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The Connecticut Economic Recovery Working Group

presents:

Disaster Preparedness

WebEx presentation for July 29 and August 26, 2015

Presenter

Presentation Notes

REVIEW YOUR PROPERTY INSURANCE POLICY (Brett) EVALUATE PROPERTY LOSS CONTROL AND PROPERTY SECURITY (Marc and Jeb) PLAN FOR EMPLOYEE SAFETY (Brett) EVALUATE CLAIMS PREPARATION AND MANAGEMENT ISSUES (Marc and Jeb)

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Agenda I. Looking Back, Planning Ahead

II. Review your property insurance policy

III. Evaluate property loss control and property security

IV. Plan for Employee Safety

V. Evaluate Claims Preparedness and Management Issues

VI. Recap & Resources

1 August 26, 2015

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I. LOOKING BACK, PLANNING AHEAD

2 August 26, 2015

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Looking Back, Planning Ahead

3 August 26, 2015

• Sandy largest Atlantic hurricane on record (measured by diameter, with winds spanning 1,000+ miles)

• At least 233 people were killed along the path of the storm

• Impacted the entire eastern seaboard from Florida to Maine

• Loss estimate in excess of $65B (second costliest hurricane)

• On Oct 29, 2012, Gov. Malloy ordered road closures for all state highways

• WMO retired Sandy from list of hurricane names

Presenter

Presentation Notes

WMO = World Meteorological Organization

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TOP CAUSES OF GLOBAL PROPERTY LOSSES 2009- 2013 (BY VALUE)

4 August 26, 2015


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• 40% of businesses do not reopen after a disaster

• Another 25% fail within one year after the disaster

5 August 26, 2015


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• Jan 26, 2015 - Severe Winter Storm & Snowstorm (DR-4213)

• Feb 8, 2013 - Severe Winter Storm & Snowstorm (DR-4106)

• Oct 27, 2012 - Hurricane Sandy (DR-4087)

• Oct 29, 2011 - Severe Snowstorm (DR-4046)

• Aug 27, 2011 - Tropical Storm Irene (DR-4023)

• Jan 11, 2011 - Snowstorm (DR-1958)

• March 12, 2010 - Sever Storms and Flooding (DR-1904)

6 August 26, 2015

Looking Back, Planning Ahead Connecticut - FEMA Declared Disasters - 5 years

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II. REVIEW YOUR POLICY

7 August 26, 2015

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REVIEW YOUR POLICY TOP TRIP WIRES IN A PROPERTY POLICY

• Business interruption: What is and is it not covered? How is it calculated?

• Contingent business interruption, suppliers or customers: Direct or indirect?

• Flood: Definition of special high-hazard flood zone?

- Interplay between FEMA and insurance

• Critical policy definitions: “named windstorm” or “flood”?

• Sublimits: Flood, or expediting expense (EE)?

• Service interruption: What is the scope of the coverage?

• Civil authority, ingress/egress: Insurance triggers for coverage?

• Wide area impact or idle periods: What does it mean to you?

• Deductible applications: Occurrence? By location? Separate for PD and TE?

8 August 26, 2015

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• Business Interruption – loss of income when damage to its premises – by a covered cause of loss – results in a slowdown or suspension of its operations – coverage applies to loss suffered during the time required to repair or replace – may also be extended to apply to loss suffered after completion of repairs for a

specified number of days

• Contingent BI – Direct and Indirect – for losses due to interruption or stoppage of a key suppliers’ business – direct CBI only from direct suppliers, those that deliver their goods or services

directly to the insured – indirect CBI when a key supplier to a direct supplier is damaged by a covered

peril causing the direct supplier to be unable to provide their goods or services

9 August 26, 2015

REVIEW YOUR POLICY KNOW BUSINESS INTERRUPTION COVERAGE

Presenter

Presentation Notes

BI = Commercial property insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations. Coverage applies to loss suffered during the time required to repair or replace the damaged property. It may also be extended to apply to loss suffered after completion of repairs for a specified number of days. Contingent BI = indemnity insurance cover designed to compensate for the losses due to interruption or stoppage of a key suppliers’ business. Direct contingent business interruption is designed to compensate for losses only from direct suppliers, those that deliver their goods or services directly to the insured. Indirect contingent business interruption is designed to cover business interruption losses when a key supplier to a direct supplier is damaged by a covered peril causing the direct supplier to be unable to provide their goods or services.

