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Claim War Games
Jeff Esper
war games
Remember the classic 80’s film “War Games” where the computer system named War Operation Plan Response, or WOPR for short, asks Mathew Broderick in that See ’n Say computer voice “Shall we play a game?” The movie was a tense thriller that was topical for my Cold War childhood but pointed out, among others things, that all games are not fun. Insurance claims should not be a game, where one side is playing games as a tactic to delay or reduce claim payment. It’s much like a battle in a war, in which one side is lured into an ambush. Unfortunately, I see this all to often when preparing property and business interruption claims for my clients.

The reason it is so frustrating is that my client is usually struggling to recover from a major loss to it’s business, affecting them financially and emotionally. They have done their best to protect from such an occurrence via loss control, insurance procurement and a proper claim filing. So when they document their losses and present their claim under the terms of their insurance contract, they should not have to battle bullying, stall tactics and misguided theories.

As an example, I had a chemical company as a client whose business was heavily dependent on the supply of raw materials from specific international locations. The exclusive relationships with these international suppliers and their governments took decades to forge and represented a distinct competitive advantage. Their business was cyclical and during a low point, their manufacturing plant was devastated by a hurricane. If they were not able to get back up and running quickly, the long term contracts with their suppliers would be cancelled undoing years of supply chain efforts.

The CEO had a legal background and recognized the real possibility that his company would not recover from this loss if the insurance they bought could not reimburse in a timely manner. He knew he was facing the possibility of laying off over 1,000 employees as well as losing long term supplier relationships.

The insurer’s tactic was to overwhelm the client with requests for information while demanding time and attention to explain the operational complexities. While scrambling to answer the flurry of questions, my client had to accommodate a large group of insurance investigators at their chemical plant that was still underwater. Contractually, the insurance company has the right to gather information they need; however, there is a tact and decency that should be observed. The insurers strategy was to leverage the policyholder's crisis situation to establish reasons not to pay the claim based on misguided theories about their business. Because of the chaos, when the insurance consultants arrived on site to survey the damage, the client was not prepared. They did not have a proper escort for the insurer consultants to review the damaged facility. As a result, information was gathered from which they made critical assumptions about the damaged equipment that formed the basis for their theory on the valuation of replacement equipment and lost production.

The client was not informed about these conclusions until some months later when the report was presented. They were ambushed and put on the defense, backtracking trying to disprove the incorrect information. All the while, claim payment is withheld until the issues are resolved.

This tactic is common in claim war games. While the insurance team may just be doing their job as instructed, a company’s existence is at risk. Adjusters are often cavalier about this process and will hide behind their “duty” or policy wording, while in reality they are just playing games with the money owed to the policyholder.

Despite the games, I am happy to report that through a lot of hard work and foresight, we were able to overcome these obstacles and secure advanced payments to stabilize the client’s operations, maintain supplier relations and create an equitable settlement. The CEO and other executives were relieved and appreciative of the results we achieved considering the situation we were facing.

So how did we do it?

It takes an effective strategy and careful execution to be successful and here’s the approach that we know works best:
  1. Take Control - You do not want to put off the insurance company too long, but it is okay to let them know you are going to control when they get access and who they can interview. More claims are derailed in the first week by uncontrolled access and miscommunication. 
  2. Agreements in Real Time - one of my favorite risk managers relates this mantra during claims, “we make decisions in real-time.” What he means by this is that when confronted with a decision - say rebuild or replacement of equipment - you use all the information you have at that time to make the decision. As long as the adjuster is aware of the decision and your reasoning, they should not second guess what you have done down the road once more information is known. For example, immediately after a loss you think you need two cranes onsite to move equipment and debris. After the fact, you realize you could've got by with just one. You made a decision in real-time that was based on what you knew at the time and should not be penalized based on your initial estimation. If the adjuster doesn’t object at the time of the decision, they have no grounds to object after the fact. 
  3. Clarify Requests - the insurance company is going to ask for information - a lot of information. In general, these requests are broad in scope and may even be used to fish for something that can be used against the claim. Don’t let this happen. Ask that requests be specific - if they are not specific, send the request back. Ideally, claims are presented with supporting documentation and that should be the focus of requests. I am often used to filter this information down to what is really necessary to provide - which should be specific to what is being claimed. Extraneous information can create confusion and lead to more requests. Your loss accountant, if experienced, will be helpful with interpreting these requests and focusing on what is relevant to the claim.
  4. Recruit Experts - Adjusters and their team work on claims every day. It’s their full-time job. For you, it is an infrequent part of your job. If you want a smoother process and positive outcome, you need experts working on your behalf. In addition to your internal team, your brokers claim experts, as well as independent forensic accountants, engineers and outside counsel are critically important. Ensure that those on your team are working on your behalf and match-up well against the insurance company representatives. In my claim example, we were not engaged from the onset, so it is vital to have your independent team vetted and agreements in place ahead of a loss. Remember, like this example, many claims are hindered by mistakes made in the initial weeks post loss. Immediately after a loss is no time for shopping. 
  5. Don’t Play Games - In other words, focus on the claim, not the games. Prepare an accurate claim from your perspective, be upfront with relevant information and be reasonable in final negotiations. As stated before, games have no place in claims. Just because insurers may play games to offset your recovery, doesn’t mean you need to do the same. You are much better off being prepared, being professional and being confidently in control of the process.
If you follow this advice, you will stand a much better chance succeeding with claim recovery. Just like WOPR realized in the movie, with claim war games there are no winners. Avoid this ambush by being prepared and informed.

