Proper insurance should cover a host of unexpected events, from pandemics, strikes and civil or military action, to political risk, regulatory actions and natural disasters.
Boards and company management can set the tone within their organizations by preparing for business interruption coverages. Data vital to validate a claim once an incident has occurred, or any relevant information, should be readily available to the insurer when a claim is submitted under this type of coverage. This data will range from historical production and sales records to annual budgets and forecasts. The claim adjuster may ask to verify records by ticking and tying numbers to the general ledger or to tax returns to ensure completeness of the reports. All of this data should be readily available.
When submitting a claim, it’s important to be transparent and collaborative in your response. Include your broker in the conversation, open lines of communication early with your insurance carriers and keep those lines of communication open with a regular cadence of touch points and updates.
Changing economic conditions in many industries are impacting the usual year-over-year predictability of financial results in many businesses. Unusual assumptions in forecasts are becoming the norm. As a result, a thorough explanation of why sales forecasts may have been different than previous years is vital to the success of a smooth claims submission. Hire outside counsel to maintain privilege and prepare for litigation in the event of claim denials or stalled negotiations of a settlement.
Another important factor for companies to address is to review and refine how to manage liquidity as part of supply chain resiliency and business continuity strategies. An immediate impact of the Suez Canal blockage will be the implications of increased freight costs as the disruption ripples through the supply chain. With the pandemic and other significant natural disasters, many businesses are struggling with maintaining profitability — especially those with low cash reserves or unstable cash flows. This makes their near-term outlook particularly vulnerable.
Businesses should be proactive in assessing their ability to withstand disruption, from both an operational and a financial standpoint, and act decisively to mitigate risks. In the short-term, management needs to tackle questions in the following cash flow management areas:
- Working capital management: Analyze the company’s cash-to-conversion cycle, including payment terms, timing and frequency of key customers and suppliers; invoicing process to customers; management of accounts receivables and payables; inventory management; and other cash preservation options.
- Forecasting process: Challenge key assumptions, identify quick mitigating actions and develop an action plan for building a simulation with different scenarios to understand actual/potential needs in the short term.
- Liquidity management: Financing strategy: Review key terms, covenants and options for re-negotiating terms with banks and identify alternative sources of financing.
- Investment strategy: Review capital expenditure program and key terms of financial instruments and sale options for non-core assets.
- Process and cost optimization: Identify quick wins and opportunities for immediate cost optimizations; revisit variable and fixed costs.
- Tax compliance and planning: Review the current tax position and any optimization opportunities.