In The Public Eye: Using Insurance and FEMA for Catastrophic Claims
Frank Russo, Imperium Consulting Group, joins Carleen Patterson in preparation for hurricane season to discuss the preparation and claims process for public entities after disaster strikes. The two examine best practices for preparing and submitting a claim, including the use of FEMA.
Welcome to the Alliant In The Public Eye Podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here is your host, Carleen Patterson.
Carleen Patterson (00:17):
Welcome back, everyone, to another episode of In The Public Eye. The insurance and claims environment is very complex and there's a lot of nuances in policy, language and events that can impact multiple parts of your insurance policy. You add FEMA into the mix and the claims process can be overwhelming, especially for folks who don't handle catastrophic claims very often. So, we want to tackle this subject today on how best to handle catastrophic claims and how your insurance policy and FEMA can work with each other, or not work with each other as the case may be. So, today I've invited Frank Russo with Imperium Consulting to join us to discuss catastrophe claims services, FEMA and how Imperium can help. So Frank, thanks for joining us today.
Frank Russo (01:07):
Well, thank you for having me, Carleen, I really appreciate it.
Carleen Patterson (01:10):
Yeah. So, before we get started, why don't you take a few minutes to tell our listeners a little bit about yourself and your background?
Frank Russo (01:16):
Well, thank you so much for having me today, Carleen. I'm very excited to be here. A little bit more about me, my entire career has been in, what I refer to as, the disaster space. I've helped businesses my entire career, which is going on around 22 years now, with all things related to disaster claims, delays, disruptions, whether they're natural disasters or any type of event that a business or an organization doesn't want to deal with, but that happens, and there are dollars at stake to recoup those dollars. I go back to starting out in the New York area after September 11, 2001, helping with terrorism related business interruption claims in New York. That's where I started all through every major disaster until the most recent hurricane and COVID-related pandemic type disasters. So, it's a funny business, but I have been fortunate to see a lot of different triggering events happen to a varying degree of industries. So, I'm really excited to share my perspective on what disasters mean and how businesses and risk managers can deal with them.
Carleen Patterson (02:25):
Yeah, it sounds like you have some really unique perspectives from a lot of different, crazy, hope to never be repeated types of occurrences. But talk a little bit about Imperium Consulting and what they bring to the table.
Frank Russo (02:42):
So, Imperium Consulting is what's referred to as a claim preparation organization. So, what we do every day is we specialize in helping policyholders, which I'll refer back to later on, prepare, quantify and present damages claims. Claim prep, as it's referred to more casually, is really a function of understanding what losses that those organizations face. Financial losses, whether its physical damages caused by some natural disasters, or some time element related losses from those same disasters. Let's say your business interruption impact, you're delayed in your construction, things that throw off the timeline of your business, all those items, the physical side as well as the time element side, claim prep firms like Imperium help policyholders quantify and present those claims every day. It's usually referred to as "claim prep" within the insurance industry, which we certainly are heavily involved with insurance related claim prep, but also from a FEMA claim prep standpoint.
So public entities that many times have insurance up to a certain point and then they are eligible to collect the difference from FEMA if it's a federally declared disaster. Our role really remains the same in how we document, prepare and present those costs. It really comes down to, at that point, who's paying for it or where you're claiming those particular costs. But again, we do this every day. We have a whole host of experts with a variety of expertise ranging from CPA forensic accountants to engineers, to construction scheduling experts, to former attorneys, to finance professionals. We like to attack each of those clients' issues with a broad array of specialty services to make sure our clients get back every penny they're entitled to. That's really what we like to do every day.
Carleen Patterson (04:30):
So how do your claims prep services differ from a third-party claims adjuster that's designated on a policy?
Frank Russo (04:40):
That's a great question, and it's often a question that businesses or organizations that haven't dealt with these types of issues frequently ask. So, an independent adjuster or a third-party adjuster is by definition independent from the insurance company. But what they do is they represent the insurance company's interests in the claim’s adjustment process. So, there are great independent adjusting firms in the U.S., many well-known names that we work with all the time. But their job is to, first of all, understand the exposure that the insurance company may face from a particular loss. One of their first things that they'll do is set what's called a "loss reserve," which is the potential financial obligation that the insurers may face from that loss. And then they move into the adjustment process. So what the insurance independent adjusters want to receive is claims information from the insured, or like I referenced earlier, the policyholder, and take that information.
They analyze it, they review it, they see where coverage may or may not exist in the policy, and then they "adjust the claim." So that's really a segment of professionals, very important in the insurance claims process. But by and large, their main goal is to help the insurance companies process those claims. That's not to say that, to your point, Carleen, organizations that have assigned adjusters to their accounts, which I think is a great thing; they have the same man or woman that comes in every time and they have a relationship with him or her, and the person understands the organization, understands the policy, that just, in my experience, makes the claim go much quicker. But again, by and large, their responsibility and who's funding them is the insurance company to process that claim.