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REVIEW YOUR POLICY FLOOD COVERAGE City and County Government • $100M+ flood loss

• Flood zone coverage for Special Flood Hazard Area (SFHA) was limited

• Understand “Substantial Improvement” codes for reconstruction

• Debris staging process

• Interplay between insurance and FEMA

FEMA’s 50% Rule

Section 404 Mitigation - home buyout example

Section 406 Mitigation - juvenile court document imaging example

• Documentation

• FEMA’s “obtain and maintain” insurance requirement

Presenter

Presentation Notes

Example #1 – City and County Government that suffered $100M+ flood loss. Insurance responded to approx. half of the losses. Flood zone coverage for SFHA’s was limited. FEMA provided Public Assistance for remaining uninsured losses. Schools, Public Works, Transportation, General Services, Water & Sewer, etc. fell under the County’s policy. Successful search & rescue missions were conducted during evacuation and response. Mutual Aid agreements with neighboring counties must be specific. Flood waters should be tested for contaminants to support scope decisions. Understand “Substantial Improvement” codes for reconstruction. Review existing county codes that address building elevation requirements. Debris staging process resulted in higher disposal cost per cubic yard. Know the interplay between insurance and FEMA to maximize recoveries – FEMA’s 50% Rule. Take advantage of available mitigation from FEMA – Section 404 home buyout program / Section 406 juvenile court document imaging. Documentation to “tell and support the story” is critical for major claims – standardize claim procedures and protocols. Retain and organize all claim information using central, electronic repository site (like SharePoint). FEMA’s “obtain and maintain” insurance purchase requirements are necessary for PE’s to remain eligible for subsequent same peril disaster events.

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Private Non Profit – Low income housing

• Suffered $25M+ hurricane loss

• Non-essential Private Non Profits - limited FEMA assistance

• Small Business Administration disaster loan

- Denied

- Eligible for all categories of FEMA Public Assistance

REVIEW YOUR POLICY FLOOD COVERAGE

Presenter

Presentation Notes

Example #2 – Private Non Profit, Low Income Housing Authority that suffered $25M+ hurricane loss. Relevant highlights: Insurance responded to loss except for deductible and asbestos abatement expenses, which were funded under FEMA’s PA program. Establish base lines to avoid pre-disaster, deferred maintenance pushback. Consider pre-disaster emergency vendors to avoid price gauging and also allows you to perform qualified vendor background checks during calmer periods. Unit inspections and repairs required significant coordination, increasing indirect costs. Non-essential Private Non Profits are only eligible for certain types of Public Assistance from FEMA. Applied for SBA disaster loan to cover uninsured losses. SBA loan was denied making the PNP eligible for all categories of FEMA Public Assistance.

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Other NFIP Scenarios

• Condominiums – Insurance under the National Flood Insurance Program (NFIP) has eligibility

requirements for condominium type

• Mergers or Asset Purchases – Transfer NFIP policy to new entity formed as a result of mergers or asset

purchases, otherwise any given location potentially uninsured for flood

• Per Building Coverage – NFIP coverage is required on a per building basis, so if you have a property with

multiple buildings you will need multiple policies.

REVIEW YOUR POLICY FLOOD COVERAGE

Presenter

Presentation Notes

There are several methods of insuring condominiums under the National Flood Insurance Program (NFIP). Each method has its own eligibility requirements for condominium type. Be aware to transfer NFIP policy to new entity formed as a result of mergers or asset purchases, otherwise any given location potentially uninsured for flood. NFIP coverage is required on a per building basis, so if you have a property with multiple buildings you will need multiple policies.

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• Private Company

– 300M+ hurricane loss

– Is “surge” damage considered flood or wind?

