To help finance executives stem financial losses, we asked risk managers, insurance claims specialists, brokers and consultants what companies should do — and what they should avoid doing — when a loss occurs.
Small business group health insurance claims are rising, with no end in sight. "Unfortunately, litigation has replaced baseball as our national pastime," observes Lance Ewing, senior director of insurance and loss prevention for GES Exposition Services, a trade show and convention services company in Las Vegas. Computer crimes, sexual harassment and EEOC actions over alleged discrimination all have seen dramatic increases in the past decade, he notes. "CFOs and risk managers need to know their exposures, their coverages and whom they can trust to manage claims," he says. "Today you have to be really good at damage control."
It's not easy. A single event can trigger a raft of claims. Robert P.J. Booher, managing director in charge of claims for Marsh, a risk and insurance services firm in New York City, recalls the plight of one client. A fire at a company site injured employees, firemen and others who were on the premises. Water used to put out the fire spread contamination to adjacent buildings, so neighboring businesses had to shut down. During the confusion, computer equipment was stolen. "You had the fire, business interruption, crime, workers' comp, general liability and environmental liability policies all involved," Booher points out.
But a catastrophic event like a fire usually is easier to handle than claims for damage incurred over a long period of time, Booher notes. Settling claims for environmental problems that have continued for decades is particularly dicey, he says. "Multiple layers of coverage probably will be triggered, and when there's no date of occurrence, you probably will have to search for old policies. Some of those underwriters may have gone out of business."
To help finance executives stem financial losses, we asked risk managers, small business group health insurance claims specialists, brokers and consultants what companies should do — and what they should avoid doing — when a loss occurs. Here is their advice:
1. Be prepared. Companies need to create a response blueprint that spells out just what to do when something happens that is likely to lead to a claim. Different kinds of claims require different responses, of course. "Potential claims can be pre-adjusted before a loss occurs," reports Michael S. Chapman, executive vice president of C.J. McCarthy Insurance Agency, an insurance brokerage in Wilmington, Mass., that is part of Hub International Ltd.
Businesses should sit down with their adjuster in good times and go over their policy and the procedure they need to follow when a loss occurs, suggests Stephen Abbott, vice president and claims manager for FM Global, an industrial and commercial insurance company in Johnston, R.I. "You don't want to be learning the ropes at the same time you're trying to cope with a major loss," he notes. Then, after a loss has occurred, companies should re-evaluate their plan to see how well it held up under stress.
Ewing insists that GES's insurers come to one of the company's trade shows to get a firsthand sense of the business and its risks. "When we report that a rigger dropped a shackle on an exhibitor's truck, we want them to know what we're talking about," he explains.
"When a bomb went off in Centennial Olympic Park [in Atlanta in 1996], we determined where all our athletes were and secured them in Olympic Village or other sites. We followed our plan," reports David Mair, associate director for risk management for the U.S. Olympic Committee in Colorado Springs. He says that the best examples of corporate responses to a loss result when companies follow a plan, and the worst responses come when they don't. "Look at what happened with Johnson & Johnson and the Tylenol tampering in 1982 or Alaska Air's crash in early 2000 or how Tricon Global handled the problem over genetically engineered corn products. They stuck to their plans. They stepped up and were honest about what happened. They enhanced their reputations. Then look at the finger-pointing between Ford and Bridgestone/Firestone over the Explorer tire problem. Time will tell, but I expect that bad planning and indecisive action will cause even more litigation for Ford and Firestone," he says.
2. Act quickly. "A lot of statistics show the value of a quick response by small business group health insurance claims professionals," Booher notes. "You want to tap the resources at your disposal and get them all working as quickly as possible to investigate, verify, establish defenses in liability cases and start basic recordkeeping." Policy contracts usually spell out notification requirements; failing to raise the alarm in the prescribed way could cancel coverage, he warns. It's especially important for each location of a decentralized company to have a response kit that contains written instructions about what to do and whom to contact.
Once events are under control, executives need to get out the appropriate policy, read the terms and conditions that apply to the loss, and try to reach an agreement as soon as possible with their adjuster on how the policy applies to the loss, Abbott advises. The sooner an organization and its insurer reach an agreement on what can be recovered, what should be repaired and what must be replaced, the easier the process is from then on, he notes. Sometimes coming to a consensus is difficult, but it's easier early on, before money is spent, he adds.
