In the aftermath of Hurricane Maria in 2017, I observed that a common figure in the claims process, the risk manager, was rarely present in the Puerto Rico insurance market. In most cases, the owner of a business didn’t invest in risk management but passed the work on to the broker at the time of buying a policy. For other businesses, something was presented once a year for evaluation among the partners or with the broker. Additional and very valuable coverages were often not purchased. For this reason, businesses were caught off guard with coverage that, in many cases, didn’t allow for a full recovery.
The main complaint of brokers in Puerto Rico is that clients are only concerned about price and don’t take the time to evaluate the benefits of certain coverages or provide adequate information to prepare an effective policy. If this is the case, owners suffer devastating losses when tragedy strikes. The economic situations both before and after Maria weren’t the best, but with a little planning, I believe many policyholders would’ve been in a better position to face the damages that Hurricane Maria brought to the island.
The Role Of The Risk Manager
A risk manager is a person who translates the specific needs of the business into the reality of coverage under the insurance policy. They become the conscience of the entrepreneur in all long-term decisions regarding the risk the owner of the company is willing to acquire. Insurance policies are annual, but risks change several times each year with the company’s growth and definition. As changes such as equipment purchases, service increases or employee hirings are made, the level of risk must be reevaluated and policies adjusted accordingly.
In these uncertain times with so much exposure to internal, external and global risks, the risk manager is that trusted person who protects a business by defining policies before problems occur.
Risk Management In The Business Sector
In my opinion, a lack of preventative risk management practices in Puerto Rico was exposed after Hurricane Maria. The most prevalent problem centered around poorly valued buildings. Many structures were valued based on what was owed to the bank and not on what it would cost to replace them. Current valuations were non-existent.
A variety of buildings, regardless of size, location or use, were given the same percentage of value. Policy conditions weren’t suitable for certain business models, and many owners bought the cheapest options available to them. Many on the island were negatively impacted by leaving portions of their businesses uninsured. Building extensions, premises and machinery were inadequately covered, if at all. There was no protection against loss of income, building code cost increases or flood damage.
Some business owners were sold policies with coinsurance provisions that most of them didn’t understand that was going to have a major impact on their claims by lowering the values of their buildings.
Improving Claims For The Insurer
Substandard policies that don’t offer the coverage owners “assume” they’re getting are a big problem in our industry. A risk manager can see the gaps in coverage simply by reviewing the policies in advance of any claims.
Risk management options include:
• Using the help of a broker: The owner can take on the work of preparing biannual evaluations and meeting with the broker to discuss them. When a company is complex and requires many decisions on protection, this avenue may be inadequate.
• Hiring an in-house risk manager: While this route can be very effective, some businesses won’t be able to afford it and will have to look at other options.
• Outsourcing a professional risk management company: This option could lower payroll costs and primarily ensures that your company can gather the information needed and meet the requirements to help your broker improve upon premiums and coverage and provide your business with the right risk strategy and protection.
An action plan must be in place before any loss occurs. A thorough asset appraisal combined with proper documentation relieves the pressures of unforeseeable events and makes claims easier both for the insured and the insurer.