Carleen Patterson (06:27):
Yeah, I caught that nuance when you were talking a little bit earlier about Imperium and you were referring to your client. Meanwhile, the adjusting firm is not necessarily working against the client's best interest, but definitely not the pure advocate for the client that you would be. Is that fair to say?
Frank Russo (06:50):
Yeah, I think that's a fair statement. I think the industry has evolved in a good way where, in my experience, on these complex losses, not that they're not complex and there aren't challenges, but the insurance adjusting community and the claim prep community typically work together. But we have our roles, we have our focuses, and it's the policyholder's responsibility to present a claim, and it's the insurance adjuster's responsibility to adjust it. I'll say that again, because sometimes that's overlooked. You don't wait for the insurance adjuster to tell you how much your loss is. That's not their role. Their role is to accept what you provide them and then adjust or approve or disapprove of your claim. So, where we come in is we help fill that void for, let's say you're a large health organization or you're a public school district, you're not in the business of claims. So, we fill the void for the policyholder to help them understand what happened from a damages perspective and how it relates to insurance, and then to quantify those issues and to help the insured or the policyholder present those damages. Again, working with the adjuster, the adjuster takes that information, we go and analyze it together. Just to be clear, I think independent adjusters surely have the client or the business or the policyholder's interests at mind, but that hopefully explains the difference in the role of us versus them, in that example.
Carleen Patterson (08:13):
So, they're basically waiting for the client to give them all of the information. They don't go up and help bring it together, which is what you would do?
Frank Russo (08:21):
They could. Oftentimes, when we're brought into a project, let's say it's months after a loss, someone reaches out and says, "my claim's just not going fast enough. Why is this taking so long?" 95% of the time, in my experience, it is because the adjusters requested certain information and hasn't received it from the insured or the policyholder. The policyholder's waiting for the adjuster to tell them their loss. Again, if you think about it, it's a much more proactive and affirmative position to say, "here's my loss," and then discuss whether or not there are issues on the adjustment of the loss. That's the best practices approach to getting a claim paid quicker and faster, in my opinion.
Carleen Patterson (08:59):
So not really duplicating at all what third-party claims adjuster is there to do. So, I guess the biggest question is who pays for your services?
Frank Russo (09:10):
Sure, and again, another great question. So, the insurance adjuster and the insurance adjuster’s experts that are brought in on a complex loss, the policyholder never sees a bill, right? The insurance company's paying for those services; they're representing the insurance company's interests. When referring to firms like Imperium and the claim prep side, most insurance policies or property insurance policies have what's referred to as professional fee coverage or claims preparation coverage. Not every policy has it, but most do. And what that coverage is intended for is the insurance companies recognizing that, to my example earlier, the school district or the hospital or whatever business you're in, you don't know how to present the claim. So, they actually provide coverage so that the fees for services like mine, like claim prep firms like Imperium, can be reimbursed like any other item in an insurance claim.
So, let's say you have a $5 million loss and it takes six months to prepare and present, and we present an invoice of $50,000 depending on the coverage. If that coverage exists, our clients get reimbursed all those costs back. So essentially our services are free, and that's just on the insurance side. So, also a combination of insurance and FEMA claim presentations, and we have many, many examples of this. Again, the activity itself is very similar on presenting and quantifying the loss, but then it's a question of where those costs go. So, if there's insurance coverage for our fees, it's paid through the insurance. Our activities for the FEMA side of it can also be reimbursed through a FEMA program called "direct administrative costs." Which, if you think about it as a public entity, you could have your full claim presented and have most, if not all of those costs paid both through insurance and FEMA.
Carleen Patterson (10:56):
So how do you get engaged? We have a lot of public entity clients who have large quota shared layered programs. So, the claims adjuster is often named in the policy. So, how would a client engage your services in the event of a loss to help them out?
Frank Russo (11:16):
Sure. The first thing they should do is communicate with their insurance broker. Say, of course, if it's an Alliant client, speak to Alliant. I would say a loss that seems complex or, especially if there's significant dollars at hand, the first thing I would recommend is checking your insurance policy for that coverage that I just described. It's not to say that we can't be engaged if that coverage doesn't exist, but it does make it, I think, more of an easier decision. From an implementation standpoint, I would say speak to your broker or you can reach out to us directly. What we would do, when we get brought into those initial discussions, is we have a conversation with the potential client, discuss what they're facing and build a budget for our services. Just to be clear, too, our costs are billed to the client on a time expense basis.
