The role of the Policyholder’s Risk, Insurance and Loss Assessor

Increasingly in cases of major claims, the Insureds – invariably at the indication of their Lawyers or Brokers – contract a Loss Assessor to help them to prepare and defend their claim that will be submitted to the Insurance Companies.

This has obvious advantages, since firstly:

  • These experts will furnish the Policyholder with a technical report on the causes and consequences of the loss event that can then be compared against the report compiled by the Loss Adjuster acting for the Insurance Company.
  • They can help the Policyholder to adopt measures, something that they are obliged to do, in order to minimise the Consequential Losses.
  • They will free the Policyholder from the work of preparing and documenting the claim to be presented to their Insurers, so that instead they can dedicate themselves primarily to recovering their normal productivity and contacting their suppliers and clients.

Furthermore, with the “fees of the Insured’s expert/loss assessor” clause that the major Brokers currently are contracting in the policies that they negotiate, VANTEVO’s services  may end up being wholly or partially free of charge for the Policyholders.

Likewise an independent and professional Loss Assessor like VANTEVO, can help the Policyholders reduce their claims record by systematically analysing the causes of any loss events that arise and thus undertake measures so as to prevent any similar loss events recurring in the future.

Additionally, based upon the analysis of the incidents that occur, it is possible to achieve a year on year improvement in the safety measures implemented at the risk and thereby improve the covers afforded by their Policy, all of the above in collaboration with the Policyholder’s Broker.

Lastly, an independent Loss Assessor such as VANTEVO CLAIMS ADVISORS can help the Policyholder to avoid any underinsurance by appraising their assets, and to improve their risks by means of the survey report they compile that reflects the necessary hazard prevention and safety measures, and to draw up an “action protocol in the event of a loss” the advantages of which we have explained in a recent communication.

The Usefulness of an Incident Action Protocol in the event of a loss

Incident Action Protocol

A major loss event occurring in an industrial risk generates an emergency situation that requires emergency solutions.  With this type of company, the Consequential Losses arising out of the interruption of the business can be substantial and it is vital not to lose any time and be clear about what must be done after the incident has occurred.

That is the objective of implementing an Incident Action Protocol:

  1. Recover normal productivity within the shortest time possible.
  2. Adequately prepare and document the claim to be presented to Insurers.
  3. Recover as soon as possible the settlement for the loss and damage covered by the insurance policy.

The elaboration and design of an Incident Action Protocol requires the examination of the company’s risks along with their emergency and contingency plans.  Thought must be given in the same to:

  • Who is going to settle the losses: A list should be drawn up of three firms specialising in industrial risks operating locally that can assist the Insured to undertake measures in order to minimise the Consequential Losses.
  • Who is going to repair the damage: A series of firms specialising in the risk should be approved and establish with them what are their rates and work conditions.
  • Who is going to control the repairs and document the cost of the same along with the Consequential Losses brought about by the loss event: VANTEVO suggest that this should be done by the Insured’s Maintenance Department using their own management system.  That would allow a control to be kept of the quality of the repairs and, without any doubt, would expedite the same.
  • An account should be opened in which all the costs associated with the loss event are entered, with some accounting codes for a quick and easy identification and classification of the amounts.

Our experience is that, at the time of the loss event, which is the moment of truth as far as the insurance is concerned, there should be no room for any improvisations or any time wasted, but instead that agreed in the Incident Action Protocol drawn up earlier must be enacted.

We at VANTEVO CLAIMS ADVISORS would be delighted to assist the Policyholders and Brokers to implement an Incident Action Protocol to help them to resume normal productivity as soon as possible and receive from Insurers the settlement for all the losses to which they are entitled on the basis of the insurance Policy that they have contracted.

Why should Insureds contract a risk survey?

As the saying goes “better safe than sorry”, yet all too frequently we have encountered, on the occasion of visits motivated by claims, companies whose layouts and risk prevention and safety measures left much to be desired.

