Hurricane Season: Prevention Measures and Loss Recovery

Colin Daigle (00:08):
Hello everyone, and welcome to another Imperium podcast. I'm Colin Daigle, and I'm managing director with Imperium. I'm joined with my colleague Frank Russo. Frank, how are you?

Frank Russo (00:20):
I'm doing well, Colin. How are you doing today?

Colin Daigle (00:22):
I'm doing well. We’re here to talk about, as we approach hurricane season, hurricane preparedness and largely from right before the event to afterwards with a focus on loss recovery, claim preparation and just moving through that process. Our challenge here will be to pack as much as we can into a couple of minutes. By way of brief background, I'm a CPA and accountant. I've been involved in claims for about 30 years from contractual claims in litigation as well as insurance claims, property damage, business interruption, builder's risk, subcontractor default and certainly have seen several large catastrophes over the years of doing this. We’ll try to identify some of the best practices and things we're thinking about this season. Frank, how about you? A quick introduction?

Frank Russo (01:11):
Yes, absolutely. I've been in a similar industry for the last 23 years, dealing with large disaster events in North America, a lot of hurricane and large windstorm type projects, but also just everyday business disasters and events that affect business income. I'm based in New York and joined the Imperium team a couple years ago, so happy to be a part of the growing team.

Colin Daigle (01:38):
Yes, Frank and I have known each other for a long time and finally had the opportunity to work together a couple years ago, so it's been a pretty great experience here. Well, let's just get right to it. As hurricane seasons approaching us here, Frank, just broadly, what are some steps, what are some things that organizations should be thinking about to prepare before a storm hits?

Frank Russo (01:59):
Great question. Question that comes up really every year around this time. Hurricane season starts June 1st in North America. Interestingly enough for those that follow forecasting on hurricanes each season, this is supposed to be a very active year in 2024, calling for 23 named storms in the Atlantic. The average over a 30-year period, just to give it some contrast, is around 14 named storms. Expecting a very busy season, and if you're listening to this podcast and thinking about risk management and getting ahead of it, kudos to you. You're ahead of the game from a planning perspective. I think one of the most important things to think about each time this year around risk management and disaster planning is to revisit those business continuity and disaster plans that you and your organization have. Whether it's something that is active, hopefully, in the fabric of your organization. Every year you're discussing how you would deal with business disrupting events. That's great. Or, probably more commonly it's something that's done maybe once a year. Now's a good time to look at those plans and do some basic checks like has the organization changed even for something as simple as contacts at properties and knowing who's going to be the right point of contact if a loss attaches a specific property in a hurricane zone.

A lot of times these losses for even a very sophisticated company come down to blowing the dust off those plans and making sure they're up to date and accurate, especially from a contact standpoint. That’s internally. Externally, I think it's also really crucial to, if you haven't recently, touch base with your external providers and partners around disaster response. For example, restoration companies and contractors, those are the organizations that can come in and help mitigate a loss right away, especially after a hurricane where you might have damaged roofs and water coming into buildings and facilities. You want to make sure that if you have those pre-negotiated agreements with those contractors that you're reviewing them, you're understanding who their point of contacts are if they have changed before that storm and hurricane perhaps affects you this season and have those conversations.

Though folks like the restoration contractors, they're involved in these losses every day, and they're able to give you updates on how they attack a specific event with logistics depending on where it hits in the United States. That internal/external gut check even for the most sophisticated organizations is important. If you don't have any plans in place, it's not uncommon. It's never too soon to start. There's a lot of good information out there online and, for example, with FEMA to get you some of the basics for preparation to be prepared for the storm season.

Colin Daigle (04:33):
Great comments, Frank. I think from our experience doing this, probably one of the biggest determinants of the outcome of a successful claim when we get involved is within a client organization, whether they actually have somebody there that fully understands what's necessary to lead, not just the claim preparation, but the events prior to that, the investigation of damage and the management of all of the pieces, finance and risk management and legal and operations to get all of these people together towards the goal of being able to measure an economic loss, physical business interruption, added expenses and then be able to present that successfully to an insurance carrier. Obviously, we get involved in that, but where clients have been through the process before, they've got some experience with it, but oftentimes they've never had a large catastrophic loss. That’s one of the main points as we approach it, a season where there can be those larger losses is just spending some time to make sure that there's an understanding within a client organization about who's going to be able to lead that process and who's going to need to be involved.