– Coverage disputed

– Slow claim advances

– Widespread damage at multiple facilities

More coordination

Increased administrative costs

– Infrastructure damage is complex

– Technical team determine exposures

– Identify flood zone locations

– Internal labor may impact Business Interruption losses

REVIEW YOUR POLICY DEFINITIONS – FLOOD OR WIND

Presenter

Presentation Notes

Example #3 – Private Company that suffered $300M+ hurricane loss. Is “surge” damage considered flood or wind? Coverage disputes resulted in delayed scope agreements. Lack of scope agreements resulted in slow claim advances. Widespread damage at multiple facilities across a wide region requires larger Adjustment Teams, more coordination and increased administrative costs. Partial system type damages required temporary repairs in order for critical operations to resume after emergency period and long term repairs were scheduled for the future. Temporary repairs were viewed as permanent by the Adjustment Team. Latent damage issues. Understand historical failure evidence. Infrastructure damage is complex. Review infrastructure coverage with technical team to determine exposures. Identify flood zone locations – may be different across an entire single facility. What happens when multiple locations may have elevated systems that were damaged by water, but above the flood zone elevation? Many repairs were performed in-house and overhead burdens were applied to these in-house labor charges, similar to prior capital projects. Fixed overheads are typically not covered. Internal labor may impact BI losses.

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Healthcare Business

• Believed its property policy included coverage for off-premises utility services interruption irrespective of whether it suffered property damage.

• Client was shut out of its offices due to lack of power after Sandy and Insurer denied the claim.

Auto Parts Manufacturer

• Unaware that it did not have coverage for interruption of power supply services.

• Uninsured for subsequent Business Interruption due to loss of power

REVIEW YOUR POLICY SERVICE INTERRUPTION & BUSINESS INTERRUPTION

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• Coverage for direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility or service including transmission lines and related plants, substations, and equipment of suppliers of such services.

• Apply to property damage only or to business interruption as well?

• Does it have any distance limitations or other exclusions?

A waiting period may apply, e.g. the first 72 hours of service interruption not covered

Exclusion for certain perils, e.g. earthquake.

Exclusions for overhead transmission and distribution lines.

REVIEW YOUR POLICY SERVICE INTERRUPTION

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• What is the difference between a “per occurrence” deductible and an “aggregate deductible” on a commercial insurance policy? – A “per occurrence” - each and every loss before the insurance

company will pay. – An “aggregate deductible” – puts a cap on the amount of deductibles

paid during the policy period.

• May have a separate deductible for flood or named windstorm

16 August 26, 2015

REVIEW YOUR POLICY KNOW YOUR DEDUCTIBLES

Presenter

Presentation Notes

A “per occurrence” deductible requires the policy holder to pay that amount on each and every loss before the insurance company will pay. For example, if a business has a $1,000 per occurrence deductible and suffers a $30,000 loss, then the business will absorb the first $1,000 of that loss and receive a check for $29,000. An “aggregate deductible” typically benefits a business owner by putting a cap on the amount of deductibles paid during the policy period. For example, if a policy had a “per occurrence” deductible of $1,000 and an “aggregate deductible” of $5,000, then if the policy holder suffered 5 losses greater than $1,000 the business would have exhausted the aggregate deductible. That means every loss after that during the policy period would have $0 deductible. If the “per occurrence” and the “aggregate deductible” were exactly the same, then the policy holder would pay only one full deductible during the policy period, regardless of the number of occurrences.

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III. EVALUATE PROPERTY LOSS CONTROL AND PROPERTY SECURITY

17 August 26, 2015

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Evaluate Property Loss Control and Property Security Who is on your recovery Team?

• Establish a coordination flowchart between key personnel who will be involved in the recovery and claims process

• Establish a system to distribute the plan information (emergency information, emergency plan, protocols, procedures, forms, etc.)