Insights Worth Sharing

By Jeff Esper December 17, 2021
Happy Holidays from RWH Myers & Company
By Jeff Esper July 21, 2021
Making a business interruption claim is more than just an accounting exercise. It requires a good strategy, a thoughtful process and perhaps most of all, patience. These lessons come from experience and the team at RWH Myers has earned it from decades of preparing BI claims. Though this topic is of the philosophical nature, it is just as important as the details behind a business interruption calculation. So let’s dive in and see what you really need to make a BI claim. Strategy Every loss is different. You can’t apply the same game plan and the same approach to every claim. You have to assess the situation and all its parts to devise a specific workable strategy. Experience will help ensure your strategy is appropriate for the situation, but the claim will take on a life of its own. The initial loss assessment is derived from the loss information such as what happened, the timeline of events, the impact to operations and how long it will take to get back to normal. As forensic accountants, we will look at the entirety of the situation and dissect it from every angle to figure out the full scope of loss and then determine the best approach to measuring and supporting the claim. We will also anticipate how the claim will be adjusted and plan for arguments against the claim. Taking the time to develop a proper strategy will pay off at every stage of the claim process. Process Once you understand the situation and have designed an effective strategy, you can lay out a process to get to the desired result. The process starts off with identifying and assembling the team to execute the plan. The claim will require data from various sources and input from key internal experts to provide insights as to the impact on operations, both upstream and downstream. The process also includes managing claim adjustment, from setting the timeline to handling requests for information. During the process, your claim preparer will work to keep all phases of the claim moving forward whether with data gathering or insurer feedback. Claims tend to start out with a high level of attention, but it is common to lose momentum. Simply put, a well-defined process will keep the claim moving, limiting distractions and roadblocks. Patience Patience doesn’t equate to conceding to a lengthy and arduous process. It’s just the opposite. By definition, it means, “quietly and steadily persevering or being diligent, especially in detail or exactness.” It is important to understand that certain parts of the claim take time to develop, and that time is critical to ensuring a thorough and well thought out claim presentation. For example, taking your time in the beginning of the process to lay out the foundational elements of the claim will avoid obstacles that may delay claim settlement and the amount recovered. It’s best to set expectations early and commit to the process. Again, practicing patience will expedite the claim process and improve the outcome. You can rely on the experience of your forensic accounting team to lead that effort. So, you see, it’s not all about the numbers. There is more to the intangibles than you may have thought. Every claim has its own unique challenges. You should be prepared for anything and everything. Again, preparing a claim is just as much strategy, process, and patience as it is the technical elements of claim preparation.
By Jeff Esper October 29, 2020
Property damage insurance claims are among the most infrequent for corporate policyholders, but this year Louisiana has suffered through a record number of Hurricanes. When catastrophe strikes, recovering insured losses essential to rebuild and resume operations. Effected policyholders will need expert help to evaluate, organize and document their claim to present to insurers. Forensic accountants that devote their practice to preparing claims for policyholders have every day experience just as adjusters and auditors do, so it is certainly to your advantage to hire a firm of experts to represent your interests throughout the property damage and time element claim process. Though the specific insurance claims and the policyholders may change, the vital steps to recovery remain the same. One thing both sides agree on is that the claim process goes smoother when the policyholder is well prepared for demands of a claim from start to finish. The partners at RWH Myers prepared a detailed guide to assist policyholders in preparation for claim recovery. It is designed to serve as a resource and a framework for the claim process and includes the following sections: Establish Appropriate Accounting Methodology: Provides guidance and an organizational framework for post-loss activities, establishing specific accounts to capture the loss. Property Damage Expense Categories: Explains the types of expenses that may be included in each category of coverage and the documentation required for these costs. Claim Preparation Objectives and Overview: Identifies objectives for the claim preparation process, and provides a conceptual framework for achieving them. What is Covered: Examines the direct and indirect exposures to loss that are typically encountered, and provides guidelines for determining whether specific types of property damage losses are covered under the policy. Claim Preparation Procedures: Suggests timetables for the submission of inventory, property damage, and discusses the format and content of standard claim submissions. Audit and Settlement Guidelines: Discusses the procedures undertaken by the insurers adjusters and experts, and provides an overview of the settlement process. Click here to download the full guide.
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