What Once Was Lost: Rebuilding After Catastrophes
Three major hurricanes striking the Caribbean and southern United States and two earthquakes in Mexico have left a trail of destruction in their wake. While governments will allocate large sums for recovery and rebuilding assistance following these and other recent catastrophes, most property owners will turn to commercial property insurance policies and their own resources. To maximize recovery, how should any insurance claim for property damage, business interruption, or other losses be calculated and managed?
Early Payments Considerations
Losses arising from catastrophic events tend to be high value, inevitably attracting internal and external stakeholder scrutiny of recovery efforts and timetables. There will therefore be significant pressure by insureds on insurers to make early payments, both interim and final, so that rebuilding begins as quickly as possible. However, in our experience, such pressure will not be sufficient to overcome coverage issues.
An understanding of sum insured values, including any extended replacement cost cover, will be vital. For most policies, the sum insured reflects the limit that insurers will pay for rebuilding, demolition, and professional fees – subject to any allocation for average. This limit will be affected by multiple occurrences impacting one or more locations, which many businesses must now contend with in the Americas and Asia.
Obtaining a tender for reconstruction is an obvious method of calculating damage, but may prove problematic due to rising costs and demand for services. After Hurricane Katrina in 2005, for example, construction repair costs rose by an estimated 15% on average, with upper cost estimates in coastal regions reaching as much as 35% above pre-loss prices.
Recovery and Reconstruction Recommendations
If you experienced a loss from a recent natural disaster, here are four ways to better manage your recovery and reconstruction process:
Notify your broker/insurer as quickly as possible. Be mindful of specific deadlines as some policies require notification within a set time. If such requirements are unmet, then there may be consequences depending on the extent of delay and the applicable jurisdiction. Also keep in mind that you may need to notify multiple insurers if you have different policies for flood and property damage.
Conduct emergency repairs so that any further damage is minimized. If repair work does not start immediately, take photographs or video of any damage. Receipts for valuable items should be preserved if possible and damaged equipment should not be discarded during cleanup efforts.
For locations impacted by multiple events or that are otherwise inaccessible, capturing before-and-after photographic or video evidence through satellites, drones, or other means can help attribute damage to a specific event, which may affect applicable deductibles.
Be prepared to factor in costs related to code upgrades to building standards that may be imposed by local authorities.
Taking steps such as these will be vital to maximizing your organization’s recovery and return to business as usual after a devastating event.