• Plan for establishing a “command center” location

18 August 26, 2015

Primary Emergency Point Person

Risk Management Accounting Facilities

Outside Contractors Purchasing Insurance Team and FEMA

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Evaluate Property Loss Control and Property Security Emergency Response Vendors / Standardize Assessments • Identify emergency response vendors

– Quick response times can help mitigate total losses – Locks in pre-disaster rates

• Establish a pre-loss checklist: Site/facility number and location Date of inspection List of contact names responsible for facility Are there any trees in the power lines? Is there a generator on-site? Is the tank full? Is this facility a designated shelter location? Are there any special needs? Have photographs been taken for use as a baseline? Are roof drains/gutters free of clutter and debris? Are the window and door waterproofing (caulking/insulation) intact?

19 August 26, 2015

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Evaluate Property Loss Control and Property Security Debris Removal Considerations

20 August 26, 2015

Be Prepared to tell a “From Cradle to Grave”

story about debris

Debris will constitute a significant portion of total losses and is highly scrutinized by FEMA

Debris needs to be measured and documented in cubic-yard quantities

If debris is disposed at a landfill, FEMA will require all of the dump/load tickets and the coordinates of the dump site location

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Evaluate Property Loss Control and Property Security Initial Inspections and Mitigation Efforts

• Protect property from further damage – Utilize reputable/experienced disaster response service company – Remove water or debris as soon as possible – Board up windows and secure contents – Utilize security services to protect property

• Perform initial damage assessments – Take photographs to capture “picture” of damages (label them!) – Take videos, if available – Inspect roofs, basements, windows, and other water penetration sites to

determine vulnerable areas (identifying such sites is difficult later in the process)

– Meet with vendors/contractors to establish protocols for tracking employee time, materials, etc.

– Especially important for T&M contracts

21 August 26, 2015

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Evaluate Property Loss Control and Property Security Manage Your Vendors

• Contractors should reference buildings using the building number rather than the name of the building on all documents, proposals, and invoices going forward

• All proposals, contracts, purchase orders, and invoices must be tracked by building and reference disaster name

• All proposals and invoices require a breakdown to include the following: – Debris removal-related expenses – Emergency measure-related expenses – Permanent repairs – structure-related expenses – Breakdown between wind and flood damage, when possible

• Photographs tracking damages and repairs are critical to support claims being made

22 August 26, 2015

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IV. PLAN FOR EMPLOYEE SAFETY

23 August 26, 2015

Presenter

Presentation Notes

Review and update employee evacuation and notification plans, including employee home and emergency contact lists. Ensure all employees are aware of emergency policies and procedures. Ensure that employees who stay on site during a storm have current contact lists potable water, nonperishable food, first-aid kits, flashlights, hand-held radios or cell phones and other supplies. Arrange for employees to work remotely when necessary. Establish procedures to account for employees and to disseminate information. Review human-resource-related issues, including skills inventories and potential payments to injured, homeless, or evacuated staff.

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Plan for Employee Safety

24 August 26, 2015

1. Review and Update employee evacuation plans

2. Ensure emergency policies have been communicated to all employees

3. To the extent employees remain on site during storm ensure they are provided with: a) Current contact lists b) Adequate supplies c) First aid kits d) Means of communication

