Leadership, Knowledge, Solutions…Worldwide.
CLR Underwriting / Claims Management Meeting
Deb Gallagher, CPA, CFF, FCPAJeb McPherson, CPA, CFF, FCPA
November 15, 2011
Disaster Preparedness and Recovery: Pre and Post Loss Claims Management of Insurance and FEMA Claims
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Disaster PreparednessInsurance and FEMA Claim Lifecycle
Phase 2:Scope of
Damages
Phase 1:EmergencyResponse
Phase 3:Prove Up and Support
Phase 4:Settlement and Closeout
ClaimManagement
and Preparation
Phase 1Pre-Disaster Emergency Response Planning
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Phase 1: Pre-Disaster Emergency Response Planning
Establish a coordination flowchart between key personnel who will be involved in the claim process
Establish a system to distribute the plan information (emergency information, emergency plan, protocols, procedures, forms, etc.)
Plan for establishing a “command center” location
Primary Emergency Point Person
Risk Management Accounting Facilities
Outside ContractorsPurchasingInsurance Team
and FEMA
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Phase 1: Pre-Disaster Emergency Response Planning
Identify emergency remediation contractors/vendors
– Ability to respond to emergency situations more quickly because the time-consuming RFP process can be avoided
– Quick response times can help mitigate total losses
– Pre-disaster rates are locked in
Identify other vendors that could assist after a major loss event
– General contractors
– Roofing consultants
– Industrial hygienists
– Structural engineers
– Mechanical/electrical contractors
– Insurance and FEMA claim consultants
Phase TwoPre-Disaster Scope of Damages
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Phase 2: Pre-Disaster Scope of DamagesEstablish a Pre-Loss Checklist
Pre-loss checklist used to identify: Site/facility number and location Name of individual(s) performing inspection 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? Are sump pumps functioning properly? Are elevators inspected annually? Are there any outstanding maintenance items that have not been addressed?
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Identify Damaged Equipment
Complete Damaged Equipment Reporting Form (DERF)
Email Form to CENTRAL POINT OF CONTACT
Provide Data to Insureror FEMA
Input to Equipment Summary Sheet (Tracking Database)
Types of Support:• Original Damaged Equipment Form• Backup Data, if applicable (i.e. quotes,
estimates)• Purchase Requisition Submission• Purchase Order• Invoices• Proof of Payment
Provide Frequent Updates to Team, Insurance, and FEMA
Obtain Damage Assessment Status
Physical (On the Spot) Assessment
Vendor Inspections
Clean, Repair, or Replace According to Damage Assessment
Clean, Repair, or Replace According to Damage Assessment
Follow EntityPurchasing Protocol
Identify Damaged Equipment
Complete Damaged Equipment Reporting Form (DERF)
Email Form to CENTRAL POINT OF CONTACT
Provide Data to Insureror FEMA
Input to Equipment Summary Sheet (Tracking Database)
Types of Support:• Original Damaged Equipment Form• Backup Data, if applicable (i.e. quotes,
estimates)• Purchase Requisition Submission• Purchase Order• Invoices• Proof of Payment
Provide Frequent Updates to Team, Insurance, and FEMA
Obtain Damage Assessment Status
Physical (On the Spot) Assessment
Vendor Inspections
Clean, Repair, or Replace According to Damage Assessment
Clean, Repair, or Replace According to Damage Assessment
Follow EntityPurchasing Protocol
Establish Claim Protocols - Equipment Claim Process/Protocol Sample
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Sample Damaged Equipment Reporting Form
ENTITY NAME Email to: CENTRAL POINT OF CONTACT
IDENTIFY LOCATION
DAMAGED EQUIPMENT REPORTING FORM
Contact Name: Date Submitted :
Contact Number:
Contact Email:
Original LocationItem
# Bldg # Room #Current
Location Asset Number Manufacturer Model No DescriptionSerial
NumberCost Photo File
Name Damage Description
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Phase 2: Pre-Disaster Scope of DamagesBuilding Claim Considerations
Establish a threshold to determine if work should be performed in house or by contractors
Contractors will 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
All proposals, contracts, purchase orders, and invoices must reference disaster name/event
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
Time and material (T&M) contracts for emergency repairs must include a “not to exceed” amount in order to be considered by FEMA
All proposals and/or invoices will require RS Means-type pricing details – Support documents should include material pricing, labor (time card details), equipment
usage, etc. allocated to each building or common area
Photographs tracking damages and repairs are critical to support claims being made
Phase ThreePre-Disaster Prove Up and Support
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Phase 3: Pre-Disaster Prove Up and SupportSuggested Recordkeeping
1. 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.
