As a licensed general contractor and a certified public accountant in South Florida who has been advising clients in accounting- and construction-related issues for the past 15 years, I have seen hurricane seasons come and go – and I have seen the devastation a hurricane can leave on properties and businesses. With the devastation and uncertainty surrounding the coronavirus, plus the unpredictable nature of Florida’s hurricane season, we are bound to see a rise in business interruption claims across all industries.
With the changes in risks, the increased complexities and nuances in policies, and the measuring of claims becoming more complex, it is more critical than ever that clients have their agent or broker help them look after their best interests and stay involved throughout the claims process. Ultimately, it is the broker who negotiates and best understands the policies, and it is the broker who can and should assist businesses in preparing for a claim situation such as hurricane damage.
The best questions a broker can ask a carrier before or during a claim situation are: What is your adjustment process, and are claims assigned to third-party adjusters or handled within? This information not only helps prepare business clients for a claim situation, but it also gives the business a better understanding of the process in advance. It is vital to give clients the details of how the adjustment process would be handled in the event of a claim. We have been involved in many claims where unexpected or unknown factors in the claims process set a bad tone from the beginning.
This could be avoided if the proper expectations are set in advance. The more information an insurer receives in advance of a claim, the more effective the claim.
Another critical piece of advice a broker or agent can provide the client is to properly maintain historical records in order to more easily generate reports. Too many businesses do not understand this concept when it comes to business interruption claims. The cleaner, simpler and easier it is to provide a carrier with the financial reports requested, the easier the claims process ultimately becomes.
One of the trends I continue to see in business interruption claims is the lack of good recordkeeping. When I begin assessing and analyzing a business interruption claim or accounting issue, the first place I go to is the records file. Every business has different practices and internal procedures, but at the end of the day, the paper trail is what helps win or lose a case and is the crux of any recovery claim. The only way to receive recovery compensation for any loss of business, or business interruption, is to prove that there was a loss – and records are critical to this.
As a forensic accountant, I have experienced and been involved in matters in which the physical office was uninhabitable or the physical records were destroyed and the business owner still expected business interruption claims to be paid at the demanded amount. This expectation is unrealistic, as carriers generally require the appropriate and reasonable support to process claims. Without the ability to produce accurate and timely accounting records that support financial losses, the likelihood of a carrier processing those claims becomes minimal and extremely challenging.
Brokers should notify clients that they cannot go back in time if their records are not what they should be. Urge them to make sure their records are in order at the start of the hurricane season. Having the right staff and technology infrastructure in place during the times we are experiencing today is essential in maintaining accurate and current records. The business must be able to track, report and prepare current and historical financial data remotely. Being able to handle this from a remote location is increasingly more important because of the risks associated with hurricane season and coronavirus.
For instance, when I review business interruption claims, identifying and analyzing the fixed and variable expenses in a forensic accounting exercise is required. While a business may have the fixed expense of a mortgage payment or rent payment that would occur regardless of a hurricane, variable expenses could be impacted directly (i.e., having an employee who is hourly and relies on the business functioning at a certain capacity).
If that employee is unable to work because of the impact of a hurricane, these variable expenses need to be recognized and considered when measuring the business interruption losses. Not having these types of accurate accounting reports and categorization of historical and current expenses would make preparing a claim much more difficult and potentially impossible.
To avoid this and minimize the risk and exposure, agents should advise their business clients to invest the time, money and resources (in the form of personnel) prior to any claim situation in order to properly implement technology-based, financial recordkeeping and have enough staff trained within the system to assist if a claim arises. This will minimize the stresses that come along with the adjustment process and give a sense of comfort to the business owner sustaining the loss and the carrier processing the claim.
Having a background in construction, and advising clients on all sizes and at all phases of construction projects, I have found that keeping up-to-date accounting and cost records on projects is the only way to effectively navigate claims. Otherwise, it becomes more of a guessing and assumption-based scenario, which results in delays in the claims process and frustrations on both sides. This is usually when claims result in significant legal costs and extended periods of time in litigation.
Brokers and agents also can help businesses learn how their insurance company handles business interruption claims from a coverage standpoint. I have seen very large and successful businesses think business interruption coverage applies when in reality the policies contain specific exclusions. There are specifics within coverages that the brokers can educate their clients about during the procurement process that would help businesses understand business interruption coverages. This could affect how businesses decide to proceed in filing a claim if there is a loss and it could also provide insight into how a specific business could help train personnel in preparing the appropriate financial reports when presenting a claim.
Document, Document, Document
Businesses should also document everything at the start of hurricane season. This means having owners take pictures of the physical location and documenting certain equipment and contents – anything that would or could be subject to a loss.
The same should be done immediately after a hurricane, or as soon as possible. In times of crisis, adjusters, consultants, etc., can have a significant backlog of work, which may mean that the business is already up and running again before the claim is considered. Having proof in pictures could be critical to a case to help facilitate and expedite the adjustment process.
From my experience, if the documentation provided by an insured party in a claim situation is relevant and current, prior to any meetings or site inspections occurring, the likelihood of a smoother claims process is much greater. This allows the carrier, adjuster and the necessary consultants to review in advance and generate the questions and information requests before any formal meeting or site visit.
This hurricane season is unique in that many businesses – or, one could argue, all businesses – have been impacted by the coronavirus in some way. When calculating the damages or amount owed to a business because of a hurricane, the coronavirus impact will have to be considered as well. We cannot predict the future or how insurance companies or our legal system will handle this, but good recordkeeping, timely and accurate reporting, and relevant historical data will assist and prove to be beneficial in this process.
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