Construction projects may be on the rise, but so are the insurance claims associated with them.
Commercial and institutional building sites are larger than they’ve ever been, and therefore projects can run for months and even years at a time. This means when there’s a fire, it does more damage. To the tune of $2 billion in losses over the last five years. When there’s a flood, it causes more claims. Storm damage and water claims account for one in 10 insurance claims.
While it may be impossible to prevent these types of claims and more, building the right infrastructure internally ahead of a potential claims scenario, knowing what to do when a claim comes in and working with your broker to secure the right coverage and respond to a claim appropriately will all help reduce your risk and ultimately cost.
Consider the following best practices to reduce your company’s claims risk.
1. Create an Infrastructure for Proper Claims Management
Before a loss occurs, make sure you’ve got all your ducks in order so that if one does come in the door, your construction company can mobilize right away.
Build an Adjustment Team
Form a group dedicated to championing claims internally. Include a risk manager, controller, treasurer, CFO and/or COO. Charge this group with overseeing the reporting, reconstruction response and documentation/presentation of a claim against a commercial property policy. Identifying parties that can coordinate a claim in advance of the loss is critical to a smooth response during the claim. Hold a pre-loss meeting involving these individuals, the insured and your broker so that all may have the opportunity to discuss exposures, account nuances, inspection coordination and communication and information flow.
Collect Documents
Collect relevant business documents that specify the value of equipment, inventory or structures that you might have to include in a claim. For business income interruption (BI) claims, you will need proof of income the business was generating both before and after the interruption began, so know where to locate tax returns, business contracts, budgets, financial statements and other documents pertinent to calculating the projected income of your business.
Provide Proper Notice
Many construction companies make the mistake of waiting until the end of the policy year to submit a laundry list of claims issues. This can easily lead to denials and can impact your next policy renewal. Don’t wait. Report claims as soon as they happen.
Anticipate Potential Losses
Consider the types of losses you could sustain, which business units would be most at risk, how those units might respond in the face of an event and how they can quickly and efficiently resume operation either in place or off-site.
2. Establish a Baseline with Your Broker
Believe it or not, a well-connected broker can help you ensure favorable terms during a claim. Being transparent with your broker before a claim surfaces will enable them to take over coordination and management of a claim, serving as your conduit to the adjuster, assisting you in developing and presenting your claim and even negotiating a settlement. In the event a coverage dispute arises, you will need an advocate to resolve the dispute favorably.
Understand Your Coverage
Know what policies you have, what they cover and most importantly, what they don’t. Find out what information your carrier requires you to submit along with the claim and be prepared to do so.
Select Favorable Counsel
Many organizations prefer to work with their own third-party attorney when defending a claim, seeing it as a huge advantage in reaching a positive outcome. At the same time, many policies will require you to choose from a list of approved counsel. Find out what your coverage allows, and discuss the options with your broker. Then, either contract with a third-party firm in the event of a claim, or choose from your carrier’s list of approved counsel. Regardless of which you choose, do it now. Don’t wait for a claim to surface to decide who your counsel should be.
Negotiate Coverage Issues
Make sure your broker is leveraging their existing relationships during policy renewal or new policy negotiation. Be honest about your business’ strengths and shortcomings, and what your unique liabilities are. Today there are many property policy options. Ask your broker work to secure the one that’s right for your construction business’ needs.
3. Help, We’ve got a Claim! How to React in Real Time
Once a claim comes in the door, your construction company’s response is crucial to minimizing further damage and preserving dollars. Here’s what to do in the first 24 to 48 hours post-claim:
Don’t Discard Anything
Do not remove anything from the scene of the claim. Retain documents, video recordings, photos and anything else physically related to the damage. Let the insurance adjuster inspect everything and come to a clear understanding of how to deal with the damaged assets that can’t be replaced.
Make Necessary Repairs
Your insurance policy will want you to protect and preserve your business and its property from further damage. That means making the temporary repairs necessary to keep the facility functioning. For example, restore fire protection if it’s been damaged. When it’s time to make permanent repairs, the adjuster will want to be involved, and may even engage a contractor-consultant to develop a scope of work. In the event of differences of opinion, you may need to engage an expert to support your position.
Log All Efforts
Create a general ledger account and record all costs associated with your losses, including work orders, temporary housing and repair personnel. Compare this information with your existing inventory of the property to determine original purchase prices and costs to replace items. Keep track of labor as well. Hourly personnel should be coded to correlate to the loss account. Describe what work they’re doing, how many hours they worked, what they are paid.
Develop a full inventory of the property describing the item and recording the manufacturer, costs to repair or clean, the original purchase price and the cost to replace, based on quotes or real invoices. If there are lead times, make note of these as well. Motors and machinery should be thoroughly dried to protect from rust and before testing.
Photograph destroyed items
As a rule of thumb, don’t throw away damaged items until the claims adjuster has seen them. When necessary to do so, make your insurance company aware you have done so and photograph or take video of the damage before you discard the items. Many insurers can accept photographic documentation directly online.
Craft Communication Correctly
Carriers will reject a written claims notice if it lacks the proper detail such as names of affected individuals, detailed allegations, foreseeable damages and pertinent financial figures. Work with your broker to manage carrier communication effectively.
Getting Back to Normal
Every business wants to return to “normal” as soon as possible post-claim. Create a plan today to achieve that goal. Ask yourself the following questions to prepare for the post-claim return:
- What is your organization’s option for a temporary location to resume operations?
- Would working extra or longer shifts restore production?
- Can you purchase a product to help ensure an uninterrupted supply to customers?
- Can other business units help satisfy customer demands?
Resolving claims is never simple but can be simplified with adequate advance preparation, solid communication with your broker and insurance carrier as well as adherence to best practices that optimize the entire process – from pre-claim to post-claim.
This is a guest post from HUB International
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