2. Maintain a voucher package for each claim disbursement. The voucher package should include copies of purchase orders, invoices, and cancelled check copies.
3. For all in-house, force account labor charges, provide: a. Claimed labor hours, by employee, by building location (if allocable), including a
breakdown for straight time and overtime;b. Employee time cards indicating straight time and overtime;c. Overtime payment policy per the employee handbook;d. Labor rates, by employee; ande. 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.).
4. 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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Phase 3: Pre-Disaster Prove Up and SupportSuggested Recordkeeping (cont’d)
5. For in-house equipment and vehicle usage, provide:a. Claimed hours, by building location (if allocable);b. Detailed description of asset type, make, model, size, etc;c. Detailed explanation of loss-related work by category (clean-up, debris removal, repairs, and
extra expenses); andd. Employee responsible for operating in-house equipment or vehicle. FEMA will apply hourly rental rates based on the type of internal asset used
6. 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.
7. 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.
8. Be prepared to provide copies of invoices or receipts for all employee expenses.9. Employees should be instructed to file “separate” expense reports for all costs incurred relating to the
loss event.10. 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.
11. 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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Phase 3: Pre-Disaster Prove Up and SupportDebris Removal
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
FEMA wants to know the“From Cradle to Grave”
story about debris
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Phase 3: Pre-Disaster Prove Up and SupportFEMA’s Insurance Requirement
As a condition for receiving public assistance, applicant is required to “obtain and maintain” insurance coverage (for the hazard that caused the damage)
Coverage commitment will be based on the total eligible costs associated with permanent work only
Insurance commitments are based on the peril – Recent North Carolina:– DR# 4019 – Hurricane Irene (August 2011)– DR # 1969 – Severe Storms, Tornados and Flooding (April 2011)– DR # 1942 – Severe Storms, Flooding and Straight Line Winds/Tropical Storm Nicole (October 2010)– DR #1871 – Severe Storms and Flooding (February 2010)– Other Impacts: Hurricane Earl, Tropical Storm Hannah, Hurricane Ophelia, Hurricane Katrina…
Insurance
FEMA
State
Applicant
FEMA Cost Share Program
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Permanent work project worksheets totaling less than $5,000 do not require future insurance commitments
Technically, insurance commitments are required to cover the expected “extended life” of the repaired asset (the further you get from the date of loss, the lower the insurance commitment requirement)
Insurance requirements may be waived if the State Insurance Commissioner certifies that the type and extent of insurance required by FEMA is not reasonably available
A deductible from a previous disaster is not eligible for the same facility in a subsequent disaster of the same type (peril)
Phase 3: Pre-Disaster Prove Up and SupportPublic Assistance Planning and Considerations
Future public assistance will be jeopardized if adequate insurance coverage is not “obtained and maintained”
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Phase 3: Pre-Disaster Prove Up and SupportSpecial Flood Hazard Area and FEMA’s National Flood Insurance Program Reduction Penalty
Only pre-disaster insurance requirement is for facilities located in a Special Flood Hazard Area (SFHA)– SFHA can be found on the flood hazard boundary map
Maximum amount of coverage available through the National Flood Insurance Program (NFIP) is $500,000 per building and $500,000 for contents located within a building
If adequate flood insurance is not available, FEMA funding will not occur unless damages exceed the $500,000 threshold for building and contents
FACS has been successful in minimizing the NFIP reduction penalty by strategically allocating flood coverage and recognizing uninsured losses under a hypothetical NFIP scenario
Phase 4Pre-Disaster Settlement and Closeout
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Phase 4: Pre-Disaster Settlement and CloseoutSpecial Reminders
– 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
While Phase 4 is geared more toward post-loss, the following pre-loss steps will help achieve a successful claim settlement/closeout:
Part 2Disaster Recovery
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Disaster Recovery Insurance and FEMA Claim Lifecycle
Phase 2:Scope of Damages
Phase 1:EmergencyResponse
Phase 3:Prove Up and Support
Phase 4:Settlement and Closeout
ClaimManagement
and Preparation
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INSURANCE POLICY
NFIP, FLOOD
INSURANCE
F
E
M
A
EXCESS
PROPERTY
POLICY
Insurance Coverage and FEMA Overview
DEDUCT I BLE
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Navigating the FEMA Claims ProcessSequence of Events
Maintain required
documentation
Address special considerations
Submit documents for final inspection,
program review, and close-out
Disaster occursState emergency
management activates plan
Governor requests federal assistance
Presidential declaration
Attend applicant briefing and submit
request for assistance
Attend kickoff meeting
Prepare project worksheets
Quantification of eligible damages
and relatedscope
Phase 1Post-Disaster Emergency Response
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Phase 1: Post-Disaster Emergency Response 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
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Phase 1: Post-Disaster Emergency ResponseExample Timeline of Events with FEMA
FEMA Kick-Off Meeting
07/20/09
Date of Declaration
07/02/09
Date of Loss:05/08/09
FEMA Exit Meeting 9/25/09
State Emergency
Management Audit
Ongoing
Graduation ceremonies scheduled(May 8–10)
FEMA declaration finally made 55 days after
loss event
94 project worksheets completed within 66
days
Anticipate potential FEMA declaration—BE PREPARED!