4. Arrange for remote working as appropriate

5. Establish procedures to account for employees and share information before, during and post storm

6. Review HR related issues and how they may address injured, homeless or evacuated staff

7. Help your employees become personally prepared.

8. Help your employees prepare when a storm is forecast for the area.

9. Provide a means for employees to check in after the storm or during an activation.

10. Be creative and think about other ways to help employees get back on their feet after a severe storm.

Presenter

Presentation Notes

Help employees become personally prepared. Start now by providing education about personal preparation during a natural disaster. free information available from the federal government and local communities. Let employees know where they can access it. And be sure to make it readily available in break rooms or online. You can also invite organizations like the Red Cross to come in during business hours to discuss preparedness with employees. Help employees prepare when a storm is forecast. Provide website links or literature about preparing their homes for disasters. Make sure weather updates are readily available at work. Consider giving employees time off to prepare homes and families. By taking these steps, you can reassure employees that their families are safe, helping them to stay focused at work. Provide a way for employees to check in. After the storm or during the activation of your plan, regularly update employees on when your business will re-open and when they can return to work. Keeping lines of communication open will also help you recruit employees to help with clean up. Remember: Two-way communication is key. Give your employees an easy way to update their managers on their status and ability to return to work. Help employees get back on their feet. After a severe event, be creative. Allow an extra day off for home repairs, or provide employees with needed supplies. If you have several employees with losses, consider inviting a Federal Emergency Management Agency (FEMA) or insurance representative to give a seminar or lunch-and-learn about filing claims. And remember that not all damage is physical: Consider providing stress counseling or similar resources.

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V. EVALUATE CLAIMS PREPARATION AND MANAGEMENT ISSUES

25 August 26, 2015

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Evaluate Claims Preparation and Management Issues Major Property Claims are Complex

26 August 26, 2015

DEDUCT

I BLE

INSURANCE POLICY

NFIP, FLOOD

INSURANCE

F

E

M

A

EXCESS

PROPERTY

POLICY

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Disaster Preparedness is CRITICAL – Understanding the Claim Lifecycle and End Game Improves Pre Loss Planning

27 May 14, 2015

Phase 2: Scope of Damages

Phase 1: Emergency Response

Phase 3: Prove Up and Support

Phase 4: Settlement and Closeout

Claim Management

and Preparation

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Evaluate Property Loss Control and Property Security Potential Scope Areas

28 August 26, 2015

Debris

Removal

Code

Issues

Alternate

Projects

Contingent

BI

Building Claims Hazard

Mitigation

Improved

Projects

Emergency

Protective

Measures

50 %

Rule

Equipment and Content Claims

Business Income Claims

Extra Expense and Expediting Claims

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Evaluate Claims Preparation and Management Issues Maximize Recoveries with FEMA, if eligible

29 August 26, 2015

Insured

Uninsured

LOSSES

Maximize recoveries by understanding

the interplay between FEMA and Insurance

Claim coordination - eliminates duplicating efforts

If prior FEMA Assistance was received, comply with “Obtain & Maintain” insurance requirements

Outsource the tedious FEMA process so PE can focus on restoring the community and avoid the daily FEMA burden

Claim consulting fees are covered by Insurance and/or FEMA

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Evaluate Property Loss Control and Property Security Suggested Recordkeeping for Claims

30 August 26, 2015

• Separate general ledger account or sub-accounts for each damaged building • Track loss-related disbursements by building • Voucher package for each claim disbursement

- Contracts - Purchase orders - Invoices - Cancelled check copies

• In-house force account labor charges - Hours, by employee, by building - Overtime payment policy - Labor rates - Fringe benefits (variable vs fixed)

• Code all labor - Clean-up expenses - Debris removal - Property damage repairs

Presenter

Presentation Notes

Create a separate general ledger account or sub-accounts for each damaged building affected by the loss event. Track loss-related disbursements by building and use specific building loss accounts to capture loss related activity. Maintain a voucher package for each claim disbursement. The voucher package should include copies of purchase orders, invoices, and cancelled check copies. For all in-house, force account labor charges, provide: Claimed labor hours, by employee, by building location (if allocable), including a breakdown for straight time and overtime; Employee time cards indicating straight time and overtime; Overtime payment policy per the employee handbook; Labor rates, by employee; and A breakdown of related fringe benefits including historical ratios to labor for all benefits (i.e. FICA, FUTA, SUTA, retirement, insurance, workers compensation, vacation and sick leave, holidays, etc.). To the extent possible, identify/code all labor, clean-up expenses, debris removal, property damage repairs, property damage replacement, and extra expenses separately by the category of repair or construction (i.e. roof, boiler, electrical, plumbing, etc.).

