1. Industry Issues Article – Looking at a Business Interruption Insurance topic.
2. MMCP profile – A brief profile of the MartinMinett Directors.
3. MartinMinett – A Brief Look at a Claims Topic - How to minimise issues with a "Property damage" claim and have it settled efficiently.

1) Industry Issues
BUSINESS INTERRUPTION INSURANCE CLAIMS - The Importance of the Adjustments Clause

In this issue we look at what is commonly known as the "adjustments" or the "trends" clause in a typical Business Interruption policy wording.

An example is shown below:

Rate of Gross Profit: The rate of Gross Profit earned on Turnover during the financial year immediately before the date of the damage Annual Turnover: The Turnover during the 12 months immediately before the date of the damage. Standard Turnover: The Turnover during that period in the 12 months immediately before the date of the damage that corresponds with the Indemnity Period To which such adjustments shall be made as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the damage or which would have affected the Business had the damage not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which but for the damage would have been obtained during the relative period after the damage.

One view is that the clause allows the claims preparer to change literally anything in order to estimate what "would have been" the loss of Turnover or Gross Profit in the preparation of the claim. An alternative view is that because the policy tells us how to prepare the claim, based on a formula, adjustments can only be made to those items or definitions within the adjustments clause which, in the case of the example above, are Rate of Gross Profit, Annual Turnover and Standard Turnover.

Which view is correct?
Well, the answer is a combination of both. A recent claim we prepared concerned a retail store, it was noted that the business had trended downwards by a factor of 15% in the year prior to the damage. The loss adjuster contended that this was a continuing trend due to the general downturn in retail trading.

In fact, the primary driver behind the downturn was that the shopping mall in which the store was located was being refurbished in the period prior to the loss, with restrictions in car parking spaces and general inconvenience in the mall itself. The refurbishments were completed half way through the indemnity period, and numbers of patrons visiting the mall returned to its pre-refurbishment levels. This return of customers was evidenced by the mall's foot traffic counts.

The store was part of a retail chain, and we compared turnovers of other equivalently sized stores with the damaged store. There was a strong pre and post loss correlation between the monthly turnovers of each of the stores, so much so that another store could act as a proxy for the turnover of the damaged store during the indemnity period by using the historical relationships of monthly trading results.

Therefore the expected trading of the store but for the loss was not prepared simply based on Annual Turnover and 'trend', it was based on the actual contemporaneous sales data from the proxy store.

While the true retail trend of the business was still negative, reflecting the general retailing environment, it was not as great as the historical trend of minus 15%. Using the actual contemporaneous sales data from the proxy store showed the underlying trend was really only minus 5%. The 10% differential was from the reduced number of patrons due to the mall's refurbishment, which was a "one-off" effect felt prior to damage. This was not a recurring event (or trend) and its impact was already factored into the Standard Turnover. This 10% 'adjustment' increased the claim by hundreds of thousands of dollars.

The claim fits neatly under the formula of the policy with appropriate adjustment. The trend applied has been derived so that its application under the formula will calculate a result which would represent, as nearly as may be reasonably practicable, the results which but for the damage would have been obtained during the relative period after the damage.

This example based on a real-life scenario illustrates the importance of the "adjustments" or "trends" clause in estimating a Business Interruption Insurance loss.

2) A brief Profile of the MartinMinett Directors
ROB MARTIN & PAUL MINETT

Rob Martin has gained a wide range of experience over 20 years in insurance accounting and insurance operations within the industry. In that time, Rob has worked as an external auditor of Insurance companies, in internal management for Insurance companies and was a Partner and Director for 5 years at MSM Loss Management specialising in business interruption insurance. In particular, Rob has experience in preparing claims with technical, legal and detailed insurance and accounting issues as well as the ability to negotiate favourable outcomes for business claimants.

Paul Minett has dealt with Insurance issues for companies both in internal management and as an external consultant over the last 25 years. Firstly, as a Financial Controller and then in the last 13 years as an Economic Loss Expert, Paul has used both his technical and modelling skills on detailed projects for clients to ensure they achieved the best outcome. For 12 years, Paul was with MSM Loss Management and for 5 years was a Partner and Director. Paul has specialist experience in preparing and settling claims in all business sectors and in particular for retail, food and beverage, logistics and mining and metal processing industries.

Over the last decade, Rob and Paul have managed the preparation, lodgement and the resolution of insurance claims for a diverse range of clients ranging from multinational companies through to middle market businesses. They have also liaised with senior counsel and solicitors and compiled expert reports on quantum of loss claims for mediation and litigation matters.

3) MartinMinett – A Brief Look at a Claims Topic
HOW TO MINIMISE ISSUES WITH A "PROPERTY DAMAGE" CLAIM AND HAVE IT SETTLED EFFICIENTLY.

We have been asked a number of times to give advice as to what business clients should do so that their 'simple' property damage and increased costs claim can be settled as efficiently as possible.

Here are seven quick tips:

1. Notify your Broker as soon as possible – they can then decide from the outset (and before issues arise) whether external claims assistance is needed.
2. Protect asset(s) from further damage. Implement Disaster Recovery Plan (DRP)
3. Isolate damaged area and separate damaged asset(s) from undamaged asset(s). Keep photographs as evidence of incident. Write some brief notes at the time of the incident: (timeline).
4. As soon as practical, list all Property, Stock & Contents damaged.
5. Retain any piece of equipment or property which may be the cause of the incident.
6. Setup an account or cost centre to record all costs related to the Insurance claim – if in doubt include it – later on it is easier to review and remove items than have to go back and search through all invoices since the date of the incident.
   These costs should include:
   a) Details of Additional costs associated with meeting contracts (e.g. customers and suppliers commitments);
   b) Details of Additional costs associated with meeting regulatory requirements;
   c) Details of costs for rental machinery/premises; if applicable;
   d) Details of any other costs associated with cleanup or other increased costs consequent to the incident
7. Obtain Rectification detail including:
   - Quotations for reinstatement of damaged asset(s).
   - Quotations on salvage value of asset disposals (if any).
   - Scope of Work detailing whether asset(s) damaged are to be repaired or replaced, clear agreed timeframes and cost of repair or replacement.

Finally, take the relevant information from the 7 points above and have the claim prepared so that it is supported with adequate detail to enable efficient settlement.

MARTINMINETT
OUR SERVICES - Claims Preparation

MartinMinett Claims Prep assists brokers and their business clients to prepare material damage and business interruption claims. Its principals, Rob Martin and Paul Minett, have assisted many clients to ensure they receive the full claim entitlement from their insurance policy. MartinMinett Claims Prep helps to minimise disruption and works to save time and money for the client and the broker.

Generally claim preparation costs are covered under the business client's policy and therefore at no cost to your client they receive a financial and service benefit. In addition the broker saves time and cost while still keeping control of the claim process by using the services of MartinMinett Claims Prep. A real win/win/win scenario.