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Here is a realistic view of several common problems that CPAs come up against when working with adjusters and other claims professionals.
The insurance industry's practice of hiring CPAs to assist adjusters and other claims persons to settle business interruption claims began after World War II and grew rapidly through the 1960s and 1970s. One author of this article worked on his first business interruption claim in 1955 and has observed the development of this area of practice from an obscure beginning to a prominent position in the CPA's scope of services.
This change came as part of a broader insurance industry trend of using outside experts trained in accounting, engineering, and building to handle specific aspects of claims. The underlying reason for the change has been the increase in the complexity and size of business insurance claims.
ACCOUNTING FOR INSURANCE CLAIMS
Accountants may be hired by the business or individual which files an insurance claim to help prepare it, or by insurance adjusters or other claims professionals to review it for reasonableness and accuracy. In those rare instances when a dispute arises that leads to litigation, accountants may be asked by either side's lawyers to prepare reports; to consult during discovery, depositions and other and other pretrial activities: and perhaps to serve as expert witnesses at the trial itself. The larger and more complex the claim, the more likely that one or both sides will feel an accountant's services are required. Business interruption and large property losses generate most such engagements, though liability and fidelity claims are increasing in importance.
The accounting issues that arise in the process of settling business insurance claims are not fundamentally dissimilar from those that conventional accountants deal with every day: What is the true value of inventory? What is the income generated by a business enterprise over a specified period of time?
However, there are three differences between insurance accounting and "normal" accounting.
First, insurance accountants must understand and be comfortable with concepts that are defined and inherent in insurance policies rather than GAAP. The sometimes arcane principles governing business interruption insurance claims are the subject of the accompanying article. There are other concepts with which the experienced insurance accountant is comfortable such as co-insurance valuations, reporting forms,...