After the Recovery: “Show Me the Money!” - Common Problems that Affect Insurance Funds

While not all natural or man made disasters are covered by property insurance, many events trigger a response from the insurance industry. Storms, floods, tornados, earthquakes and fires typically have some form of insurance coverage for private business and public entities. Once the emergency is declared, the Risk Manager typically alerts the insurance companies to put them on notice that they have suffered a loss. Despite a timely response from an insurance representative or adjuster, there is often a delay in the receipt of much needed recovery funds. Why does this occur?

After 18 years in the catastrophe restoration industry and nearly 10 years as an insurance adjuster, Jim McGovern, of McLarens Young International, offers some insight to our readers on how to handle their insurance claim.

Disaster Resource GUIDE: Having spent 25 years responding to disasters, both as a restoration professional and as an insurance adjuster, tell us the most common mistakes an insured might make at the time of a loss event.

Jim McGovern: The first 24 – 48 hours are critical for a good recovery. The decisions that are made impact the timeline for returning to pre-loss standards and sets the tone for the recovery process.

DRG: What do you mean by setting the tone of the recovery process?

JM: Depending on the situation, those in charge must effectively communicate exactly what the priorities are and mandate how those goals will be met. In other words, what are the main objectives? The objectives could be as varied as moving to a temporary facility, saving and protecting undamaged inventories, returning to pre-loss production or any other number of priorities that are only known to the insured.

DRG: Are you implying that some insureds do not know what they need to do to return to business as usual?

JM: No. Most insureds know exactly what they need to do, but they don’t know how to make that happen in a timely manner that will ultimately facilitate their cash flow.

DRG: Why is that so difficult to achieve?

JM: Because at the time of a crisis, communications often breakdown. Human stress comes into play and a new set of important people are introduced while the clock is still ticking.

DRG: Who are these new sets of important people you are referring to and how can the insured effectively fold them into their recovery process?

JM: Aside from the insurance agent or broker and the insurance adjuster, there may be consultants inserted into the equation such as forensic accountants, construction consultants, cause and origin experts and restoration and construction vendors. In addition you can expect involvement from local and state fire officials, building inspectors, health and safety inspectors and other individuals who will need to work with the insured’s staff all with their own separate agenda.

DRG: Is every loss this involved?

JM: Since losses are varied, no. Some losses are what we call a signal stand alone event that effects only one place of business or public entity at a time. These losses are much easier to define and resolve. When a disaster is larger in scale, such as a hurricane, an earthquake or a wildfire, then all of the corresponding components take on a more demanding and challenging nature.

DRG: What should an insured do once the smoke clears or the water recedes, so to speak?

JM: Once all life and safety concerns are addressed the insured should notify their insurance broker or agent as early as possible to put the insurance company on notice. All interested parties must meet at the site with the insured’s key staff, and the insured must engage in the mitigation process as soon as possible.

DRG: Are you saying that the cleanup process should begin immediately or wait until an insurance representative responds?

JM: All insurance policies in one form or another state that the insured has a responsibility to mitigate damage, in other words, prevent additional damage. Be logical, think clearly and commit only those resources that stabilize the situation until all parties can inspect, meet and agree on a plan moving forward.

DRG: Again for clarification purposes are you saying the insured should wait until the adjuster arrives before getting started with the recovery plan?

JM: No, in fact the insured should secure the area and not disturb any evidence if it is a fire scene. They should photo document everything as they find it and then they can begin whatever emergency clean up is appropriate. You must protect the undamaged property pending agreement on a plan.

DRG: Isn’t it generally true that insurance companies are difficult to deal with and not forthcoming with monies?

JM: This is a popular myth fueled by a few slow moving or incompetent individuals. Our experience is that insurance companies have an obligation to honor the policy. This is taken very seriously and despite the myth, our job is to respond to the loss, measure the loss, and assist with all proper and warranted reimbursement for covered items in a timely manner.

DRG: So if an insured has met all of the requirements of preventing additional damage and notifying their insurance company, why does the process of reimbursement take so long?

JM: There are many reasons why the process bogs down. As a quick reference, I have outlined 6 of the most common miscues we see in property insurance claims management.

DRG: Would you suggest that just as major corporations and public entities plan for disasters, they also plan on how best to deal with their insurance representatives?

JM: Yes, by all means it doesn’t cost anything to meet your insurance representatives in advance of a claim to talk about the insurance policy and what is and is not covered and how to engage the insurance company as quickly as possible in the event of a loss.


How to get the cash flowing

In these difficult financial times, cash flow is essential. Now more then ever a timely recovery can mean more than just a threat of a loss of market share. Down time is the measure of survival. Here are some tips on getting your recovery dollars working for you.

1. Lack of a single point of contact

Communication is critical in an insurance claim. A strong available individual needs to be appointed to work directly with the insurance adjuster and insurance company in order to streamline all money matters and claim issues.

2. Continuity start to finish

In many cases the lead person changes and the chain of communication is broken, reengaged, and sometimes dropped again. This can become critical especially towards the end of the claim when the final monies are due.

3. Agree up front on a plan

It is important to secure a partial payment to provide advance funds to the insured at the time of the loss. In order to do this, all parties must know what is needed and this can be accomplished in the first meeting with the insurance adjuster. You must spell out exactly what the early cash needs are so that all parties can work to secure the required funds.

4. Timely documentation of the claim

Expenses are incurred and invoices and purchase orders are processed, but who gets a copy of what and who approves these costs? Without a proper accounting model, the recovery dollars can become lost in the process or difficult to understand. Delays in documentation can directly impact the cash flow.

5. Eliminate surprises

No one likes surprises except perhaps a birthday party. When unknowns lead to raising expenditures, all parties must discuss and clearly understand what is at stake. Reserves must be clearly understood or surprises may derail the process.

6. Choose the best contractor for your disaster recovery project

Do not hire from the Yellow Pages. AAA Restoration company may be first in the phonebook, however they may be last in qualifications to assist you in your most vulnerable moment. Plan ahead, interview various emergency services vendors and check their references with your insurance company.


About the Author
Jim McGovern is Assistant Vice President of McLarens Young International, with 25 years of experience in catastrophic restoration projects including residential, commercial, industrial, and historical. He can be reached at