the same and mitigate their consequences.
Whilst there are no established rules that these processes or mechanisms must follow, it should be considered that a good risk management entails the following points:
For an efficient Risk Management process, consideration must be given to these principles to be followed throughout the organisation, regardless of its size:
At VANTEVO CLAIMS ADVISORS we are in a position to assist the Insureds to identify, control and mitigate their risks and we are certain that following COVID and its consequences, the importance to companies of Risk Management has become even more evident.
We are all well aware that ascertaining the cause of a loss event is essential in order to clarify the cover for the claim, determine liability for the same and to take measures to prevent it from happening again.
In the case of serious fire losses, sometimes given the degree of destruction caused by the fire, it is not easy to pinpoint the origin of the same, despite contracting experts in root cause investigations.
In cases of Machinery Breakdown claims, the study of their cause is less complicated, but nonetheless often requires the intervention of metallurgical or electrical laboratories, depending upon the presumed origin of the loss event.
It is only by means of a metallurgical analysis that you can verify whether the fracture process of a blade or metal part has been a slow and gradual one or sudden and unforeseeable, besides being accidental. In the first case, the loss would not be covered whilst in the second, it would be. Again we would need the assistance of a metallurgical laboratory to ascertain whether any corrosion or erosion was slow and gradual or accidental and fast, and therefore possibly covered in this latter case.
At VANTEVO CLAIMS ADVISORS, we tend to use the laboratories of Engineering Schools, since in the event of any dispute, the courts usually positively weigh the reports signed by professors, since they assume they have the knowledge and independence to issue their opinion.
There are not normally any problems with the conclusions reached in the laboratory reports, since these are usually clear and conclusive, and their conclusions are objective and well documented, and accordingly can be accepted by all the parties involved in the claim.
At VANTEVO CLAIMS ADVISORS, we usually ask that, in addition to ascertaining the “root cause” of the loss event, they suggest measures to avoid similar claims in the future and their recommendations normally are very interesting.
Company directors are becoming increasingly aware of just how important it is to carry out adequate, predictive, preventive and corrective maintenance of their plant and machinery.
Firstly, it is the best way to guarantee the efficiency and reliability of the machinery and equipment, since correct maintenance will minimise the numbers of breakdowns and consequently the loss of production time.
On the other hand, because it is required by the Insurance Policies contracted, since these exclude any claims where the instructions issued by the manufacturer of the machinery regarding inspections and maintenance have not been complied with.
It is important to highlight how it is vital that the personnel handling the machines are qualified and expert and thoroughly familiar with both the maintenance manuals as well as the manuals for their operation, shutdown and start up.
Moreover, whenever the maintenance work is carried out by third parties, that is to say by personnel from outside the company, it is essential that they respect the safety rules established by the company, since it has been proven that many losses occur during the course of the maintenance operations carried out by third parties.
Likewise, we would like to stress how it is important for the most sophisticated and critical machinery of the company (the generators, transformers, turbines….) that maintenance agreements are entered into with the manufacturers of the same. This will guarantee that you will be treated with priority in the case of a loss event and will have replacement parts available in the short term, thereby allowing you to reduce the Consequential Losses.
Thinking that if you have a maintenance contract for an important piece of machinery means that you no longer need to insure it is a serious mistake, since the Policy and the contract are complementary, and one is not a substitute for the other.
In fact, a maintenance contract is never going to cover any loss events caused by negligence on the part of the personnel, which is one of the common causes of claims, nor is it going to cover the Consequential Losses brought about by an interruption in the production as a consequence of a breakdown.
These two very important scenarios can be covered by a Machinery Breakdown Policy and its corresponding cover for Consequential Losses caused by Machinery Breakdown.
The advice of VANTEVO CLAIMS ADVISORS is that for important machines that are manufactured to order, maintenance contracts are entered into in addition to contacting a Policy, which in the event of a breakdown will guarantee a rapid repair undertaken with all the warranties.
The fundamental objective of a Risk Manager is to protect the safety of the workers, the assets and the Profit and Loss Account of their company and therefore, one of the things they must do, is to contract a suitable Policy to cover all of the company’s risks.
Risk Managers should be supported by a Broker who will help and advise them in the complicated task of designing the very best Policy for their company and who are the best Insurers and Reinsurers for their purposes.
In addition the Risk Manger must be involved in drawing up and updating the company’s emergency and contingency plans. These latter, also called “business continuity plans” are essential to minimise the Consequential Losses in the case of the occurrence of a loss event.
What should Risk Managers do in the case of a major loss event? In our opinion, with the help of their Broker, they should appoint a Loss Assessor who can help, on the one hand, to minimise the Consequential Losses and normalise the production of the company after the loss event and, on the other, to help them prepare and defend the claim that must be presented to the Insurers and their Loss Adjusters following the same.
