3 reasons for brokers to engage forensic engineers

Ensure claims are paid and add value to your service at the same time

Large-scale commercial claims, such as structural and equipment failures in manufacturing facilities and power utilities, are usually messy and expensive by nature. Often, the cause of the failure is not immediately apparent and coverage for the loss is in question. That’s when the forensic engineers usually get called in to literally sift through the wreckage and determine root cause.

Most of the time, it’s the insurance company or an independent adjuster that engages these detectives. But brokers, too, can add value to their services by looking to engage these experts early in the claims process, say brokers who have relied on the services of one of the country’s leading forensic engineering firms.

Whether or not a claim is covered, understanding root cause benefits both insureds and insurers, says Chris Giffin, president of Toronto-based forensic engineering firm Giffin Koerth. Insureds gain important risk management knowledge while insurers can better assess the risk.

“If you don’t understand the risks, then how do you figure out what the premium will be the next year? Have they taken steps to ensure the loss will not take place again?”

Here are three reasons why brokers should take the initiative to engage forensic engineers in large-loss situations.

1) Ensuring claims are paid. “There are times when coverage is a question,” says Scott Francis, senior vice president of claims at Aon Reed Stenhouse. “By engaging an engineer on behalf of the client, we’ve been able to establish a cause and origin which would support that there is coverage afforded.”

Moreover, in complex loss situations, brokers should not necessarily assume that the insurer has the necessary resources to properly and thoroughly investigate a loss.

“The way that we position it is not like they’re the big bad insurance company and we’re questioning it,” says Eileen Greene, partner and vice president at HKMB Hub International. “The resources of an insurance company are sometimes limited. Sometimes it’s great to bring in that outside expert to come in and evaluate an area that perhaps they don’t have the internal expertise in.”

2) Mitigating further losses. Investigating a physical loss and gathering the evidence right away can be a critical step in mitigating an even bigger business interruption loss that may result from the physical damage loss. For example, a manufacturing facility might suffer a million-dollar physical loss to a production line. But the bigger issue is often the line being down at all.

“If you have a line that is down and it is costing you half a million a day, that million of physical damage is very quickly [surpassed] by the business interruption,” says Giffin. “That’s why you’re bringing us in early so we can identify how to best save evidence of the origin of the loss, maintain the integrity of it, and get on to mitigating the damages by getting the facility back up and running.”

3) Subrogating the loss. High-deductible insureds will also be keenly motivated to try and subrogate a loss to a third party rather than pay for it themselves. For example, an industrial facility that incurs a $10 million loss, “if we investigate the loss and discover the cause was a bad valve, and the valve is poorly manufactured, that whole $10 million can be subrogated against the valve manufacturer,” explains Giffin. “The loss wasn’t due to some error or omission of the facility that is insured.”

This post is an abbreviated version of an article from the February 2011 issue of Canadian Insurance Top Broker magazine. To read the full article, click here.

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