Overcoming disaster and recovering on your insurance claim

In the wake of the recent hurricanes, many hotel and lodging professionals face weeks, if not months, of recovery efforts to restore their business and welcome travelers back into their hotels. During this recovery many questions will arise about how to recover money from insurance carriers and how to ensure that your business is fully restored.

Ernst & Young, an affiliate member of the American Hotel & Lodging Association, has professionals that are experts in developing and negotiating complex property and business interruption claims for policyholders. The following are some frequently asked questions and guidance on the insurance claims process.

If after reading this article, you have additional questions regarding a potential insurance claim your business might have, follow this link to send an email to the professionals at Ernst & Young, and they will respond with further guidance and assistance.

Where To Begin

Ultimately, a policyholder will want to focus on providing enough documentation to answer the questions of the adjuster and their accountants while not overburdening anyone with too much information that may be irrelevant to the claim. So what is needed? Here is a sample list of documents typically requested by the insurance company:

• Monthly Profit and Loss Statements
• Monthly and Daily Production Reports
• Monthly Inventory
• Monthly Cost Accounting Reports
• Invoices and Purchase Orders

Frequently Asked Questions

• Question: What data is vital to validate a claim once an incident has occurred?
  
  Answer: Any and all information that is relevant to your claim should be provided to the insurer. This will range from historical sales records to annual budgets and forecasts. You will also want to provide Profit and Loss statements and ADR and occupancy data. The claim auditor may ask to verify some records to the General Ledger to ensure completeness of the reports.

  The list can go on. The questions below will help you navigate through a typical document request.

  Each business is unique. For hotel and lodging operations, it is important to provide information to support the expected level of sales. This could include booking reports, sales leads and external reports to show the market position your hotel was in prior to the incident

• Question: What internal documents should a company secure immediately after an incident in anticipation of government involvement?
  
  Answer: It all depends on the loss factors. For example, if there is a question of safety or health after the loss, then the Occupational Safety and Health Authority (OSHA) may be involved. Always check with your in-house counsel or compliance officer in such a case.
• Question: What is the preferred method for projecting long-term lost profits immediately after an incident has occurred?
  
  Answer: It depends on the situation. Certainly having historical sales that are on an upward trend would provide excellent support for using a growth trend in your sales calculation. Also, having budgets or sales forecasts that are close to actual results is helpful. The key in developing a lost sales projection model is to present an analysis that is consistent with the anticipated business environment during the loss period.
• Question: What electronic files should be provided?
  
  Answer: Any documents that are needed to help support the claim should be provided. The adjuster may ask for all e-mails. If this happens, it will benefit both parties if the adjuster is more specific in his request. If you find that the adjuster or their accountants` requests are unreasonable, a meeting should be suggested to clarify any uncertain matters.
• Question: What can a company expect from an insurer`s accountant?
  
  Answer: A company should expect someone who specializes in these types of claims and is knowledgeable in both accounting and the application of costs to the policy endorsements. You should expect a high degree of audit skepticism coming from this individual. You should also expect that they would handle your claim within the general rules that govern auditing standards. This would include treating you and your claim with due professional care, technical proficiency, and effective communication while serving the interest of their client, the insurance company.
• Question: What are the top 10 things an insured can do to expedite the insurance company`s accountant`s investigation?
  
  Answer:
  

  • Hire your own professional and independent accountant to help you prepare the claim and anticipate questions from the insurer.
  • Give the insurer`s accountant an overview of your operations and business so that they can better understand your company and business.
  • Prepare a well-documented comprehensive claim, which includes source documents that are consistent and referenced.
  • Include insurance policy classification of the amounts claimed and provide descriptions of the expenses in the claim.
  • Review your claim with other professionals on your team prior to meeting with the insurance company`s accountant. Include your risk manager, broker, claims consultant, CPA, and other financial executives to review the claim prior to any meetings.
  • Ask for a written document request by the insurer`s accountants to avoid confusion over what has or has not been requested.
  • Maintain a log of information provided during the process to avoid re-sending information that has already been provided.
  • Ask for any claim analysis from the insured`s accountants that they have performed prior to meeting with them. This way you can focus on the key issues and have time to understand any different approaches that have been considered by the insurance company. It will also make for a more productive meeting. Resistance to this request should be a red flag.
  • Identify one key contact within your company to deal with the insurer`s accountants. Your company representative should make sure that someone from your claims team is involved with any meetings that take place with the insurance company`s accountants.
  • Set a schedule. Ask for a commitment to a time frame when certain claim analyses will be complete. Plan meetings to resolve any open items.

• Question: Do I need to provide tax statements or bank information?
  
  Answer: Seldom do claim reviewers ask for tax information for public companies that received unqualified audit opinions from a certified public accountant. For the smaller business that may not receive an audit, it is not uncommon for the insurer to request state or federal tax information and sometimes even monthly bank deposits.
• Question: When is the best time to present loss projections to the insurers for payment?
  
  Answer: An initial loss reserve should be prepared and presented to the insurance company fairly soon-usually within the first 30 days-after the event. The insurance company needs this information to identify their potential exposure. The initial loss estimate may help you procure an advance payment. Wrapping It Up After compiling your documents and meeting with the adjuster and their accountant, you will begin to analyze the information. You want to make sure to obtain input from many groups within your company such as: hotel management, accounting, risk management, sales executives, marketing, and legal.

One of the most important aspects of claim development is to have one person or group in charge of orchestrating the claim. This includes obtaining the necessary information to support the claim and reviewing it within your organization before you submit it to an outside party. Many companies are taking this team approach. The team is led by risk management along with the outside independent accounting firm hired to help prepare the claim. An independent accountant can help with the complex claim and document issues along with bringing a healthy dose of audit skepticism to the claim. You should also involve your broker throughout the claim process and discuss the claim with them prior to submission.

A Well-Documented Claim

After your review, the claim is ready for submission to the adjuster and their accountant. At this point, your claim should be a stand-alone document in which an audit trail is established and which references the corporate source documents. The claim will be reviewed by several parties, including the adjuster, their accountants, the broker, the insurance company, possibly reinsurers, and your own management. With so many eyes on one document, it is important to present it in a format that is easy to understand. The best tests to determine if you have put together a well-documented claim are as follows:

Is this a stand-alone document that someone not involved in the claim can read and understand without any confusion? Would this claim theory, approach and presentation format hold up in a court of law? Have you provided meaningful and detailed source documents that support the claim? If you can answer these three questions with a resounding Yes, then you have gone beyond the policy and prepared a well-documented claim.

Conclusion

Remember that good claim documentation is only one of the cornerstones to effect a positive claim settlement. Throughout the claims process you need to invoke good claim management skills that range from managing the expectations of everyone involved to setting realistic time schedules and ensuring that proper technical support is available to you. When all of the above tools are in place, you are on your way to a smooth settlement.

The above information was taken from expert commentary written by Dan Torpey of Ernst & Young, published by the International Risk Management Institute on IRMI.com.