Preparation is key
How would your organisation respond to a business interruption?
It's important that organisations have
a well-designed and comprehensive insurance program that meets their specific needs.
By completing a thorough review of your
insurance contracts and coverage, it can
enable organisations to see what planning and preparation needs to take place. An
insurance health check often involves a review of the relevant declared values, policy triggers and coverage, periods of
indemnity, limits of liability, key sub-limits
and overall policy wordings.
What's concerning is that many businesses
do not appreciate that their insurance may
not be appropriate and will fail to transfer
risk as expected. As an example, this can
occur if businesses consciously decide to
insure below the full replacement value of
assets to save on insurance premiums, or
because they think a disaster could never
happen to them.
Many businesses actually believe they
are adequately covered, until of course
it's too late. The whole purpose of business
insurance is to put you in the position
you would have been if the damage had
Knowledge and understanding
"A good litmus test to ensure your cover is adequate is - how would
your organisation respond to a major
interruption that caused your business
to stop trading?" says Luke Stratford,
Principal - Risk Accounting, Aon Global
Risk Consulting. "Are you confident that
you would receive the right insurance
recovery from insurers, based on the
existing business interruption figures
supplied to your insurer?"
Having the right business insurance is a good start, however when a loss
occurs the insured is required to prove their loss, a significant challenge as
a result of having to meet specific
insurance industry requirements.
In such a 'post loss' situation it is crucial
that the insurance claim is prepared
accurately, utilising the full extent of the
insurance coverage, and submitted to
insurers in a timely manner, to ensure cash flow is protected and the business
is restored to 'normal trading' as soon
To assist with this process Aon
Risk Accounting's team of forensic
accountants help clients understand
their business interruption exposures
better, to address these exposures
effectively and efficiently, and when
a loss occurs, are available to assist
with the timely and accurate preparation
of the insurance claim.
The following DuluxGroup case
study highlights these services
DuluxGroup is a manufacturer and marketer
of products that protect, maintain and
enhance the spaces and places in which
we live and work.
From household rooms transformed by
the latest designer colours, to the ripe
tomatoes in the garden, to the coatings that
protect landmarks, such as the Sydney Harbour
Bridge; DuluxGroup products are at work.
DuluxGroup brands have been woven into
the fabric of the communities where we
operate, helping consumers to live better
and more comfortable lives.
Consisting of four business segments,
DuluxGroup employs approximately
2,500 people in Australia, New Zealand,
Papua New Guinea, South-East Asia and China.
Following the demerger of DuluxGroup
from Orica in 2010, the separate listing of
DuluxGroup presented challenges in relation
to the placement of the Property Damage and
Business Interruption insurance.
DuluxGroup was moving from a very large
global insurance program incorporating
hundreds of sites and thousands of assets
to a standalone program incorporating
approximately 100 locations.
Preparing for life post de-merger, the
challenges in relation to the Property
and Business Interruption program were
to maintain the coverages and insurance
premium spend. In order to achieve this it
became imperative to understand the risks
involved and then to structure a tailored
program that provided appropriate limits
and breadth of coverage - at a Total Cost
of Insurable Risk that was acceptable to
In consultation with the expertise of the Aon
broking team, Aon identified a framework
to identify the risks for the renewal
incorporating valuations, physical risk
surveys and a business interruption review.
In particular the business committed to
building a model, in collaboration with
Aon Risk Accounting, which quantified
the potential business interruption loss
exposure, based on a Maximum Foreseeable
The main objectives were around maintaining
cover, preventing unintended retentions - as well as avoiding volatility in cash flow,
balance sheet and share price valuation.
Less than six months after the placement
of the property and business interruption
insurance policies, the Queensland floods
severely damaged DuluxGroup's main paint
production plant at Rocklea in January 2011.
During the incident the flood water levels
reached a height of two to three metres
across the Rocklea production site. The
ground floor of the office building, the
lower factory level and the lower levels of
storage in both the raw materials store and
distribution centre were water-affected.
The damage was primarily confined to plant
and equipment, fit out, work in progress
and stock on hand that suffered immersion - whereas the structural integrity of the
buildings and warehouse was sound.
The upper floor of the factory, which is
where the majority of paint manufacturing
takes place, was not water-affected, and
more than 80 per cent of the stock in the
distribution centre was useable. However
the site still had no external power and the
internal power distribution infrastructure
had also been affected by the floods.
The DuluxGroup project management team
were involved in the clean-up of debris,
as well as reinstating salvageable mechanical
equipment and distributing power to
Aon mobilised its resources including
broker, placement, claims and Risk
Accounting (Aon's own forensic accounting
practice), to advise on coverage, loss
mitigation and complex claim preparation.
The Risk Accounting team were on site
when access to the damaged site was
authorised. The team immediately went to
work to prepare a claim reserve, define a
claim process, locate the data that needed
to be captured and to identify the people
and resources required to proactively
prepare the business interruption claim.
Through the claim preparation process
regular progress claims were submitted to
insurers to ensure that the cash flow needs
of the business were being addressed, and
that significant mitigation steps were being
undertaken, funded through the insurance
The business interruption model built for
the purposes of renewal was used as the
basis for the claim recovery template.
Aon provided strategic policy advice in
negotiations with Insurers, including the
knowledge and strong industry relationships
of Aon's Chief Claims Officer, Mark Ronan.
The work of the Claims team included:
- Attending meetings with the Insured
(DuluxGroup) on a regular basis
- Delivering multiple progress payments
to fund business
- Working with the Insured to meet its
reporting deadlines and confirmation
of recoverable proceeds from insurers
for financial year end
- Supporting the funding of loss
- Taking a pragmatic approach to
resolving the claim, including
- Management of disparate
insurance panel to avoid fracture
and unnecessary delay.