Most claims are satisfactorily resolved with the help of the Brokers, but there are others that, given their size and complexity, require the support of Loss Assessors. They are experts in claims and have experience of dealing with emergency situations such as those that arise after a major loss event, especially when their cost can be assumed – either partially or entirely – by the Insurance Company under the “Fees of the Insured’s expert” clause that is ever more frequently being found in Policies, especially in those that cover large risks.
It is even more important to have the support of a Loss Assessor in the case of the loss event occurring in a facility far from the company’s headquarters, and moreover if it occurs in a plant situated overseas.
Am expert Loss Assessor will not only help the Insured to try to avoid any loss of sales, which might bring about the loss of clients, but also to get the Insurer to agree to “payments on account” to pay the costs of repairing the damage.
It has been demonstrated that presenting a well-documented and verifiable claim assists in the speedy and amicable closing of a claim and that is why the Loss Assessor appointed by the Risk Manager to act for the Insured has such an important role to play.
Vantevo, which is an international and independent consultancy, with professional engineers and economists who are experts in major claims, can help Risk Managers to “resolve” the claim in a fast and professional manner, after which they will find their position in the company to be strengthened, since they will have demonstrated the value of their work at a critical moment for the business, as would be the case if it were to be affected by a major loss event.
A claim that is well handled and swiftly resolved works to the benefit of all parties involved in the same: the Policyholders, the Insurers, the Brokers, the Experts as well as the Risk Managers.
We have explained on more than one occasion how, in the Insurance world, the occurrence of a loss event is the moment of truth.
Policies are contracted in order to cover the assets and the liabilities of individuals and companies in the event of an accident occurring that brings about Material Damage and/or Consequential Losses.
In most cases, the covers under the Policy are clear, it is easy to ascertain the cause of the loss and also to agree the amounts of the indemnities that are payable on the basis of the Policy. The Insurance Broker assists the Insured to recover the amount of the loss and damage sustained that is covered by the Policy.
However, there are loss events which given their size and complexity require both the Insured as well as their Insurance Broker to seek the support of a Loss Assessor to help them in that emergency situation that gave rise to the occurrence of a major claim.
On these occasions, particularly in the case of companies, it is in our opinion very useful if the Insured can count upon having some professionals by their side to help them:
The intervention in these claims of a Loss Assessor acting on the part of the Insured who defends their interests and helps them recover the amount of the loss and damage sustained is of fundamental importance.
Likewise he can help them to obtain “payments on account” from the Insurance Company to cover the disbursements required in order to pay for the repair of the damage caused by the loss event.
It has been proven that the correct and professional intervention of a Loss Assessor speeds up the finalisation of the claims with the advantages that this can bring for both the Insured as well as the Insurer.
It has also been demonstrated that the presentation of a well-documented and verifiable claim facilitates the work of the Loss Adjuster acting for the Insurer and the reaching of an amicable agreement to close the claim.
This is the philosophy of Vantevo, independent consultants at the service of Insureds and their Brokers: to assist the Insurer’s adjusters to close claims as soon as possible in a professional and amicable manner, in order to there by demonstrate the importance of Insurance for the company and that Policies do indeed perform their purpose, namely to protect the assets of the Insured, especially in the event of major claims that might jeopardise the continuity of the affected business.
Moreover, today with the “Preparation claims fees clause”, this consultancy service can be provided at no additional cost for the Insured, since it is the Insurance Companies who pay for this service.
The above does not occur often, but it does sometimes. Indeed, we have been involved in claims in which whilst the damaged machine was being transported to a workshop to be repaired, the lorry carrying it had an accident and overturned, thereby an increase of the loss being brought about in such cases.
On other occasions, due to an error on the part of a subcontractor who had been engaged in the repair of the damage, when it came to testing the machine, it failed and the repair and recommissioning of the same was delayed by several weeks.
In cases like these we have come across some Insurers who regard these incidents as being part of the same claim, since they understand that they occurred during the process of repairing the damage caused by the first loss event. Whilst respecting this interpretation, the indemnity is paid by the Insurers and it is they who decide how the loss is to be adjusted. It is the opinion of VANTEVO CLAIMS ADVISORS, that in both cases these are different loss events, since they occur at different times, on account of different causes and brought about by different persons.
In the case of the accident during the transportation, there will be somebody responsible for the same whose Insurer must be liable for the damage caused to the lorry’s cargo. Therefore it is essential whenever a machine is to be transported so as to be repaired at an external workshop, that insurance is contracted that covers this carriage, since normally the covers of the carriers is inadequate.
In the other case, we have here an error on the part of an external subcontractor who must have a Professional Liability Policy, which should be liable for the loss and damage caused by the poor performance of the company subcontracted for the repair of the damaged machine or installation.