In a tough insurance market such as the current one, it is important to invest in prevention and safety so as to facilitate the acceptance of the risks by the Insurance Companies.  Many of the measures that can be undertaken, such as improving cleanliness, sealing of electric cable ducts, thermal imaging of the electric switchboards, charging forklift batteries in an adequate place (either open air or well ventilated) … are cheap to do and require little investment.

In addition, it has been proven that most of the loss events that occur in industrial risks are caused by human factors, i.e., due to the negligence of their own workers or workmen from external companies engaged in maintenance or repair work.  Therefore, it is vital to ensure that the operations and maintenance manuals are complied with and likewise the protocols for the “hot work permits”, and that both your own as well as the subcontractor staff know and follow the prevention and safety manuals established for each risk.

There is no point whatsoever in having excellent prevention and safety rules, if then their rigorous compliance is not enforced or controlled.  Being strict on this point would substantially reduce the claims record of companies, and is a matter in which their boards of directors and works committees ought to be seriously involved.

The fact that some experts inspect the risks and issue reports recommending improvements in prevention and safety issues and point out any deficiencies and gaps found, we believe would reduce the accident rate of companies and facilitate the cover of their risks by Insurers.

At VANTEVO CLAIMS ADVISORS, we have experts in risk surveys and are in a position to assist Policyholders and Brokers to reduce their claims record and lower the cost of their insurance policies.

Underinsurance must be avoided through a prior valuation of the assets to be insured

Unless your policy is on a first risk basis or it has been agreed with Insurers to waive the Average Clause, we believe it is important to draw up a valuation of the tangible assets so as to avoid underinsurance at the time of a claim which would mean that the Insured only has a partial recovery of the amount of their loss and damage.

This is even more relevant in a year such as this year of 2021, in which after the pandemic that had seriously affected the economic activity of businesses in 2020, we are seeing substantial hikes in the costs of both raw materials as well as sea freight, something that will undoubtedly impact the prices of the products manufactured by many companies. The strong increase in demand and a decrease in supply is what is shaping this situation, and accordingly it is not expected that prices will stabilise before 2023, whilst this is dependent upon there being a drop in the rate of transmission and a rise in the level of vaccinations worldwide.

Thus, it is foreseeable that there will be a mismatch between the New Replacement Value of the insured assets and their value in the policy, and consequently the same must be examined urgently by experts so as to update the sums insured for both the Material Damage and the Consequential Loss insurance policies, since the expected inflation will cause a rise in the fixed costs, profits and turnover of the companies in the post-pandemic situation.

Subsequently, the sums insured should be updated every year, but this will be relatively easy to do based upon an analysis of the investments and disinvestments made over the preceding year of account and the price fluctuations on the basis of the Industrial Price Index (IPRI) published by the Spanish National Statistics Institute (INE).

VANTEVO CLAIMS ADVISORS is at the service of Insureds and Brokers to undertake these valuations and guarantee an adequate sum insured for both the Material Damage and Consequential Loss policies, thereby avoiding the application of any underinsurance in the claims.

 

 

The importance of an adequate MIP and Deductible in Consequential Loss Policies

Usually in this type of Policy, no mention is made of underinsurance, since with the “Automatic Increase” Clause, which tends to be set at between 20-40%, this is avoided in a large percentage of claims.  It should be remembered that this Clause requires that the Sum Insured be reviewed annually, once the previous year’s accounts have been closed, and is something which sometimes is not done.

Where there are problems is with the Maximum Indemnity Periods (MIP), since these tend not to exceed 12 months and there are many companies whose essential machinery has lead times of between 12 and 18 months, and therefore these periods often are not long enough.  As is known, under the standard English wording, the Indemnity Period ends when sales are recovered and so the worst case loss scenario that could occur in a risk must always be borne in mind at the time of calculating the Maximum Indemnity Period.

As regards the Deductible, this too is frequently inadequate, since we often come across companies that have 4, 6 or 8 weeks of stocks of finished products yet have Deductibles of 1-2 days, and so with short term losses it is very unlikely that there will be any loss of income.

Likewise, if there is idle capacity, that is to say, if the production capacity is greater than the sales capacity, which is what normally happens in times of crisis, it is unlikely that there will be any extra costs, which means that the company’s results are not affected and so the policy does not pay any amount.  In the above cases, the Deductible should be established in weeks rather than in days.