The client has to pay us and then those costs once they're paid, are reimbursed through insurance. So, there is an outlay of funding, but it's ultimately reimbursed if that insurance coverage exists. I often get the same question around, is it better to come in early than late? I would certainly say the earlier the better. The reason for this is, in my view, an insurance claim really should take two phases as it's presented. Phase one is really important and that happens early in a claim, and that is a phase that we refer to as the "ROM phase" or the "rough order of magnitude phase." Really what that does is help you as the insured or policyholder quantify the worst-case scenario of that particular loss with rough estimates, with to be determined, but figure out exactly what you're facing because that information then helps the insurance adjuster set his or her loss reserve, or FEMA understand what you're facing early on.
And I think that's really important to set the expectations of what everyone may be facing. Now, it's an estimate, so it could go up, it could go down, but we always say err on the side of the worst case within reason of course, because if that loss reserve is set adequately, usually a claim gets paid quicker. If something's not thought of early on, that comes back to a claim later on and it's not within the loss reserve, again, that's when claims take time and people hate the claims process because it's just not set up to reimburse that company over the long haul. The loss will be what it will be at the end of the day, but that reserve process in the beginning is crucial in my view.
Carleen Patterson (13:34):
You've alluded a couple of different times to the claims prep work that you do for the insurance carrier and then also when FEMA's involved, and my clients might be used to working with an insurance company, but when FEMA gets involved it's a whole different situation. So, how do you work with FEMA and the carriers and what is the advantage to having Imperium engaged when a client's dealing with both of those?
Frank Russo (14:01):
Well, Carleen, that's another great question. So, why I think what we do in Imperium is unique around those types of scenarios is that FEMA and insurance, when they're both in play, they're both evaluating the same loss, but there are many nuances that if they're not understood early on can create challenges. So, the biggest one is FEMA will usually not reimburse an applicant, following a disaster, until its insurance is exhausted. So, a lot of times, and I think it's a mistake, maybe just because the lack of knowledge, a public entity may have an insurance claims team helping them with the insurance claim, and then in a separate channel having a FEMA consultant helping them with FEMA. What we've discovered really over the last 10 years is it's much better to do it holistically because we're quantifying the overall loss and we're helping our clients present where we believe those costs are covered in insurance and what's not covered in insurance and showing that evaluation to both parties, meaning insurance and FEMA, because by doing so you prevent the, "well we haven't heard back from the insurance company, so we're not going fund you as FEMA" or insurance saying, "well you know what, we're not sure what FEMA's position on is on this."
It's really having a control of that through one transparent channel. And that I think is really essential, especially in a large loss for a public entity, to have consistency, transparency and really one plan of action within the cost side of the damage assessments. Whether it's the best insurance policy and the best insurance company of all time, insurance claims are hard, right? So, when I say FEMA's not going to reimburse until insurance is exhausted, that's a real fact. Having that transparency really adds to the speed of that process.
Carleen Patterson (15:47):
So, you talked a little bit about some of the different types of claims you handled and we're coming up on hurricane season. So, can you talk a little bit about some of the experience you've had working with municipalities in a large hurricane disaster scenario?
Frank Russo (16:04):
Sure. Hurricane season starts June 1st officially, right? Can't believe we're only a couple months away from that now. Right now, we are dealing with a very large, if not the largest Hurricane Ian claim out of the state of Florida following last year's hurricane season. We're representing a large municipality that had hundreds of buildings damaged, unfortunately. We were talking to that organization three days before the storm was about to hit. So, we were planning around that. We were putting some people logistically around their organization so we could get there as quickly as possible to start damage assessments. Once it was safe to enter the disaster area, we did that as quickly as we could. One of the first things we helped to do is document and categorize the damage with technology. For example, we had drones helping with significant roof damages or other types of aerial damages that you could catch with a drone camera. Regardless of the size of the loss it is, make sure that that type of documentation happens.
Frank Russo (17:05):
Because again, if a claim takes a while, you are going to forget what actually was damaged. So that's really one of the most important things. But now it's about six months post-event and we're proud of the fact that our team's working hard to help make sure the client gets more and more cash flow from its disaster. Now what I mean by cash flow, our philosophy on presenting claims is let's say you have a $100 million claim. Well, it's not to say let's present it until you get a $100 million check. Let's present it in a way where you get 10, $10 million checks every six weeks. So, within the first six months of us helping this particular client, I'm proud to say they received a significant amount in advanced payments to fund their recovery. We still have a long way to go, but again, in this example it's also insurance and FEMA.