FEMA field time is limited, so being prepared gets you BETTER
RESULTS!
Emergency Response Phase Permanent Repair Phase
Insurance Claim In Process and On-Going
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Phase 1: Post-Disaster Emergency ResponseWho Is Involved in the Public Assistance Process?
Applicant(Subgrantee)
Responsible for requesting public assistance
Develops and monitors scope of work
Maintains proper documentation
Reviews special requests
Administers funding
Conducts final closeout and inspections
FEMA
Assigns a team to an applicant
Responsible for preparing project worksheets
Assesses scope of damage
Reviews insurance applicability
State EmergencyManagement
(Grantee)
Phase 2Post-Disaster Scope of Damages
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Phase 2: Post-Disaster Scope and DamagesFEMA Eligibility Requirements
Do You Qualify? State and local government
entities Private non-profit entities that
offer critical services, such as education
Let’s Talk Construction Must be in active use Legal responsibility of applicant Sustained direct physical damage
Most Challenging Criteria Scope of damages must be tied back to the
declared disaster
Surprisingly Scrutinized The Least Must be reasonable and necessaryCost
Work
Facility
Applicant
Ph
ase
1
Ph
ase
2
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Phase 2: Post-Disaster Scope and DamagesBuilding Claims
Damage sustained by a building structure after a loss event
– Building take-offs and analysis Xactimate, RS Means, or Marshall Swift Compile detailed building-by-building, room-by-room, trade-by-trade,
unit-by-unit cost estimates Repair versus replacement options (total and partial losses) Code upgrade requirements – enforcement is critical! Improvements/betterments Hazard mitigation projects
– Reach scope agreements Involve insurance company experts,
adjusters, and/or FEMA estimators in the scope development process
Identify areas of agreements – obtain pricing Identify areas of disputes – obtain further
justification
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Phase 2: Post-Disaster Scope of Damages Equipment and Contents Claims
Identify and inventory equipment and/or contents damaged– Serial numbers, make/model numbers, detailed descriptions– Information needed includes items cleaned, repaired, or replaced
Identify classification of contents– Furniture– Office equipment– Supplies– Machinery used in operations
Determine if experts are necessary to confirm extent of damage to key pieces of machinery and equipment
Obtain fixed asset list, a helpful resource, which provides:– Original purchase date (used to determine age and calculate depreciation)– Baseline for original purchase price (for information purposes only)– Possible missing information (i.e. manufacturer name, serial number) that
could not be identified/obtained during the field inspection
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Phase 2: Post-Disaster Scope of Damages Equipment and Contents Claims
Examples of support– Photographs– Fixed asset lists– Vendor quotes for repair– Vendor quotes for replacement– Expert reports regarding damage assessment– Cost benefit analyses showing repair
versus replacement– Purchase orders– Repair invoices– Replacement invoices– Salvage agreements– Historical records (original purchase orders, invoices, photographs, facility
diagrams, etc.)
