When a factory burns down with all its equipment, stock and produce, or an explosion destroys a mine killing workers and halting production the opportunity for loss is almost limitless. These events, known as large losses, are typically valued at R20 million and above.
And “moving quickly to asses the loss while gathering and deploying the right expertise to remedy the situation makes the difference between what are essentially business-destroying events or manageable business challenges” says Peter Cook, Loss Solutions, Alexander Forbes Risk Services.
Large losses typically involve the destruction of buildings, plant and machinery, stock (in different stages of production), and electronic records (including debtors records). On top of the physical and financial destruction is the value of the business lost due to interruption - or the liability arising from injured or dead employees.
As such “large losses cause both asset loss and liability exposure, requiring that client and the insurer quickly assemble a diverse set of skills able to quantify and interpret the nature of the loss while quickly mapping, and then implementing, a practical route back to recovery” says Cook.
The diversity of industry and technical knowledge that needs to be bought to every large loss situation varies depending on the nature of the disaster, the industry concerned, applicable government or municipal regulations, or the legal and contractual position of the business, factory or mine.
Broadly, however, Cook and his team have identified six critical steps required to successfully manage large losses.
Firstly, and most importantly, the managing of large losses requires a rapid response. “It is critical that in the first phases of a disaster the client is able to take control of the process by appointing their own task team” says Cook.
Since even very large businesses will not have dedicated and experienced personnel who can deal with major fire or explosion loss Cook believes that it is “wise to appoint a professional team to manage the process and interface with the loss adjuster representing the insurer.”
Next in order of importance is establishing lines of communication between the client and the insurer via the respective professional teams employed by each party. “Managing information ensures that careless or damaging statements as well as misleading and inaccurate information is replaced with a flow of accurate information facilitating the assessment process and allowing the insurer to make a decision on liability as soon after the loss as possible” says Cook.
Thirdly, it is vital that structures are put in place to identify and gather the correct team of professionals with clearly defined tasks and deadlines.
Cook cautions that the loss adjusters will also have their own team of professionals. This is not duplication. Both teams are working towards different goals. The insurer’s team want to either avoid the loss entirely, or else minimise the cost of the claim. The client’s team will want to ensure that the client receives the indemnity and benefits from his insurance policy. “Not having a team representing your exclusive interests in a situation of this nature could cost you dearly” cautions Cook.
Fourthly, a project plan should be agreed with all parties, identifying and focusing on priorities. The project plan may have several facets, each with its own priorities. For example, the re-building project, the plant replacement project, stakeholder communication project, and cash flow management project.
Fifthly, it is extremely important to manage expectations. Managing both client and insurer’s very different expectations requires great skill and even better communication. In short, “keep the client and insurer informed and report bad news early” advises Cook.
Finally, securing and preserving the evidence on liability claims is critical. For example “in liability claims you may only be served with papers two years after an incident. As such, it is critical that you have all the evidence to hand from the time when the incident happened if you are going to be able to manage this claim two years down the line” concludes Cook.
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