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Getting O&P Companies Up and Running after Katrina: Why Does the Insurance Response Seem So Slow?
By Miki Fairley "Many of you are seeing in the national media that
things are getting back to normal in New Orleans and surrounding
parishes. Nothing could be further from the truth...my in-laws' old
home is now only a slab and a few bricks.... FEMA trailers are
beginning to dot the landscape, but most are still not hooked up
for use...a grayish-brown line marks the water height just below
the roof of our old home. That water sat in the house for nearly
three weeks. What could be saved after that?... As we drove to the
Lake View area...we passed an old friend's restaurant. The sign for
the inspection of bodies here had to be placed on the roof of his
building since the water was so deep.... Thousands of homes in this
area are beginning to crumble."
 This heart-wrenching account was posted on the
OANDP-L listserve by Rick Parr, CPO, FAAOP, owner of Parr
Prosthetics Labs Inc., Slidell, Louisiana.
A post from Dawn Hill, BOCO, CPed, of J.J. Hill Brace and Limb
Co., Gulfport, Mississippi, echoed his account. "People keep asking
us if things are being rebuilt yet, and the answer is that things
are just starting to get cleaned up. The coastline from Waveland to
Pascagoula is totally flattened for blocks...they are still finding
bodies under debris...Our business of 51 years was destroyed in
Katrina, and although we are rebuilding, we won't be open for
another three months still. That's three more months of no
salary...Although spirits are down, we are hopeful. We are very
appreciative of all those who have extended a helping hand in this
time of crisis."
The O&P community has responded overwhelmingly to help
fellow business owners, professionals, and patients. For instance,
offers of help poured into the online "Hurricane
Response: O&P Communications Center (OPCC)" set up to link
those needing help with those offering assistance. Help included
employment offers for displaced professionals, offers of facility
and office space, assistance for patients of displaced
practitioners, and offers of products, equipment, and supplies. The
online center was sponsored by the American Academy of Orthotists and Prosthetists
(the Academy), the American Orthotic & Prosthetic Association
(AOPA), and the American Board for Certification in Orthotics and
Prosthetics (ABC). The site also could be accessed from the Amputee
Coalition of America (ACA) website and oandp.com
No Quick Fixes
But as the above descriptions of the devastation still remaining
as of press time show, there are no quick fixes.
Heeding the wake-up call, advice now abounds on preparing
companies for catastrophes. For instance, there are workshops and
seminars, such as the Academy's planned workshop on "Preparing Your
Company for Disaster" at its Annual
Meeting March 14, magazine articles (including in The
O&P EDGE), and advice on restoring equipment and repairing
other flood damage on AOPA's online "Hot
Issues in O&P."
Getting Insurance Claims Paid
Some O&P facility owners have said that they have had
difficulty in getting insurance claims paid related to Hurricane
Katrina. Of course, O&P business owners are insured by several
different companies. However, to understand the overall insurance
situation regarding O&P and insurance coverage related to
hurricane losses, The O&P EDGE spoke with
representatives of two companies which specialize in O&P
services. They are Jim Graff, vice president, JLT Services, and his
colleague Jim Schmidt; and Jeff Michalenok, president, Cailor
Fleming Insurance. Both Graff and Michalenok noted that relatively
few of their clients were impacted by Katrina, and that even then,
the damage was not as catastrophic as it could have been.
Claims Adjustment Can Be Complex
Insurance coverage can be complex in any case, and in big
area-wide disasters such as Katrina, it can become more so. Package
insurance policies for business owners generally do not include
flood insurance; separate coverage is needed for this, and if a
business is located in a flood zone, flood insurance can be
obtained only through the federal government's National Flood
Insurance Program (NFIP).
Thus, in a situation involving both storm damage and flooding, a
question for claims adjusters is: what damage is attributable to
the storm, i.e., structural damage and broken windows from high
winds, falling branches, etc.--and what is due to flooding. For
instance, if hurricane winds topple a huge tree over your building,
collapsing the roof, and rainwater pours in, insurance would cover
it. But water being pushed up the street from a storm surge is
considered "flood" and is not covered.
The claims adjusting process can be very complicated, Schmidt
pointed out. He stressed, "No two claims are ever alike. What the
person across the street got doesn't mean you are going to get the
same amount. Your damage could be entirely flood-driven, while in
his case, the roof blew off first, and the damage was caused by
wind coming through the roof. So he may get coverage and you may
not." Schmidt noted the complexity of the adjusting process is
compounded by New Orleans and parts of Mississippi being below sea
level.
