When it comes to catastrophes, few industry segments present the claims complications offered up by large retailers.
Whether it’s so-called “big box” stores in smaller strip malls (typically 2-3 retailers in a single location), large anchor stores in mega-malls or the smaller retail chains in those same malls, retail cuts a wide, complex swath across North America. Aside from complex property issues, retail inventory offers everything from build-it-yourself furniture to kitchen towels, with literally hundreds of thousands of consumer products being sold in-between.
Geographically, retailers naturally are everywhere, from large metroplexes congregated along the coasts to Middle America locations, both urban and rural. When a hurricane devastates a highly populated coastal region, for example, retailers not only suffer their own losses; they also often no longer can offer goods to people in dire post-catastrophe need.
For experienced claims professionals like Chris McCoy, an Executive General Adjuster (EGA) with Engle Martin & Associates, a leading national independent loss adjusting and claims management provider headquartered in Atlanta, Georgia, handling large retail claims naturally mirrors the complexity of the business segment.
“Retail CAT claims typically can have a wide range of issues,” said McCoy, who has been with Engle Martin for 18 years, since the company launched. Due to that complexity, he added, close coverage interaction with underwriters is very important for adjusters.
“Most of all, familiarity with all the nuances of the retail industry and deep experience is critical,” he said. “The main thing for retailers is to reopen their stores as soon as possible, which can often mean the difference between losing customers and retaining customers. Job number one is to re-open as quickly as possible.”
While that desire to get back to business is understandable, an EGA often has to temper that enthusiasm because it can be challenging to identify all of the potential damages and responsibilities of property owners and tenants, especially any that could turn into a long-tail claim. As a result, early in the process there could be conflicting objectives between a store manager or regional manager, who are graded by sales data, and corporate risk managers, who have business interruption coverage in place and would rather ensure that the claim is adjudicated thoroughly. It’s often up to the Engle Martin EGA to serve as a mediator in those situations.
McCoy says the ideal starting point for retail claims post-catastrophe is the lease, because most retailers do not own the buildings they occupy. Engle Martin EGAs like McCoy must quickly determine who the contractor will be, for example, because it might not be the same for the retailer and the building owner. Also, if major repairs are required inside the building, sorting it out between the retailer and the landlord can get complicated.
“You can have quick agreements, but sometimes how the building is restored can be an issue,” he said. “You might even have a failure to mitigate by the building owner, so the retailer can be held back from opening in a timely manner. If you have severe enough damage, in fact, some policies can even allow the retailer to relocate in order to reopen as quickly as possible.”
According to McCoy, retail CAT claims can be one-off assignments from carriers or more likely accounts whereby Engle Martin already enjoys a long-term relationship and has a special account adjuster on the case. Perils run the gamut from flood only, flood and wind, utility or service interruption. Often in very large disasters such as Hurricane Katrina and Hurricane Sandy, for example, it also helps for the claims adjusting company to enjoy a positive relationship with civil authorities (so access is available), experience that Engle Martin can offer.
When a catastrophe strikes, McCoy and his Engle Martin colleagues identify every one of the client’s retail locations involved and put a team together to triage initial needs. Next, the Engle Martin team focuses on those locations and determines the extent of damages, both short and long-term.
“If a hurricane hits multiple states, we have to be sure to get a good sense of every bit of damage data,” he said. “That means creating a ‘funnel’ through which all the data flows into a single database.” On one large account recently, for example, there were 60GB of documents generated during the claim adjusting process.
On the inventory replacement front, McCoy explains that in retail losses, carriers provide coverage for the stock either by actual cost or selling price. If it is by selling price, the insurer pays the claim dollar for dollar. However, if the retailer has cost coverage plus business insurance coverage, then the adjuster needs to consider net income on cost of inventory to pay claims, a more complicated process.
To get there, Engle Martin often uses the services of forensic accountants, especially on large losses, to assist in the analysis of that income either via selling price or cost, along with new income losses.
Another key aspect of the Engle Martin retail strategy is to handle every account via the firm’s signature account team approach. If McCoy has an account with 50 locations, the plan will be sure to obtain schedules for all locations in harms way prior to a hurricane or other forecast-based catastrophic event.
“We pride ourselves on internal sharing of information and coordinating those initial inspections, and the earlier we can get on the scene to commence our inspections, the better,” he said.
For brokers and risk managers on whose behalf account adjusters are involved, it’s very important having adjusters in the field as quickly as possible after catastrophe strikes. By being there in advance of the storm, for example, Engle Martin will know what to expect as soon as the storm hits. That way, they can also get out there even before the claims start pouring in.
“If we are not there in advance, we may miss two or three days of assessment time. Our approach is to start looking at the potential claims immediately,” he said. “We believe it’s a true competitive advantage with our retail clients and their brokers.”
For more information about Engle Martin’s Executive General Adjusters, visit www.englemartin.com.