Leadership, Knowledge, Solutions…Worldwide. CLR Underwriting / Claims Management Meeting Deb Gallagher, CPA, CFF, FCPA Jeb 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 Preparedness Insurance and FEMA Claim Lifecycle Phase 2: Scope of Damages Phase 1: Emergency Response Phase 3: Prove Up and Support Phase 4: Settlement and Closeout Claim Management and Preparation

Phase 1 Pre-Disaster Emergency Response Planning

Marsh—Leadership, Knowledge, Solutions…Worldwide. 4 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 Insurance Team and FEMA Accounting Purchasing Facilities Outside Contractors

Marsh—Leadership, Knowledge, Solutions…Worldwide. 5 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 Two Pre-Disaster Scope of Damages

Marsh—Leadership, Knowledge, Solutions…Worldwide. 7 Phase 2: Pre-Disaster Scope of Damages Establish 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?

Marsh—Leadership, Knowledge, Solutions…Worldwide. 8 Establish Claim Protocols - Equipment Claim Process/Protocol Sample

Marsh—Leadership, Knowledge, Solutions…Worldwide. 9 Sample Damaged Equipment Reporting Form

Marsh—Leadership, Knowledge, Solutions…Worldwide. 10 Phase 2: Pre-Disaster Scope of Damages Building 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 Three Pre-Disaster Prove Up and Support

Marsh—Leadership, Knowledge, Solutions…Worldwide. 12 Phase 3: Pre-Disaster Prove Up and Support Suggested 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; and e.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.).

Marsh—Leadership, Knowledge, Solutions…Worldwide. 13 Phase 3: Pre-Disaster Prove Up and Support Suggested 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); and d.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.

Marsh—Leadership, Knowledge, Solutions…Worldwide. 14 Phase 3: Pre-Disaster Prove Up and Support Debris 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 15 Phase 3: Pre-Disaster Prove Up and Support FEMA’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… FEMA Cost Share Program

Marsh—Leadership, Knowledge, Solutions…Worldwide. 16  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 Support Public Assistance Planning and Considerations  Future public assistance will be jeopardized if adequate insurance coverage is not “obtained and maintained”

Marsh—Leadership, Knowledge, Solutions…Worldwide. 17 Phase 3: Pre-Disaster Prove Up and Support Special 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 4 Pre-Disaster Settlement and Closeout

Marsh—Leadership, Knowledge, Solutions…Worldwide. 19 Phase 4: Pre-Disaster Settlement and Closeout Special 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 2 Disaster Recovery

Marsh—Leadership, Knowledge, Solutions…Worldwide. 21 Disaster Recovery Insurance and FEMA Claim Lifecycle Phase 2: Scope of Damages Phase 1: Emergency Response Phase 3: Prove Up and Support Phase 4: Settlement and Closeout Claim Management and Preparation

Marsh—Leadership, Knowledge, Solutions…Worldwide. 22 INSURANCE POLICY NFIP, FLOOD INSURANCE FEMAFEMA EXCESS PROPERTY POLICY Insurance Coverage and FEMA Overview DEDUCTIBLEDEDUCTIBLE

Marsh—Leadership, Knowledge, Solutions…Worldwide. 23 Navigating the FEMA Claims Process Sequence of Events

Phase 1 Post-Disaster Emergency Response

Marsh—Leadership, Knowledge, Solutions…Worldwide. 25 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 26 Phase 1: Post-Disaster Emergency Response Example 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 PhasePermanent Repair Phase Insurance Claim In Process and On-Going

Marsh—Leadership, Knowledge, Solutions…Worldwide. 27 Phase 1: Post-Disaster Emergency Response Who 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 Emergency Management (Grantee)

Phase 2 Post-Disaster Scope of Damages

Marsh—Leadership, Knowledge, Solutions…Worldwide. 29 Phase 2: Post-Disaster Scope and Damages FEMA 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 necessary Cost Work Facility Applicant Phase 1 Phase 2

Marsh—Leadership, Knowledge, Solutions…Worldwide. 30 Phase 2: Post-Disaster Scope and Damages Building 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 31 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 32 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.)

Marsh—Leadership, Knowledge, Solutions…Worldwide. 33 Phase 2: Post-Disaster Scope and Damages FEMA 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 3 Post-Disaster Prove Up and Support

Marsh—Leadership, Knowledge, Solutions…Worldwide. 35 Phase 3: Post-Disaster Prove Up and Support Claim 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 36 Phase 3: Post-Disaster Prove Up and Support FEMA 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 37 Phase 3: Post-Disaster Prove Up and Support Why 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 38 Maintain records for at least three years after closeout Undocumented eligible expenses will not be reimbursed! Phase 3: Post-Disaster Prove Up and Support Why Documentation Is Important

Marsh—Leadership, Knowledge, Solutions…Worldwide. 39 Phase 3: Post-Disaster Prove Up and Support Management 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 4 Post-Disaster Settlement and Closeout

Marsh—Leadership, Knowledge, Solutions…Worldwide. 41 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 42 Phase 4: Post-Disaster Settlement and Closeout Communication Is Critical Effective communication and teamwork help minimize conflicts during the claim recovery process and help achieve a superior recovery

Marsh—Leadership, Knowledge, Solutions…Worldwide. 43 Phase 4: Post-Disaster Settlement and Closeout Time 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

Marsh—Leadership, Knowledge, Solutions…Worldwide. 44 Phase 4: Post-Disaster Settlement and Closeout Closeout Flowchart

Marsh—Leadership, Knowledge, Solutions…Worldwide. 45 Questions? Debra Gallagher, CPA, CFF, FCPA Marsh USA, Inc. FACS Practice - FEMA Project Leader Marsh Risk Consulting Jeb McPherson, CPA, CFF, FCPA Marsh USA, Inc. FACS Practice - FEMA Project Leader Marsh Risk Consulting

Marsh—Leadership, Knowledge, Solutions…Worldwide. 46 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. MA

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