How Banks Can Be More Valuable To Small Business Insurance Recovery

While there are not too many good things about Hurricane Harvey and Irma, one silver lining is that the disasters have opened our eyes to how banks can be more valuable to their customers. In retrospect, we should have done a better job at helping our customers prepare and be doing a better job post-disaster to help both retail and commercial customers manage their claims. It is apparent that there is a much bigger role to play for banks that will not only help mitigate the bank’s risk position by having stronger customers but will serve to create a better value proposition. In this article, we highlight some of our lessons learned from our experience and from working with Walter Andrews, a partner at Hunton & Williams, a law firm that specializes in helping clients with insurance claims. Walter not only is a legal expert in insurance representation but opened our eyes to the services we could be providing our customers to create a better experience. 

Insurance Coverage

Unfortunately, insurance requirements for borrowers vary from bank to bank and from region to region. For that matter, coverage amounts and the covered perils vary by policy. Flood, business interruption and “All Risk” insurance are often required by banks, but quick access to this information and which borrowers have what is often hard to gather in aggregate. While banks have this recorded in loan documentation, it pays to take the extra step to map this information on a geolocated basis so banks can understand which customers, in and out of flood areas have single peril, multi-peril, flood insurance through the National Flood Insurance Program (NFIP) and business interruption insurance. This can help with damage forecasts before an event, as well as help, allocate resources after.

Here too is another great example, where banks can add value. While lenders understand the designation of different areas in and out of Special Flood Hazard (SFHA) areas, few share that information with their commercial customers.

Preparing Customers As A Value Added Service

Business continuity is an often overlooked discipline. Banks have ninja-level skills here, but few share their capabilities with the public or at least, to their clients. Help customers leverage the cloud for document storage, have backup communication channels and office space and have a plan in place to resume business are all key aspects to keeping operations running should a disaster, or even just a fire, hit the business.

Consider the below checklist that Hunton & Williams helped us put together for our use and to help our clients. One of our “after action” items is to do a better job of preparing our customers for oncoming hurricanes. This means formalizing a marketing campaign and including more questions in our client interviews to make sure they are on top of their disaster management.

For example, making sure commercial customers have their policies in one place and summarized; documenting their assets before disaster strikes; having a mitigation plan (and available equipment such as extra shovels, sandbags, plywood, etc.); and, making sure each business understands their responsibilities under their insurance policies is helpful. Banks can hold educational meetings or produce a series of videos to help assist. 

In addition to helping the customer plan prior to any disaster, banks need to record parts of this plan in their CRM system, so each business development officer has the data to access the risk. Banks should consider a rating system to grade a client’s preparedness and ability to execute their disaster recovery plan. In a perfect world, a customer should notify their lender when they evoke their contingency plan, and the bank should know when they might have to use backup email addresses, cell phone numbers or SMS channels. This helps the bank better manage their portfolio risk while keeping communication channels open in a major event.

Once Disaster Strikes

In addition to preplanning which can take place anytime during the year, a bank, to the extent possible, should consider spending resources to help their customers deal with any potential loss. Helping customers understand how to document the damage and to make sure they include items like pre and post-event mitigation cost has proven helpful in both Texas and Florida. To the extent that a bank’s collateral is at risk, a bank should track deadlines and submissions to know the customer’s claim status.  

Business Interruption Claims

One area that has proven helpful to add assistance is to help customers with their business interruption analysis. Many customers are clear on claiming business interruption if their business is not operating, but a material number of businesses struggle to quantify and claim partial interruption. If just part of the business is damaged, if air conditioning/utilities are out, traffic is restricted, suppliers fail to deliver inventory or services or similar instances where sales are reduced, or cost rise due to an event is all potentially claimable. The important part here is that the damage necessary to trigger these coverages need not be the business’s or even in the vicinity of the business so long as it impacts earnings. This "contingent business interruption" is usually coverage that is often overlooked and is the perfect area for banks to add value as if businesses do not act soon after the event to submit a notice of claim, the business could be out millions of dollars.

Making Counsel Available

Insurance and claim questions may be an excellent area for a bank to bring in counsel for the benefit of their clients. Making general legal representation available, like Hunton & Williams, to commercial customers in their time of need is a huge added benefit to help clients get on the right track and preserve their claims.

Providing Data and Technical Support

One radical change from past disasters is the both Harvey, and Irma had unprecedented amounts of data. Insurance companies, FEMA, municipal entities (state and local) and social media provided us huge amounts of open sourced information to help with both bank risk management and customer assistance. FEMA, for instance, provided data on open shelters, blocked roads, flooded areas and surge/wind exposure models. Banks could take this data and upload their branches and credit portfolio to see where their risks were (below). Banks could also take this data and get it out to their customers as we found many did not have time to sit by their computer to handle their analysis.

FEMA’s Surge and Wind Exposure Models showing overlays on potential households and businesses impacted:

Real Time Flood Updates of Texas (different colors denoted water levels):

The same tools that banks use for social media monitoring we found could be turned into a real-time update on storm impact (below). We monitored live tweets during Irma and was able to see the activity in real time and get a statewide feel for the impact that was occurring. This data allowed us an excellent assessment of where we might need to put more resources to assist both employees and customers. Future efforts may include the real-time monitoring of customers via social media to better assist them in a more timely manner. 

Putting This Into Action

Disaster preparedness and management is an excellent area for banks to live their “superior service” ethos and add value to both their retail and commercial customers. Disaster management is an area where experience, analysis, and communication counts. Providing education before and assistance in the customer’s time of need will go far to make your bank even more of a “valued partner.”

Consider creating a formalized effort as helping customers reduces the risk for the bank while making your customers stronger. Just the small example of helping with insurance after an event can help ensure that your customers receive the full benefit of their coverage. Understanding policy coverage and the claims process for fire, flood, wind, earthquake, and general business interruption can be complex and as such, the perfect place for a bank to stand out. 

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