Leadership, Knowledge, Solutions…Worldwide. CLR Underwriting / Claims Management Meeting Deb Gallagher, CPA, CFF, FCPA Jeb McPherson, CPA, CFF, FCPA November

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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 2

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


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


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


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?


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


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



Follow EntityPurchasing Protocol

Establish Claim Protocols - Equipment Claim Process/Protocol Sample


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


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


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.).


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.


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


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


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”


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


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


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


INSURANCE POLICY

NFIP, FLOOD

INSURANCE

F

E

M

A

EXCESS

PROPERTY

POLICY

Insurance Coverage and FEMA Overview

DEDUCT I BLE


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


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


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


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


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


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


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


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.)


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


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


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


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


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


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


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


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


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


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


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


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.

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 Marsh & McLennan 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 Marsh & McLennan 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

Leadership, Knowledge, Solutions…Worldwide.

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Leadership, Knowledge, Solutions…Worldwide. CLR Underwriting / Claims Management Meeting Deb Gallagher, CPA, CFF, FCPA Jeb McPherson, CPA, CFF, FCPA November