Frank Russo (05:41):
Also, too, if I can interject Colin, we talk about getting prepared internally and externally and some of the partners. I think another important point is your insurance partners. You touched on the risk management side, your insurance broker, your insurance agents, those that have helped placed your commercial insurance programs. Hopefully you're not dealing with property losses every day because then you're an expert. But most organizations luckily are not, and now's a good time to have those conversations with those partners, understand what the property coverages are, business interruption, potential coverages are, how much your limits are, do you need to make some adjustments or at least understand what the values are of your organization, the assets, have they changed, just to really get a leg up. Hopefully it doesn't happen but you're having that dialogue now. Colin, and I think you would agree in our experience that pre-loss preparation on the coverage side really can help if you do get impacted by an actual covered claim to speed up the claims recovery process.

Colin Daigle (06:38):
Absolutely. As an organization is in that path of a storm, that two to three day cone out there, I'm thinking of examples where we've worked with clients in the past, and they probably already spoke to them if they felt like they were going to be in the path. To clients that had not experienced that before, and we're getting that call sometimes before a storm hits to say, hey, we're going to most likely need your help. What would we tell clients and anybody that's reaching out to say, we think we're going to be significantly affected by a hurricane or some event that's pending? What should they be thinking about right before that storm hits?

Frank Russo (07:18):
If I can say the one positive thing about a major storm potentially impacting a business, to your point, you do have some lead time as opposed to a fire or an explosion. Usually, you have a few days as that cone of uncertainty narrows down and you're able to see how and where your locations may be impacted. I think you hit on it. Communication is key in those hours and days leading up to a particular event. Some of the more sophisticated clients that we've dealt with are having that dialogue with some of the partners I mentioned, with their restoration contractors, with their insurance brokers. Another point too is even with their insurance adjusters, for a commercial program, it's not uncommon for an insurance adjuster to be assigned to an account and you may already have dealt with him or her, your adjuster, in the past, or if you haven't and you still have an assigned adjuster, I always like to say you should probably not be meeting them for the first time when your roof's blown off, right? With a hurricane, it gives you a little bit of lead time to extend those lines of communication and get a sense of, on the same page, on how everyone feels that they're going to react strategically and logistically to this particular event.

I think it's around staging resources. You're staging your resources as best as possible to do one of the most important things in recovery for insurance, which is to mitigate your loss. It’s not uncommon for some of our clients, if they already have pre-negotiated relationships with vendors that can bring in power, getting power ready to operate buildings that are damaged by power outages or fuel to operate generators that are already stationed. You have to turn the lights on as quickly as possible. The best examples in my career are those companies and risk managers and CFOs that think through that again before the event happens. Not only are they the first ones to recover, I've seen those businesses are able to support their communities in a much quicker way and not only maintain their business, but grow their brand for being able to be open where others are much less reactive and waiting in line because they haven't taken those steps.

Colin Daigle (09:16):
One of the things I'm realizing about this podcast, Frank, is you're taking all the good points to comment about, but I did have one thought that when you think of it conceptually with a loss measurement after physical damage from a hurricane, it's really a comparison of how an organization, how a company, a public entity, how they looked before the damage in the event and how they looked afterwards. So much of what we rely upon is things that help us establish the condition and the operations prior to a loss. That could be inventories, physical asset registers, things that just help give us a starting point of what existed, what condition it was in. Then, when that damage does happen, being prepared to not only identify that physical damage, but also relate that damage to repair periods, time elements, where that's going to drive everything from if there is a delay component or some period of time driven financial loss, business interruption, extra expenses where there's a premium portion to try to make up time for when it's down. All of that's going to come to light very quickly once a loss happens. Having a very effective starting point before the loss of understanding that measurement against where the operations of a business or an organization was, is pretty critical.

Frank Russo (10:37):
Absolutely. Colin, to your point, you reminded me, the ability to have those exercises beforehand are really crucial. In addition, the ability to be flexible after the event is also critical. We always refer to it as the curve ball. There's always a curve ball and just being able to manage through that. The best plans out there are planned until you're dealing with the reality of the situation. What I think gets a lot of companies in trouble is they're not even doing the basics that you just described, and they're still dealing with those curve balls and they're really at a disadvantage for recovery. Many of those businesses, especially on the smaller businesses side, don't make it through. I agree with everything you're saying, and it's also about staying flexible to really maintain the purpose of a lost recovery, which is to try to get yourself back up in business as quickly as possible within reason as a prudent businessperson.

Colin Daigle (11:30):
Frank, good points. Again, some of these challenging areas of recovery that we've seen from our experience. As we noted on anything with a time element piece to it, how long it took to get back as was, being able to demonstrate that that time was driven by investigation and recovery, repairs, rebuilding and the time was reasonable, but also where there's a lot of labor and material cost that can occur very early on with cleanup and beginning to do repairs or work to make a location safe. Plenty of times after the fact that labor cost and some of the other related expenses of that can be challenged for whether it's reasonable or not.