On the other hand, in businesses such as a bakery, a restaurant, a wind farm, etc. the Deductible should be minimum or nil, since from the very first day of the shutdown there are lost sales that are often irrecoverable.

In Spain, we have an added problem in this type of policy with the Deductible, which many times is imprecise.  It is not specified how the time deductible ought to be applied and that is detrimental to the Insurers, since Spanish Insurance Law establishes that in those cases it must be applied in the way that is most favourable for the Insured.

At VANTEVO CLAIMS ADVISORS we have experts in this type of cover who can assist Insureds and Brokers to design a Consequential Loss Policy that is adjusted to the risk that they wish to insure.

Business Interruption: a “tailor-made” policy.

Whilst, in general, it is important that any policy is adapted to the characteristics of the risk to be insured, this is fundamental in the field of consequential losses that arise after a material damage claim. No two companies are identical and there should not be two Business Interruption Policies that are the same: the policy should be “tailor made”.

 

The Business Interruption , Loss of Profits or  Consequential Loss Policy , which can be called in either of these three ways, provides cover in order that a claim does not affect the forecasted financial results of the company i.e., the insurance tries to put the company in the same financial position that it would have been if the claim had not occurred.

 

Obviously, a stoppage of a week in the production process, for the equivalent of only 2% of annual production, Will not affect all companies in the same way. For example , it Will depend on whether the company manufacturers  to order or by stock, whether their process is continuous( aluminium manufacturers , oil refineries…)or not ,if there is stock available for days or weeks, if work is carried out  8 hours a day, 5 days a week or 24 hours for 7 days a week ,if production capacity is greater than sales capacity or, vice versa , if sales capacity is greater than that of production…

 

The three main parameters of a Business Interruption Policy, which can be very complex as it covers Loss of Profit due to Fire, Machinery Breakdown, Claims at suppliers or clients premises, for failure of supply, impossibility of Access… are:

 

The sum Insured (Gross Margin)

The maximum Indemnity Period

The Deductible

 

It is not usually a problem to calculate the Gross Margin (Fixed Costs plus Net Profit). Whilst it is difficult to predict what the net profit Will be for the coming year in order to avoid under-insurance an automatic increase clause of between 20%-40% exists and enables the sum insured to be adjusted after the close of the financial year and once the annual accounts have been audited.

 

Since the UK Policy ( Business Interruption) which is the form normally used in Europe , provides an indemnity period from the date of loss up to the time when sales levels return to normal ( with the Gross Earnings form , it is only until production returns to normal) one should always consider the time for reconstructing buildings and replacing key machinery , plus 4 to 6 months necessary to removal of the debris of what has been destroyed , permits , licenses, projects, recovery of 100% production, replacement of back -up stock… Large claims with insufficient maximum indemnity periods are frequently encountered.

 

Lastly, another aspect to be established is the deductible. This will normally be a time deductible but it is often not properly defined and this causes problems in the adjustment of claims. For example, for a 5 day deductible: Which 5 days are they? The first 5 calendar days? The first 5 production days ¿ Are they 5 days proportional to the indemnity period?

 

To summarise all the above, to design a good and accurate policy is a job for specialists and Vantevo can help insureds and brokers, not only in claims, but also in the design of a policy adapted to the risk that you want to cover: a “tailor made” policy.

 

The book “Sinistros de Property: Danos Materiais e Lucros Cessantes”

The brazilian version of the book “Sinistros de Property: Danos Materiais e Lucros Cessantes” is making people talk in the insurance sector and brokerage. Just launched by “Enter Books” publishing house, the adaptation of the book witten by Mr. Roberto Revenga (Vantevo Claims CEO) was done with the experientes loss adjusters (Mr. Clodoaldo Azevedo, Antonio Delbianco and Lari Dias) and the preface was in charge of Mr. Rodrigo Avila – MDS Brazil Corporative Risks Comercial Director and Risk Manager of great experience (former worker in Suzano Papel e Celulose).