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Phase 2: Post-Disaster Scope and DamagesFEMA Special Considerations
Hazard mitigation:– Cost-effective measures taken to prevent or reduce the threat of future damage to an applicant’s
facility– Section 406: Available through the public assistance program, applies to the damaged element of
the facility, and must be cost-effective– Section 404: Managed by the state, available after disasters, and provides an opportunity to take
critical mitigation measures in order to protect life and property from future disasters
FEMA’s 50% test rule:– If the estimated repair costs exceed 50% of estimated total replacement costs, total replacement
value will be awarded
Improved projects:– With state approval, applicant may restore pre-disaster condition and make improvements for
which applicant is financially responsible
Alternate projects:– Funds used for a project other than repair of the damaged structure:
Must receive prior FEMA approval Requires environmental assessment Incurs a 10% reduction of FEMA funding from original project estimate
- If applicant is a private nonprofit, it would incur a 25% reduction
Phase 3Post-Disaster Prove Up and Support
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Phase 3: Post-Disaster Prove Up and SupportClaim Preparation
Protocols established during Phase 1 (Emergency Response) will help expedite claim preparation process– Advance payment requests
All data and documentation gathered in Phase 2 (Scope of Damages) will be utilized to prepare claim packages– Includes building, equipment, contents, business income, and extra
expenses
Important to update claim packages and expenditure data on a frequent basis
Detailed claim package documentation to include:– Invoices– Purchase orders– Vendor reports– Photographs– Proof of payments
SERVES TO SUPPORT FORMAL
PROOF OF LOSS SUBMISSION
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Phase 3: Post-Disaster Prove Up and SupportFEMA Project Worksheets
Provides:– Damage description list with actual or estimated costs, prepared on
a location basis– Scope of work necessary to repair eligible disaster damages– Breakdown of eligible materials, labor, equipment, and contract
work– Reduction for applicable insurance proceeds to identify net FEMA
recovery
Used to:– Combine associated work into projects (small projects)– Develop scopes of work and cost estimates– Identify special considerations– Prepare documentation– Facilitate reimbursement for eligible damages
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Phase 3: Post-Disaster Prove Up and SupportWhy Documentation Is Important
Accurate documentation will help:– Recover eligible costs– Collect the information necessary to develop your disaster projects– Validate the accuracy of small projects– Prepare for audits or financial reviews– Assist in responding to requirement of both the insurance claim
process and the FEMA recovery process– Avoid duplication of efforts when streamlining both processes at the
same time– Possible expediting of eligible FEMA damage review if insurance pays
promptly
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Maintain records for at least three years after closeout
Undocumented eligible expenses will not be reimbursed!
Phase 3: Post-Disaster Prove Up and SupportWhy Documentation Is Important
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Phase 3: Post-Disaster Prove Up and SupportManagement Costs
Management costs– Section 324 states management cost now available to subgrantee
(applicant)– Revision made in November 2007 – Allows applicant to outsource management of the FEMA claim
process
Phase 4Post-Disaster Settlement and Closeout
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Phase 4: Post-Disaster Settlement and Closeout
Insurance claims– Settlement phase based on negotiations reached among all parties
Work together with property broker, claim advocate, and insurer
FEMA claims– Settlement and closeout phase based on work completed and
funds expended– Time consuming and tedious process– Coordination of all funding sources needed– Records must be maintained for at least three years after closeout– Undocumented eligible expenses will not be reimbursed
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Phase 4: Post-Disaster Settlement and CloseoutCommunication Is Critical
Effective communication and
teamwork help minimize
conflicts during the claim
recovery process and help
achieve a superior recovery
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Phase 4: Post-Disaster Settlement and CloseoutTime Limits
Request for public assistance– Due 30 days after disaster designation
Applicant’s identification of preliminary damages– Due 60 days after kickoff meeting
FEMA will take action on granting funds for a specific project within 45 days of receiving all of the information for that project
Appeals– Applicant may appeal FEMA’s decision within 60 days of being
notified of that decision
Completing work– Time limits for all projects begin the date of the disaster declaration
(extensions can be granted) Emergency work (Categories A and B): 6 months Permanent work (Categories C – G): 18 months
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Phase 4: Post-Disaster Settlement and CloseoutCloseout Flowchart
Subgrantee certifies work complete Subgrantee notifies
stateState conducts final
inspection
State submits final report to FEMA
FEMA reviews and approves final
payment
State makes final payment
Files closed
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Questions?
Debra Gallagher, CPA, CFF, FCPAMarsh USA, Inc.FACS Practice - FEMA Project LeaderMarsh Risk [email protected]
Jeb McPherson, CPA, CFF, FCPAMarsh USA, Inc.FACS Practice - FEMA Project LeaderMarsh Risk [email protected]
www.marshriskconsulting.com
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Disclaimer
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.
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