Determining Income Loss
Even more complex are business income loss claims. Explained
Michalenok, "Business income losses are probably one of the most
difficult claims to adjust because they become more of an
accounting type of loss than anything else. The insured is required
to provide a snapshot of the business for that period of time, so
that the forensic adjuster can see what they were doing in the same
quarter of last year. It would then be reasonable to figure that
they would be doing the same amount of business this year. So there
is a lot of documentation that needs to be done."
Noting that physical damage is much easier to assess and adjust
than loss of business income and related areas, Graff agreed that
documentation is vital. "You're going to be looking at historical
information; there are going to be accountants sitting down and
comparing notes. The insured needs to know clearly what the policy
covers relative to gross and net income loss, so there is not an
unrealistic expectation on how much of this will be covered."
Business income losses sometimes take months, or even years, to
finalize, he added. "For instance, a friend who is an attorney told
me that he was still adjusting and involved in final settlements
for claims going back to damage from Hurricane Ivan in September
2004."
In widespread catastrophic events, insurance coverage may differ
somewhat, as compared to a single event happening to one company
which destroys or causes major damage to its building and
subsequent revenue loss if the business shuts down for a time
period. For instance, most policies don't cover downed utility
power lines off premises and the resulting loss of electrical power
forcing a business to shut down. However, Graff mentioned that JLT
Services does include on-and-off-premises power interruption in its
business owners' package. When a substation goes down and a whole
section suffers power outage, there is a standard waiting period,
72 hours, before an adjuster can start figuring business income
loss.
On the positive side, some package policies cover related
expenses, such as, say, a secured storage locker to contain
equipment while a building is being repaired or rebuilt.
The lesson: Know your policy and what it covers.
What else can a business owner do to get his business quickly up
and running again after a disaster?
- Have a solid catastrophe management plan in place--don't rely
100 percent on your insurance to get you speedily back in business,
said Graff. Some claims are complicated to adjust and resolve, plus
widespread disasters can simply inundate insurance companies,
slowing the claims adjustment and payment processes.
- If you feel your claim is not being taken care of promptly
enough, call your agent and/or your broker. "The insured always has
the option to report these claims directly and to deal directly
with their agent's broker," Graff said. "If you don't communicate
with us and let us know that there is a problem, we can't help
you." Sometimes the problem perceived by the insured revolves
around needed documentation. "We need copies of your receipts,
proof of loss, and similar information--this is standard
procedure," Graff noted.
Schmidt added, "It is very important to have a dialog with your
broker and to listen to what he is telling you; he's not asking you
to fill out forms just for the sake of paperwork."
- Back up your computer business data, Michalenok urged. "Keep a
copy of your computer business management system and data off
premises, so that if a disaster occurs, you can pop the program
into a new computer, and there you go. You may have lost a day, a
week, a couple of weeks, but at least you have a fairly accurate
snapshot of what has been going on with your business. That's
probably the best advice that we could give anybody."
What about the Future?
What do the past couple of years of disasters, including the
record-breaking 2005 hurricane season, mean for insurance companies
and their clients?
"JLT is taking a proactive role as we try to bring additional
risk management opportunities," said Graff. "One aspect emerging
from the hurricane season is there will be more choice. Insuring
companies will examine accounts more thoroughly than perhaps they
did in the past, but that is a good thing, since accounts that
before would probably not be renewed will receive some deductible
options."
At press time, insurance companies had been renegotiating
contracts with their own insurance companies, called "reinsurance,"
discussing terms for the next 12 months, effective January 2006.
"Most reinsurance contracts renew at the first of the year,"
Michalenok explained. Factors include policy language, accounts in
coastal states, and other factors. Insurers are looking at the
possibility put forth by some meteorologists that the country may
be in a several-year cycle of increased major storms. Michalenok
noted that when Hurricane Andrew ripped through Florida in 1992, it
put about ten regional insurance companies out of business. At this
point, though, they are not expecting big rate increases, according
to both Graff and Michalenok. However, depending on if they are
located within a high-risk area for certain types of major damage,
companies may need to obtain separate policies in the future for
such hazards as wind damage, hail damage, and even mold, as well as
the customary separate flood and earthquake policies, Graff
noted.
Prepare Now
The lack of preparation in the face of an unprecedented
hurricane season, especially Katrina, has served as a wake-up call
for business owners, as well as the general population. Resulting
has been a proliferation of sound advice on how to best prepare
your business for possible catastrophe. Now it's up to individual
business owners to start implementing plans that best work for
them--before disaster strikes.
Table Of Contents - February 2006
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