Commerce & Catastrophe in Christchurch
Following the September 2010 earthquakes and aftershocks in New Zealand, it was immediately apparent upon arrival that we were dealing with a unique catastrophe in terms of the damage that had occurred. The subsequent earthquake in 2011 also had a calamitous effect on numerous commercial buildings, factories and private property within the central business district and the surrounding suburbs. There was a lack of local resources to deal with every aspect of the claims scenarios, the multitude of technical matters and various issues in regards to the policyholder’s and their advocate’s expectations.
The Wide Area Damage concept, which refers to the various challenges to business recovery that escalate the business loss which otherwise would have occurred, including; prevention of access, damage to suppliers/client base, loss of critical utilities (e.g. electricity) was particularly relevant in dealing with these BI claims as many of the claims presentations sought to exploit this principle to increase trends when evaluating the anticipated turnover within the indemnity period. Many companies with BI cover had been unable to re-commence trading and the reinstatement of any damaged property within the maximum indemnity period available (normally limited to 12 months). Those businesses that were able to resume trading often found themselves in a position of enhanced trading due to the absence of any meaningful competition. Several companies recruited claims preparation specialists to present and negotiate claims on their behalf, specific cover for such costs was normally available as part of the BI Policy and the maximum cover afforded was regularly exhausted.
I dealt with a particular claim for a retailer who had multiple sites throughout seriously affected areas of Christchurch, surprisingly many of their buildings had escaped relatively undamaged except for two sites that required significant repairs and a period of closure. In marked contrast, their principal competitors had all suffered significant damage at multiple sites and substantial interruption before they were able to re-establish effective alternative and permanent trading positions.
In presenting the claim and calculating the anticipated turnovers for each location, the appointed claims preparer indicated a minimum trend within the indemnity period of 35%. This had been calculated by considering the policyholder’s own marketing statistics primarily which also specified a detailed analysis of their historic market share. The data had been extrapolated to account for the fact that many of their competitors were not able to trade effectively in the post-loss period and that consequently the Insured would have enjoyed an enhanced market share.
However, in reviewing the claim, it was necessary to consider what the value of the market in the specific trade sector would have been in Christchurch within the indemnity period. Account also had to be taken of the change in the demand for certain products and the alteration in shopping habits as there was a perception that the suburban shopping malls that remained open were safer retail destinations. Conversely, there had been a migration of people out of the area due to the fear generated by continuing aftershocks, decreasing demand. All presented claims had to be considered against this backdrop and required a detailed interpretation of the historic and current trading figures and analysis of the trade statistics generated by government agencies. It was also necessary to research the post loss activity of competitors, both historic and current, to fully understand the implications on the likely post-loss trading position.
To resolve this claim, analysis of the historic market shares and total market value allowed an extrapolation of the figures to reflect the potential market shares and values in the post loss period at each of the Insured’s locations. For many of the locations it was successfully demonstrated that any advantage in their competitors being unable to trade had been fully realised in the post loss trading figures and that the applied trend provided an exaggerated statement of the potential post loss trading position. The claim was successfully adjusted on this basis with minor figures agreed for the actual closure periods and due account of deferred sales. Adjustment of the losses for the locations that suffered significant damage were agreed individually after accounting for the significant transference of sales to the Insured’s other Christchurch locations.
David Price can be contacted at email@example.com.