So, really being prepared to document the labor that's used, the materials, why it's reasonable. Certainly, when there are scale catastrophes, it's difficult to find labor and some of the materials necessary, so there can be some price escalation. I'd even throw that escalation factor in with the inflation that we've seen over the last year, year and a half, even two years. Labor and material costs have gone up. All of those things do come out in the wash as a claim is put together and presented to a carrier and its team and not just documenting what it's for, the nature of these expenses, but the reasonableness and why it was necessary can often become a challenge. Now Frank, and I know this is really an area of your specialization, what happens if it's a public entity and it's a federally declared disaster or emergency and FEMA is engaged here and there may also be insurance, but how is that claim process different?

Frank Russo (13:09):
Great question. I think about that in a way of the documentation of the loss, whether it's insurance, FEMA or both is very similar. The ultimate payee or the reimbursement program in FEMA, there's a different process to recover those costs. However, the documentation I think is very similar to prove up the damages. A lot of times public entities that have insurance and are eligible to recover FEMA, they get into an issue where they take two channels or multiple channels. They have an insurance channel, and they have a FEMA recovery channel and that's, I don't believe the right way to handle it as opposed to presenting the entire loss and working with their insurance adjuster and their FEMA examiner collectively on the overall impacts and getting both parties to respond as quickly as possible with what they believe is covered under insurance. If ultimately a client agrees with that determination and then what's not, it's more of a seamless process in getting full reimbursement. But with FEMA, FEMA's not going to reimburse most of the time until insurance has been exhausted.

The insurance process takes a while, then it becomes an exercise in are we communicating the overall loss and as it changes, in terms of costs and documentation, in real time to both parties and making sure that we don't let it sit on someone's desk. That adds time to an analysis that will bring in full reimbursement. The other part of it too is their insurers will want to evaluate the claim and make a determination on what's disputed or ultimately agreed to in your cost submission, and they're not tied to the FEMA claim submission. Again, moving forward to getting them to come to their determination on loss coverage and or denials. You want to get as much as possible that you're entitled to within your insurance, but you also want to get, if there's a coverage issue or lack thereof, you want to get that denial as quickly as possible to start the FEMA process. The other thing too, just one last point. We deal with a lot of public entities, and there's many of them that are dealing with very large losses from recent hurricanes over the last four or five years.

This is a public entity comment, but it's also an overall business comment. In an area wide disaster like a hurricane, the challenge could be that not only is your business impacted, but your employees and staff are impacted, and they're dealing with their own home issues and home damages from that same storm. We've unfortunately had stories of clients where the facilities for the public entity were damaged severely, but also the individuals and staff's homes were to the point where nobody had power, and weeks were going by without power and terrible ideal living conditions, while everybody was trying to help with the recovery for that particular entity. That reality is something that's not usually planned for, but understanding that that could happen in those types of events is crucial. Understanding how to allow for your own employees and staff to deal with their own issues and how it impacts your loss is something that should be considered in your insurance program.

Colin Daigle (16:15):
Certainly, the points that you made with FEMA and insurance, it's really understanding what a loss scenario to look like when it's done. It’s understanding both insurance being the first area of recovery and FEMA being that last area of recovery and having a plan to maximize recovery appropriately under both. Then, understanding that there can be a real human element after a wide scale catastrophe where it could be challenging to get the colleagues of an operation together to even be able to work on it as they're dealing with things on the home front. The last quick point I'd make with respect to FEMA as well as another specialty area would be builder's risk after a storm construction projects. Builder's risk is a property policy, but there's some different degrees of challenge with those claims as well because you have an active project and you have other issues that could be causing delays and cost overrun, so all of those being dissected after a claim and preparing that claim for builder's risk.

Both FEMA and builder's risk or other specialty insurance areas, beyond just straight property and business interruption, take a little more understanding of the moving parts. But all of those, going back to the theme of this, just with preparation and thought prior to a loss, to a catastrophe and understanding of who your partners are, making sure that there's a team that understands its role after a loss and being able to activate that, that team and get it focused on getting an organization back up and running and measuring its financial loss and recovering and moving on with its life is really the key of this. Frank, do you have any closing comments?

Frank Russo (17:55):
I think everything you said is great. One other thing I would add is a lot of times claim preparation, everyone thinks of cost and documentation. We've talked about that for this podcast. It's not only about just the actual numbers and document and data support, it’s also about the story behind the numbers and the narratives and descriptions of what actually happened as you submit your claim. You got to remember a claim doesn't get settled quickly. The ability to articulate what actually happened in a narrative form also adds an important element to, like I mentioned, telling the story behind the numbers, not just the cost itself on its spreadsheet. In my view, that's the most effective way of getting that claim settled as quickly as possible.

Colin Daigle (18:32):
Well Frank, it was great having this conversation with you, and I've enjoyed it. Thanks everybody for listening in.