So, we're working with both parties to push through the limits of insurance and get that put to bed so we can focus exclusively on FEMA. That particular example, I keep referring to how large it is, it really doesn't matter about the size, it's really about the process. So, we have other losses, not as significant, where the same process I think is crucial to set that organization up for a full and fast recovery. And with hurricane season only a few months away from now, hopefully it's a quiet season, but there are certainly things that could be learned from that regard for organizations that have been fortunate maybe not to have been impacted with those events. But don't take that as a future prediction, right? It can happen at any time and it's important to make sure that your organization is ready to respond for those.
Carleen Patterson (18:31):
Yeah, I'm glad you brought up the whole cash flow part of it because that was one of the things I wanted to touch on. It's so critical that an organization has expenses that are going along the way and to be able to get those early payments from the carrier is really important. And so having you there to help advocate for that is great. So, I'm glad you brought that up. Any recommendations for steps that people can take in preparation for hurricane season? Whether it's from our client's standpoint, what are things to do to be ready for it?
Frank Russo (19:05):
Absolutely. And one thing too, before I get into the actual checklist, you raised a good point about the impact on people and the example I gave earlier about this particular client, these people that were helping their entity try to get back to their daily business were coming in and basically working 12 hours and going home to their own homes where there was no power and no showering for weeks. And it really is something to see where the impact on everyday life, aside from the actual business impact, is real. There are people I've found that really just become, sounds a little cheesy but I think it's true, a disaster hero. We have people sleeping at the office just because they wanted to get things done. But, from a more practical standpoint, specifically around hurricane season, there are things that can be done now to help put your organization in a position to respond as quickly and effectively as possible.
You can't control where the storm's going to go, but you can control your response. One item I'll start with is thinking about what I would refer to as your organization's disaster bench. What's your bench strength? Who are you going to, who are your key contacts that you're going to need to call after an event? What are the redundancies around those key contacts? Where is the list of the phone numbers that you're going to call? Something as simple as that. We once had a client that had this really well thought out disaster recovery plan, had a list of their top vendors, and they had all their numbers and their contact information, and maybe I'm dating myself a bit, but they had it in a binder in their office and the office got flooded. So, it was backed up, but it was hard to find.
The serious point is it's really important to understand - firms like restoration contractors, emergency response companies that come in and can help dry a building, patch up a roof, bring in electricity. I've seen throughout all these disasters in my career, there are really good companies that are out there and happy to talk to you as an organization before an event happens for no obligation. I would tell you to interview as many as you could to feel who you get comfortable with and then also have some levels of redundancies. Like don't just go to company A because to my earlier point in an area wide disaster, company A may not have enough people, so you'd have to go to company B, C, and D. You want to be able to know where you're going to go and who you're going to call. And by establishing those relationships, you can get those terms and contracts out of the way and be able to just work on getting your organization up and running.
Carleen Patterson (21:30):
Yeah. And having a national firm like yours or some of the disaster recovery type companies because a smaller regional, they're going to be impacted by a region-wide disaster, too. And so, to have a national company that can deploy resources from across the U.S., to come to that area is really an advantage. But the one thing to also remember from a personal standpoint is inflation didn't just impact your entity’s schedule of values, it impacted your own replacement costs on your own home. And so, make sure you've talked to your local agent about making sure that those values are correct because you don't want to be underinsured when an "Ian" comes through. So that's a really good point. Any other last minute checklist items to be prepared for as we roll into June?
Frank Russo (22:23):
So absolutely Carleen, I certainly have many more checklist items I would be happy to provide. I think the last one I will leave you with is work with your insurance adjuster as quickly as possible following the loss. What I mean by that is you don't want to have the insurance adjuster go to your site, meet the maintenance person who has no idea what's going on and really doesn't understand your organization. Again, it's hurricane season and that adjuster is going to 45 different properties. He or she's not really paying attention because he's busy or she's busy. I always recommend how important it is to have somebody from your organization, and it may be you as a risk manager, there for that first meeting to explain what's going on, explain what you're facing, explain what everyone sees, and explain what people don't see. That will be absolutely invaluable for you in your insurance claim recovery and your ultimate FEMA recovery because that information will be absorbed by that adjuster or that FEMA examiner. They'll understand the big picture as opposed to just what you see. And a lot of times these claims, what you see is the least of your problems, right? So, I always like to say, own the loss, step up, take some leadership there and your organization will be in a better position for it.
Carleen Patterson (23:33):
That is a great recommendation and some great advice. Really appreciate it. Thank you very much, Frank, for joining me today. I think that the information you provided is invaluable and will be a big help to our clients. This is a really challenging time to be a risk manager. And here at Alliant we're focused on providing continued information and resources as we navigate 2023 and beyond. So, thanks Frank, and thank you all for joining us today.
Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.
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