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Multiclaimant damages following supply chain events and complex loss

Ironically, I was partially through writing about some of the unusual and unforeseen events that have taken place in the last few weeks when my monitor started to shake. As a colleague told me later, “I thought my boiler was about to explode”. As it happens, it was merely a 4.8 temblor earthquake that had occurred in the East Coast region of the United States, with its epicenter in White House Station, NJ. This occurred only a few days after a much more powerful and disruptive earthquake struck Eastern Taiwan.

Over the last several weeks, a number of other large-scale disruptive events have led to economic disruption and made prominent headlines. When I say large scale, I’m really referring to events which have a wide-reaching impact – a single or sequence of events that has an impact in many. As it happens, large scale can also obviously mean large from the perspective of financial impact too. It can go hand-in-hand.

These events have served as a reminder that while we may spend countless hours planning and establishing protocol and procedure, the unexpected does happen, and the ability to be flexible and responsive to the disruption is critical if companies want to minimize the impact. In fact, that’s often the point of planning. “What if….”.

Strange things can, and often do, happen. Risk mitigation must remain a high priority and consistent.

These large-scale events create disruptions at both a personal and a business level, often resulting in consequential loss of at various scales. From a commercial perspective, with unexpected disruption we are forced to respond – sometimes a well-tested planned response kicks in, other times we find ourselves in reactionary mode.

Financial impact

Financially, in disruptive situations we notice common themes such as – the importance of strong cash flow management, risk management and proactive supply change management. How effectively can a business respond and switch to Plan B to ensure business continuity? A business’ ability to be flexible and nimble is tested. Would the property damage or restoration be managed and financed? Is an alternate supplier available? Are co packers an option? Other transportation and logistics options? And while all that is being established or put in play, what are the financial consequences.

Examining how your business may be interrupted by large scale catastrophic events like this, and the financial consequences, is key to a risk management strategy. Understanding this in a proactive manner is considerably smarter than learning about it during a crisis.

While the earthquake on the United States East Coast doesn’t appear to have led to significant damage and disruption, let’s look at two very different but very significant recent events – the Change Healthcare cyber event and the Dali / Francis Scott Key Bridge collision. It's also worth noting the recent cyberattack on Ascension hospitals. While we don't know the overall impact yet, it has since been reported and disruption will likely occur.

The common theme in both events? The widespread supply chain impact they’ve had and continue to have. There are elements where the impact of these events is similar but also bring about some differences. I won’t try and unpack all the specific issues involved, nor will I get into the significant legal issues that may be intertwined with the recovery efforts underway following both events.

Both events have resulted in significant disruption of services to individuals and organizations reliant on the continuity of the supply chain – be that goods or services in the healthcare industry, or in the shipping, transportation and logistics industry. In both instances, the Federal Government has stepped in to assist in the financial aspects of the recovery effort and provided those impacted with financial assistance.

Such events might not only impact those directly involved, but also those reliant on the activities and services which have been disrupted. Many organizations in the healthcare industry have been impacted by the systems issues associated with the Change Healthcare cyber situation, leading to systems disruption. The bridge collision has created supply chain disruption through Baltimore, the I-95 corridor and those further afield who rely on the shipping and transportation systems in this area. The port itself sees significant levels of cargo pass through and into and out of the U.S. economy.

Processing the financial damage

For many years, the Insurance industry has played a major role in the financial recovery. Often in these situations various insurance policies across different markets are triggered further complicating the task. The industry often comes under criticism for the length of time resolution takes. For example, property damage is obviously a significant factor in the bridge collision, but so could be the Business Interruption, Contingent Business Interruption and Extra Expenses aspects. These losses can take time to understand, validate and resolve. Additionally, those initially incurring the financial impact will look to recover that from those ultimately found to be at fault. That can be a slower process than many would like and can lead to frustrations.

The major task with large scale complex claims is the often-overwhelming challenge of coordinating the financial damages process: monitoring, recording, tracking and review of the financial impact of the event. This financial analysis is often happening in parallel with various investigations into the event, and a legal process. The volume of both financial and non-financial documents can be vast. Throughout the process, various parties (people, business, legal professionals, insurance industry and regulators) often have different objectives from within the same body of data and documentation. This situation exists in the aforementioned events, as well as many non-property damage, complex liability and complex legal situations.

Those who are managing this process need to ensure ease of use, appropriate access to various parties, efficiency and include an appropriate amount of transparency – all while of course maintaining a strong cyber security philosophy to prevent problems or breach of data management regulations.

In both these and other wide area damage events, many parties are impacted and will be looking for financial resolution to the losses they suffer. With tens of thousands of claimants to be considered in these events, recent technology developments and software platforms have presented a modernized approach to claims management, allowing the task at hand to be more manageable.

Even with help from modern technology, it’s still not easy. The use of tools such as claims portals, claims submission platforms, document exchange platforms, and damages quantum calculators – digital tools, enterprise technology, forensic accounting and data management come together, help to address some of the issues discussed here by creating a modern solution.

Baker Tilly digital solutions

Recent projects here at Baker Tilly allow us to become more invested in this technology's development. Our team has a vast knowledge and superior level of experience in forensic accounting and damage analysis. That paired with our Digital Solutions group brings modernized solutions to forensic accounting and claims problems.

Claims portals and claims databases can mean a single location for damages data can be developed, user access controlled, and the efficient dissemination of information created. User groups with different objectives can access the same database and complete the tasks they may be faced with.

Claimants and their representatives can have a line of site into which their claim for damages can be submitted. Those who need to respond to those claim submissions can do so by responding, reviewing damages and resolving claims. Aggregate exposure can be monitored, the status of any group or individual claims be obtained. Notification messages can be issued. Party responses and communications can be managed to meet process deadlines. The overall objectives of efficient and consistent claims management can be addressed.

By approaching our work in this way, we bring an important element to the process. Many of these wide area damage events create some uncertainty --between how many people are affected, to how many people will be looking to have a financial damage claim addressed. Teaming up with Digital Solutions allows us to deliver rapid scalability, which is critical during such uncertain times. Claim counts, data volume and user groups can quickly expand, and this might seem overwhelming if management of the process is people heavy. Fortunately, the ability to scale exists when working with digital solutions. Having this digital capability is paramount.

Digital Solutions for claims management can offer many benefits, such as :

  • Document security
  • Automated task notifications (new claims, new results, new docs, reminders, deadline reminders)
  • On-demand data review/access
  • Dashboard reporting
  • Import/export with scale bulk application/treatment
  • Metrics on aggregation
  • Exposure analysis
  • Live status tracking
  • User access control
  • Proxy users

For more information on business interruption, contingent business interruption, digital solutions, or other claims and damages analysis, connect with one of our team members.

About the authors

Simon Oddy, FCA, CFE, MCIArb, is a partner with Baker Tilly’s forensic, litigation and valuation services practice. Working with clients and lawyers, Simon has handled engagements in North America, South America, Europe, Africa, Asia and Australia. Simon focuses his work on the field of economic and financial damages. He acts as an expert witness, providing financial damages testimony on cases in litigation. In recent years, he has concentrated on crisis management, managing a global team of professionals who handle financial damages projects resulting from cybersecurity and product recall issues. He and his team are also heavily involved in high profile complex liability matters for the casualty industry.

Brendan Gray, CPA, is a director with Baker Tilly’s forensic, litigation and valuation services practice. He appreciates the complex analysis and problem solving needed to resolve intricate issues. As a forensic accountant, Brendan focuses on the quantification of insurance claims related to product recall, general liability and complex claims and fraud and fidelity.

Simon Oddy
Partner
Brendan Gray
Director
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