Navigating claims in international programs - part 4: keeping your business running, financials and cash flow

_{We’ve been investigating claims best practice for international programs, gathering insights from across our network of partners and our own team. These include claims handlers, brokers, loss adjusters and coverage lawyers. This series of articles covers practical information and useful tips on how you can address the issues that may arise in the reporting, handling, and settlement of cross border claims. You can read the next article in the series here.}

In our previous articles, we've discussed what to expect from different legal jurisdictions, how to navigate international norms and how to prepare for a claim. But what should you do to keep your business running when you have a live claim?

"Ultimately all parties involved, the client, the broker and the insurers, want the same thing. We just want the customer back up and running as soon as possible and back to business with minimum impact on company performance," explains Brendan Fahy, Director, Commercial Risk Solutions at Aon.

For many customers, business recovery is often as important as the financial compensation for the losses they experience.

According to Jon Jones, our Property & Engineering Claims Lead in the UK, "It’s about understanding how your business works and how you respond to an incident, rather than not. If you've got that continuity and you understand how your business works, it works. It's not about numbers on a balance sheet and what your insurance policy will pay, it's about how well your business reacts to that issue."

"What you find is the maturity of an insurance policy for an international program business certainly in manufacturing/financial sectors, but not exclusively. Those type of businesses don't tend to insure business interruption in the same way as they used to."

"Yes, revenue and profit are important, but often they are more interested in how to get their business functioning as quickly as they can, without any consideration for how much that might cost and mitigate its reputational damage. This then has a tendency to focus sufficient policy cover on the business interruption extensions such as extra expenses and additional increased costs of working."

Customers that are unable to trade and/or to fulfil orders are vulnerable in the short, medium and long-term:

• In the short-term, they can lose contracts and potentially customers to their competitors.
• In the medium-term, they may have to deal with the double hit of the costs of business recovery and falling revenues during the recovery period.
• In the long-term, they may experience loss of reputation and market share and may even find their business viability called into question.

As a leading international program insurer, we put customers first and at the centre of everything we do. We know that how a claim is handled can be as important for customers as the outcome itself. Claims handled well show that the parties are working well together, build trust and confidence between customers and insurers, and foster what will hopefully be a supportive long-term relationship. Ideally, such relationships are built up before a loss occurs.

Customers value a relationship with a nominated claims professional who oversees the management of their claims and is the primary contact to guide them through the end-to-end claims management journey.

"There has to be an appreciation that most of the time our end client doesn't need to understand the intricacies of insurance until something goes wrong and a loss occurs. It can be exhausting running an insurance claim at the same time as keeping your business going, it's not your norm," says Brendan Fahy from Aon.

"Transparency in the claims approach is critical to a good outcome. For example, if you were planning something for a site that has now suffered a loss, then telling us about it will make everything a lot easier," adds Jon Jones.

Aon's Brendan Fahy told us, "clients should tell their brokers and insurers about cash flow issues as far ahead as possible of them occurring. If you need an interim payment, or you've got a specific cash flow milestone, then tell us about it, so we can work towards it. If you know you’re going to be under pressure in the next business period, let's know about it so we can actually start filling some of that financial deficit. Only if we’re informed in advance can we then start actively working on a solution."

On a first-party property loss, we will issue interim or advance payments in a timely manner after receipt of our adjustment loss estimate. We can make additional funding available, where requested by the customer, to help minimise any disruption to the business.

For major claims, the insurer and the customer working collaboratively on opportunities for loss mitigation can significantly improve the outcome for both parties.

Ian Hasson, Director Financial Risks, Europe Middle East & Africa at Sedgwick International, told us, "There may be cost advantages to concentrate production of certain products in one location (or fewer locations), but on the other hand that does bring with it certain risks, in terms of resilience of the organisation to deal with any unforeseen events.

"Certainly, I think this should be a factor within the business’ continuity planning, in terms of considering what the concentrations of risk are and how that can be mitigated at a reasonable cost for the organisation."

A great example of this in action comes from William Wilson, Head of Major Loss (Ireland) at McLarens.

"One of the best examples I've seen had a really proactive client who took steps to mitigate losses and keep the business running. They were a global firm based in the UK, and they were facing a potential gross profit loss of around £12 million.

"They took lots of steps to mitigate loss and to push production out to other sites. They recommissioned mothballed machinery and moved in raw materials from other territories. They purchased partially finished goods and moved them elsewhere in Europe for final processing and their logistics team figured out which customers had to go front and centre of the queue, and ensured efficient management of buffer stock.

"And what came out of that was there was no claim for revenue loss, it was purely increased cost of working at roughly about 20 or 25% of what we saw as the gross profit originally at risk."

We believe from our experience of handling claims on international programs that supporting customers’ revenue streams and cash flow will continue to be a critical objective for insurers. Businesses trading predominantly on online platforms risk a major loss of confidence and of business if their platforms are down for a matter of minutes. And in this online environment, their customers may find an alternative supplier or service provider and consequently never come back.

Equally, prioritising and implementing the right loss mitigation measures can substantially reduce customers’ losses from claims events, and help them to recover as quickly as possible. During our customers’ business recovery, we are committed to listening to and supporting our customers’ financial and cash flow needs in any way that we reasonably can.

Read more articles in this series

Part 1: Global claims for global risks
Part 2: Legal systems and jurisdictions
Part 3: Managing claims across cultural and geographical barriers
Part 5: 5 tips for best practice for managing global claims

 A special thanks to some of the experts in our network who shared their insights for this piece:

Brendan Fahy, Director, Commercial Risk Solutions at Aon.
Ian Hasson, Director Financial Risks, Europe Middle East & Africa at Sedgwick International.
William Wilson, Head of Major Loss (Ireland) at McLarens.

Readers should form their own opinion on the topics described and not rely on the information provided in this article. Though collected with due care, Swiss Re does not accept any responsibility for completeness and accuracy of the information provided.