The tragedy of September 11 has severely tested the disaster recovery plans of the institutions affected. In many respects, those plans were remarkably effective in light of the extraordinary magnitude of human loss, displacement and extreme business disruption caused by the terrible events.
However, it is true that traditional claims reporting and payment methods prove to be inadequate for complex or large events and therefore require a different approach. Regardless of whether one is preparing for a future event, such as a risk of product recall or recovery of a past event, several phases need to be addressed. First, though, this article will look at the difficulties posed by complex loss and then, briefly, how to ensure maximum recovery.
Why is complex loss different?
One aspect of recovery that is proving to be a challenge is the accumulation of information needed by companies to submit insured and other claims for financial recovery. The sheer magnitude of loss is compounded by the uncertainty and potential disputes that inevitably will arise over the direct cause and ultimate economic value of those losses.
We have already seen the most fundamental dispute arise over the definition of the World Trade Center loss - as one or two events - as it relates to the maximum insurance and reinsurance coverage that will be afforded. The Swiss Re lawsuit attempting to obtain a decision that the loss was a single event is just the beginning of such disputes that will emerge, due to the billions of dollars involved. As other challengeable issues arise from business interruption, workers compensation and other insured claims, companies must have a rigorous loss recovery strategy and information base in place to obtain fast and fair settlement.
The need for pro-active management
Pro-active management of loss means immediately understanding all available avenues to recovering costs, rapidly formulating a loss recovery strategy - and swiftly organising the information and team needed for successful cost recovery. Complex loss management prepares one's company with the processes and skills to rapidly develop, manage and present the information needed to support optimal economic recovery.
As stated earlier, traditional claims reporting and payment methods prove to be inadequate for complex or large events. The methods are too slow and do not focus on the business problem. Where 'catastrophic events' occur, companies must anticipate the insurer's or court's requirements well in advance so that they are ready to defend their position with comprehensive and credible information. Yes, catastrophic events will include September 11 but also such events as product recall or class action litigation.
Develop a phased plan
Although it is rare to be able to forecast when a catastrophic event will occur (severe weather sometimes excepted), or the precise nature of the event, we do know that they happen. It is therefore critically important to develop a plan in advance. If one does not exist - as is the case with many of those affected by September 11 - the first step should be to create and execute a strategy to recover associated losses. There are four key phases that need to be addressed:
- Consider complex loss management from a holistic perspective
- Develop the loss recovery strategy
- Initiate rapid mobilisation
- Organise to maximise loss recovery during implementation.
Consider complex loss management from a holistic perspective
Any potential delay in settlement or legal action will raise concerns among customers, employees or investors, and will consequently have repercussions for every branch of one's organisation. It is important to respond quickly and openly to stakeholders' concerns - and to do so responsively. These communications must also be mutually supportive. What one says to a business audience should not damage one's loss recovery position.
Maintaining a coherent public position will require close coordination between departments that may not traditionally work together. It will not, however, be enough to react consistently. The whole company will need to work together to take specific pro-active measures in order to maintain the confidence of stakeholders.
Develop the loss recovery strategy
It is important to set aside time for the strategy phase to review business areas at risk, seek the appropriate expert advice and formulate a comprehensive recovery plan.
Review business areas at risk
By reviewing the key areas of your business, it is possible to identify areas that are at risk from an extreme event. People, services/products, technology and assets are all areas where actions can be taken to minimise risk and maximise recovery. For example with people, it is possible to minimise risk by:
- Provision of clear succession plans
- Development of deployment scenarios given certain events
- Assignment of roles and responsibilities for loss recovery in the case of an event.
It is possible to maximise recovery by collecting more detailed information about personal benefits, dependents, time off and expenses due to personal injury, etc.
One's complex loss recovery strategy will need to review all of these areas and identify areas that are vulnerable to potential threats and look at innovative ways to reduce risk without raising costs, ideally before an event occurs. The review will also look at procedures to maximise the rapid recovery of loss following an event. If the review takes place after the event, the focus will be on maximising recovery rather than minimising loss.
Seek appropriate expert advice
One of the keys to being prepared for loss recovery is to ask the right questions of one's company. Staff will be better informed and able to formulate its loss recovery strategy by seeking advice from experts on insurance, litigation management and rapid IT deployment:
Insurance
- Insight to insurance claims process, complex loss valuations and loss exposure
- Support services in settlement negotiations and mediation strategy.
Managing for litigation
- Insight to financial services, leading to comprehensive data collection and analysis early in the process, is essential to being prepared to build an effective litigation case.
Rapid IT deployment
- Insight to definition and design of a system for secure data collection, analysis and reporting
- If required, detailed cost analyses for insurance claims, a full audit trail and simple querying for specific reports.
Advisors can be in-house or external. The important thing is that ther organisation takes time to think about who will provide these services. This will help one identify the areas to review in theorganisation to minimise loss and maximise prompt recovery.
Formulate a strategic plan
The output from the strategic phase must be a plan. A successful plan will contain the following essential elements:
Insurance
- Information requirements for insurance claims process and potential litigation
- A strategy to maximise cash flow
- Short-term tactics.
Managing for litigation
- A stakeholder and governance structure
- A loss recovery model
- A communication strategy
- Agreed resources, budget and timescales.
Rapid IT deployment
- Existing data sources and document retention capabilities
- Gaps between current requirements and those required for potential litigation.
The strategy phase should not be an exhaustive exercise and should be completed within a matter of weeks. The strategy plan should be a simple action oriented document that can be easily read and implemented.
Initiate rapid mobilisation
The purpose of this phase is to put the necessary infrastructure and processes in place. This ensures that appropriate information is captured so that it can be used to defend the company and maximise recovery. It is important this happens as quickly as possible to minimise losses.
For rapid mobilisation, the key insurance activities are to develop preliminary insurer claims pursuit strategy and to agree on undisputed claims with the insurer. At the same time, technology staff should be involved in defining the initial data model, developing analytics, reporting and delivering the data system. The project manager will assure rapid mobilisation of the project by managing stakeholder issues, identifying business change requirements, building the loss recovery model, setting up communications and establishing project controls.
Organise to maximise loss recovery during implementation
Managing loss is complex and variable, as it is often driven by external agencies and requires various services throughout its lifecycle. An approach that is balanced between flexibility and control enables a company to be responsive and quickly manage variable workloads, schedules and resource requirements. Communication with business stakeholders and the project team is fundamental to this flexible approach.
By organising the project appropriately, the project manager enables the various loss recovery activities to maintain their momentum. Insurance experts will continue to evaluate complex loss, analyse loss liability exposure, assist on claims submission as needed, and provide ongoing negotiation, mediation, and litigation advice. Technology staff produce special reports, collate data, input data and maintain the database. The project manager has the difficult task of controlling the project while remaining flexible and maintaining momentum, as these loss recovery activities may last for years.
A complex loss management approach ensures maximum recovery and tips the balance in favour of full economic health for the company as quickly as possible.
This type of proactive approach to planning for complex loss enables companies to overcome or significantly reduce the challenges some are currently facing following September 11.
To obtain rapid and maximum recovery, affected organisations need to establish a project team quickly, immediately seek expert advise on insurance claims and potential litigation issues and rapidly deploy flexible data management systems to capture all needed information - in order to defend the inevitable disputes that will arise over loss settlement values.
While no one wants the tragic events of September 11 to evolve into petty disputes over loss recovery, the sheer magnitude and complexity of this disaster have identified a gap in disaster recovery planning that for some requires immediate pro-active response - and for all the need to incorporate complex loss management planning into their overall strategy.