The publication arrives in brazilian land in order to supply the gaps of literature of this sector. “It’s a simple and dynamic Reading about all the loss adjustment process”, defines Rodrigo.

Check below the the whole preface !

The contemporary reality indicates we are surrounded of risks and sudden happenings which may change completely the destination of people, companies or even all the global gear which moves the world ahead.

When we focus in the contexto which involves the industrial organizations, we can find events related to the more variated origins and magnitudes: fires, explosions, frauds, cybernetic attacks or even great nature disaster, such as earthquakes, tsunamis, hurricanes, among others. When they haapen, the caused damaged may paralise completely the company operation and to impact its current and future finantial health, beyond to cause loss to its image and reputation.

In this context, we, Risks Managers, taking into account the geographic policial and economic scenario which the company is inserted, we own the responsibility of identify what are the potential risks which may impact the continuity of the businness. It’s also fundamental to know to use properly one of the main tools of assets protection of a company, which is the risks transference through insurance policies.

The admirable friend and author Roberto Revenda, who has wide living in the global insurance Market, describes of much didatic way all the phases which envolve the draw of a operational risk policy, since the patrimonial inspection until the definition of coverages and deductibles. Moreover, the reader also will find in front a series of analysis and exampls of the complex loss adjustment of accident claim.

Definively this book is a practic guide in operacional risks which will foment importante reflexions of how these flows and experiences may impact positively the governance and the companies risks management.

 

Contact:
Roberto Revenga- CEO
rrevenga@vatevoclaims.com

Mov. +34 607 722 803

Clodoaldo Azevedo – Sócio Diretor no Brazil
cazevedo@vantevoclaims.com

Mov. +55 (11) 99968-0644

 

The importance of avoiding underinsurance through a prior valuation of the assets to be insured.

Unless our policy is at first risk or we have negotiated with the Insurer the repeal of the proportional rule, we understand that it is important to carry out a valuation of the assets, at least in an approximate way through the company’s Balance Sheet, to avoid underinsurance at the time of the claims and that this means that the totality of the damages cannot be recovered.

Subsequently, each year an update of the insured amounts would have to be made, but this would be relatively simple based on analyzing the investments and divestments of the last accounting year and the fluctuation in prices based on the IPRI indices of the INE (National Institute of Statistics).

VANTEVO is made available to the Insured to guarantee adequate insured sums that avoid the application of underinsurance in claims.

The role of the Insured´s Adjuster (Public Adjuster).

Increasingly in claims, Insured by indication, most of the time, of their Brokers hire an Adjuster to help them prepare and defend their claim against Insurers. This has obvious advantages since, on the one hand, it can help the Insured to take measures to minimize his consequential losses. It frees the Insured from the work of preparing the claim, so that they can fundamentally dedicate themselves to recovering the productive normality of their risk and contacting suppliers and customers. Likewise, as the expert is an insurance professional, he knows how to prepare a well-documented claim so that it is adjusted and verifiable and this makes the expert process more agile and allows reaching a fast and fair agreement on the corresponding compensation based on the policy.

A profesional and independent adjuster like VANTEVO helps to “solve the claim” and speed up its closing based on collaborating with the broker and the Insurers, since a claim that is well managed and closed quickly is positive for all parties involved in it.

The role of the Risk Manager in major claims.

The fundamental mission of a Risk Manager is to protect the assets and the income statement of your company and ensure the safety of its workers while they work. To do this, with the help of his Insurance Broker and his Insurer, he must implement emergency and contingency plans appropriate to the risk and negotiate coverage, limits and deductibles of the policies he wishes to contract.

In the case of a major claim, in addition to having the help of your Insurance Broker, you should appoint an Adjuster to help you prepare and defend the claim to present to the Insurers for the damages and losses generated by the claim, especially when its cost can be fully or partially assumed by the Insurer through the clause of “Insured’s expert’s fees” that is becoming more and more frequent in policies, especially in those that cover large risks.

It is important that the preparation of the claim and its defense is carried out by a team such as VANTEVO, which has professional engineers and economists who are experts in negotiations to agree on agile and fair indemnities based on the policy.