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A forensic accountant's approach to BI claims
One of the most challenging aspects of commercial property and casualty insurance is preparing claims when disaster strikes. Most P-C policies contain straightforward property damage coverage language. Generally, property damage claims are simple in nature, and risk managers often handle many of these claims in-house with some support from their accounting department. However, business interruption (BI) claims often pose a daunting task to risk managers and accounting personnel alike.
Preparing business interruption claims takes thoughtful planning and insightful analysis, clearly communicated to all of the parties involved in the claims process. One of the most important factors is the breadth and depth of analyzing relevant financial information related to interrupted business operations. Although this may seem like an intuitive step, there is often a gap between the internally prepared financial information and the analysis to determine lost profits. Application of due diligence results in a smooth claim process, quicker payment from the insurer and a fair and equitable recovery.
Role of the forensic accountant
Policyholders often hire forensic accountants to prepare BI claims and, in many cases, this makes good business sense. Their work requires a unique mixture of analytics, statistics and accounting. Analysis of this type of economic damage also requires an application of due diligence. Most business professionals recognize due diligence as it applies to business acquisition or combination of companies. An idea of due diligence that likely comes to mind is a detailed verification of accounting information. However, in the context of BI claims, due diligence considers verification of the affected business's historical information as well as analysis of prospective operations and challenging the veracity of information.
Preparing BI claims requires calculating damages on a perspective beyond the empirical analysis of accounting data. This requires understanding the market environment of the industry, business drivers for sales, inputs and outputs of raw materials and finished goods, as well as operational data such as units of production or plant operating rates. Due diligence brings into focus the underlying components of commercial damages and lends veracity to a policyholder's claim.
Business interruption coverage
Business interruption insurance is a very common coverage designed to protect a company's income stream. Most commercial property and casualty policies include some form...