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Values at risk series: Consider your geography

November 7, 2014 by John Hutson Leave a Comment

When estimating values at risk for business interruption insurance, it is necessary to differentiate between maximum possible loss and maximum probable loss.  The maximum possible loss is an estimate of loss value that assumes the entire insured entity, including all locations, comes to a complete halt.  The maximum probable loss envisions likely loss scenarios which may not affect all locations.

One of the important factors to consider is the geographic location of the insured properties.  Let’s assume that we are discussing a retailer with three locations in the Southwest.  Because of the nature of retail, the locations operate independently of each other.  Now let’s consider the geographic locations.

In the illustration below, all three locations are tightly clustered.  This means that a single, regional, catastrophic event could easily impact all three locations.  Specifically, a single hurricane could cause direct physical damage, an issuance of evacuation orders, power outages, and ingress/egress issues.  This is a case where the maximum probable loss is the same as the maximum possible loss and the value of all locations should be considered.

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This second illustration paints quite a different picture.  The locations are physically separated and it is highly unlikely that any single insured event would have an impact on all of the locations.  Each location would have to be considered for its own potential threats, the likelihood of an event, the values at risk for each location, and the likelihood of multiple concurrent events.  In this situation, I would propose that it is statistically improbable that all three locations would suffer a complete, 12 month shutdown at the same time.  Therefore, values at risk considering all three locations would overstate the potential values at risk.  I would propose that insuring the value at risk from the two highest valued locations would provide reasonable coverage for all probable loss scenarios.

 

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A geographic analysis can greatly impact potential business interruption values at risk.  An operation with multiple locations, interdependent locations, and contingent loss issues can make the issues even more complicated.  An experienced, credentialed professional, with specific training in damage measurement and risk management, can help explore these issues and work with a broker to find the right balance of business interruption insurance.

hutson_logo-90We’re not your typical bean counters. We know how to calculate economic damages for business interruption insurance claims and litigations with off-the-charts winning results for our clients. We’d love to help you. Please get in touch.

Filed Under: featured, values at risk

A professional construction scheduler can make or break your claim

September 11, 2014 by John Hutson Leave a Comment

As a general rule, when something goes wrong on a construction project, the immediate focus is on restoring the physical damage.  I tell people to call me immediately after a major loss event that will trigger a delay in completion or in a soft cost insurance claim.  In the case of a construction project where there will be a significant delay in completion, I also advise them to call a professional construction scheduler who has solid experience documenting and supporting insurance claims. Here are some critical reasons why it’s imperative for contractors and developers to get a professional construction scheduler on site sooner rather than later:

  • The construction scheduler needs to look at the critical path method (CPM) schedules and make sure that they are accurate with regard to the completion level at the time of loss.
  • The construction scheduler needs to survey and document the extent of physical loss.
  • The construction scheduler must begin to account for delays resulting directly from the loss as well as delays due to other related factors.
  • The construction scheduler will monitor the ongoing CPM schedules related to the project to make sure that the schedules are not manipulated. This will help to prevent accountability issues that may happen at a later time, by parties who are causing delays.

The construction scheduler’s tasks are critical to ensuring that the delays related to the incident are captured and documented.  For these reasons, and hundreds more, contractors and developers should make sure that one of the first calls made, following an incident that will delay a construction project, is to a qualified and experienced construction scheduler.  Your forensic accountant can refer you to highly qualified individuals with a proven track record of supporting soft cost and delay-in-completion insurance claims.

hutson_logo-90We’re not your typical bean counters. We know how to calculate economic damages for business interruption insurance claims and litigations with off-the-charts winning results for our clients. We’d love to help you. Please get in touch.

Filed Under: construction, featured

How to recap a phone conversation with your insurance adjuster

August 15, 2014 by John Hutson Leave a Comment

When you’re dealing with an insurance company representative about a business interruption loss insurance claim, it is prudent to operate under the assumption that if you don’t have a verbal agreement in writing, the conversation never happened.  Verbal meetings to discuss a business income insurance claim can be very productive, whether they happen face-to-face or over the phone. However, I always recommend that risk managers, corporate officers, and business owners should “recap” their verbal conversations immediately after they occur.   Here’s an example of how to do that:

Ms. Insurance Adjuster,

Thank you for taking the time to speak with me on the phone today, February 10, 2010.  Based on our discussions today, it is my understanding that:

  1. You agree that we should move forward immediately to obtain new inventory.
  2. You agree that, in order to minimize the business interruption loss, I can approve an additional $100,000 to expedite the production and shipment of the replacement inventory.
  3. Etc. (Include all appropriate items).

If my understanding of the above is incorrect, please reply to this email within two days of receipt.  Thank you for your time and effort.

Regards,
L. Parkington
CFO
Amazing Business Co.

This type of written “recap” will help prevent misunderstandings, and it will create a documented trail of agreements for a business interruption claim.  It will also assist in holding all parties accountable for their commitments.

hutson_logo-90We’re not your typical bean counters. We know how to calculate economic damages for business interruption insurance claims and litigations with off-the-charts winning results for our clients. We’d love to help you. Please get in touch.

Filed Under: documentation, featured

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