Unfortunately, cases such as the above are not usually considered in the General Conditions and Schedules of the Policies, when it stands to reason that the Policies ought to specify whether they should be regarded as being new claims, as we at VANTEVO CLAIMS ADVISORS believe, or as incidents of one and the same loss event.
Common sense tells us that the experts ought to consult the Insurers as to the what approach to take in these types of cases, since what tends to happen is that all the loss and damage is covered under the Policy whilst at the same time they try to recover the increased loss and damage from the third parties that were responsible for the same.
For the experts, the Insurance Policy is crucial in order to be able to adjust a loss event. Therefore, when the Policy is “made to measure”, that is to say, when it is tailored to the risk it is intended to cover, the process of the loss adjustment is usually straight forward.
The problems arise when this is not the situation, especially in covers for SMEs, when often the Policy fails to cover the Insured’s basic risks or even the Sums Insured are not updated and results in underinsurance.
However in many cases, both in Policies that are tailored to the risk they were intended to cover as well as those that are not, added complications arise such as vagueness and poorly drafted wordings, not to say ambiguities in many of the Policy clauses, particularly in those to do with the exclusions.
It may exclude corrosion and erosion, but neglects to indicate that this refers to that corrosion and erosion that originates in a slow and gradual manner but not to that which arises accidentally and unexpectedly.
The same thing happens when the loss event is caused by a defective item. The Policy fails to clarify that the rest of the damage brought about to other parts of the machine or installation by this defective item could be afforded cover thereunder.
Again the same occurs with the Consequential Loss covers. Normally, regarding the time Deductibles, they do not specify just how the days indicated therein must be considered: Are they working days? Calendar days? The initial days after the occurrence? Are they to be allocated pro rata? This lack of definition causes, at least in Spain, many problems when it comes to adjusting a claim.
Neither do these LoP Policies normally specify what percentage of Gross Margin must be taken into account when calculating the indemnity: Is it that of the year the loss event occurred? That of the previous year? And if the loss event affects two accounting years, which one should be applied?
Likewise the Policies do not define who must be responsible for the extra expenses, since they do not indicate that these should be assumed pro rata to the benefits that may accrue to each party from the same.
Lastly, nor do they usually specify how the costs of recommissioning the damaged piece of equipment or installation must be treated once it has been repaired. Should this be done under the Material Damage cover or under the Consequential Loss cover?
In the opinion of VANTEVO CLAIMS ADVISORS, the drafting of the wording of the Policies is unsatisfactory and Insurers ought to improve the clarity and accuracy of the same, avoiding any vagueness and possible disputes that in many cases harm them.
There are usually differences between the claim presented by the Insured and their expert and the loss adjustment proposed by the experts acting for the Insurers.
Based upon our own experience, at VANTEVO CLAIMS ADVISORS we know that these differences are due to the following five factors:
Once the above differences have been clarified and corrected and an agreement reached regarding the appraisal of the loss, then you must refer to the Policy in order to agree the indemnity payable.
If it is at actual value, then depreciation for wear and tear, age, obsolescence etc. will have to be applied to the replaced items.
In the case of the latter, unless the Average Clause is waived or the Policy is on a first loss basis, the Average Clause must be applied.
If yes, then it must be applied.
To summarise, the differences between a claim and the agreed settlement must be clearly defined and analysed by the experts, since they have to stem from the five factors indicated above and from the conditions of the Policy.
Obviously if a timely and equitable agreement on the payable indemnity is to be reached, it will help a lot if the claim is correctly detailed, structured and documented. This is precisely the job that VANTEVO CLAIMS ADVISORS undertake in those loss events where we are contracted to act as the Insured’s expert advisors. This facilitates a swift, fair and professional agreement between the parties.
It is very important and desirable that the information provided by the expert to the Insurance Company and/or the Insured, depending upon who they were contracted by, is well organised and above all, that the Report is clear, concise and verifiable and accompanied by the most relevant documentation used by the expert.
The structure normally used by the different firms is:
We have highlighted in bold those sections of the Expert Report that we consider to be the most important.
In general terms, the Preliminary Report should be concise and issued as soon as possible, since it is important that the Insurers should know promptly the amount of the Reserve.
On the other hand, the Final Report should be as complete and fully documented as is possible, in such a way that it is verifiable by whoever has to read and approve it.
At VANTEVO CLAIMS ADVISORS, besides striving to reach agreement on a figure that is acceptable to both the Insured and the Insurers, something that we manage to achieve in the vast majority of the claims, we also suggest measures for improving the safety conditions of the risk and so as to prevent any similar losses in the future.
We also try to obtain a “payment on account” early on for the Insureds so that they might defray the costs of the repairs and the measures undertaken to minimise the Consequential Losses.