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Evaluate Property Loss Control and Property Security Suggested Recordkeeping for Claims continued

31 August 26, 2015

• In-house equipment

- Hours

- Asset type

- Explanation of loss-related usage

- By category

- Employee responsible

• Copies of vendor contracts

• Subcontractors

• Invoices or receipts for all employee expenses

• One person be responsible

Presenter

Presentation Notes

For in-house equipment and vehicle usage, provide: Claimed hours, by building location (if allocable); Detailed description of asset type, make, model, size, etc.; Detailed explanation of loss-related work by category (clean-up, debris removal, repairs, and extra expenses); and Employee responsible for operating in-house equipment or vehicle. FEMA will apply hourly rental rates based on the type of internal asset used Record a description of all other claim costs on the related invoice if not already within the body of the invoice, noting how the claim item is loss-related, and allocate the cost to a facility. Be prepared to provide copies of vendor contracts, as well as invoices from any subcontractors that may have been used by a general contractor for property �damage repairs. Be prepared to provide copies of invoices or receipts for all employee expenses. Employees should be instructed to file “separate” expense reports for all costs incurred relating to the loss event. We suggest that one person be responsible for accumulating purchases orders or invoices as they are received and marking the document as loss-related. In large property damage scenarios, knowledge of the construction repairs may be necessary. Department heads should create and maintain a chronology of events related to the loss and the impact that the loss has on their operations.

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Evaluate Property Loss Control and Property Security Documentation and Communication are Crucial

32 August 26, 2015

Examples of documentation support – Photographs – Fixed asset lists – Vendor quotes for repair / replacement – Expert reports regarding damage assessment – Cost benefit analyses showing repair

versus replacement – Purchase orders and invoices – Salvage agreements – Historical records (facility diagrams, As-builts, pre-disaster photographs, maintenance records,

etc.)

Effective communication and teamwork help minimize conflicts during the claim recovery process and help achieve a superior recovery

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VI. RECAP AND RESOURCES

33 August 26, 2015

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Planning Ahead

34 August 26, 2015

– Understand your insurance policy and applicable coverage(s)

– Identify uninsured exposures – Have an updated schedule of insured values readily

available – Generate a listing of “key personnel” and current

contact information – Understand your current procurement restraints and

regulations – Update your disaster recovery plan on a frequent

basis and conduct mock disaster trials annually

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CT Recovers – Long Term Economic Recovery Working Group

35 August 26, 2015

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Resources

Where to Obtain the Disaster Preparedness Checklist

– Please go to the CT Recovers Facebook page to see the information

posted on Business planning and recovery checklist: https://www.facebook.com/CTRecovers?ref_type=bookmark

– And under the CT Recovers website under the Economic Recovery

Working Group http://www.ct.gov/ctrecovers/cwp/view.asp?a=4498&Q=543420

36 August 26, 2015

https://www.facebook.com/CTRecovers?ref_type=bookmark

http://www.ct.gov/ctrecovers/cwp/view.asp?a=4498&Q=543420

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Questions and Contact Information

Brett Gillmon, Managing Director Marsh USA Inc. US Property Practice [email protected] 212-345-5174 Jeb McPherson, CPA, CFF, FCPA Marsh USA Inc. FACS Practice - FEMA Project Leader Marsh Risk Consulting [email protected] 770-365-7572

37 August 26, 2015

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Disclaimer

38 August 26, 2015

The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy. Marsh makes no representations or warranties, expressed or implied, concerning the application of policy wordings or of the financial condition or solvency of insurers or reinsurers. The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Statements concerning tax and/or legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as tax and/or legal advice, which we are not authorized to provide. Insureds should consult their own qualified insurance, tax and/or legal advisors regarding specific coverage and other issues.

The case studies included herein and discussed are for illustrative purposes only and should not be relied upon as governing your specific facts and circumstances.

All insurance coverage is subject to the terms, conditions and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.

This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Inc., except that clients of any of the companies of MMC need not obtain such permission when using this report for their internal purposes, as long as this page is included with all such copies or reproductions.

Marsh is part of the family of MMC companies, including Guy Carpenter, Mercer, and the Oliver Wyman Group (including Lippincott and NERA Economic Consulting).

Copyright 2010 Marsh Inc.

All rights reserved.

MA10-10094

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