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Life Health > Running Your Business

Determining Business Interruption Losses After Hurricane Harvey

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Our sister publication,, ran this article to help agents on the edge of the business interruption insurance market understand how BI claims work. If your own office is in the area affected by Harvey, or your clients’ offices are in that area, you might find knowing a little about this topic helpful in dealing with your own affairs, and with talking to your clients.

The devastation in Texas brought on by destructive winds and flooding rains from Hurricane Harvey brings the reality of hurricane season into focus for many. Harvey has delivered a devastating wake-up call to the U.S., and as residents begin their long recovery process, determining the true value of their losses will be a priority.

(Related: 3 Ways Harvey Is Touching the Life and Health Community Now

For many adjusters in the industry, there hasn’t been a major storm since the beginning of their careers, and many have never experienced a catastrophe on this scale. That makes Harvey a first for many adjusters. The business interruption (BI) impact of a hurricane (or any other natural disaster, for that matter) can have some unique elements and often affects insureds who do not have experience in filing insurance claims. Addressing these types of losses can be challenging for both the first-time claimants and the adjusters assigned to manage the process. Having a thorough understanding of the BI loss analysis process and knowing which financial experts are available will help equip those responding to losses from Harvey.

Setting Expectations

In assessing a BI loss resulting from a hurricane or other natural disaster, it is important to set clear expectations with the insured and bring the financial expert(s) in early. A forensic accountant will work with the adjuster and insured to present an independent and accurate review of the loss, evaluating the claim, assessing relevant business factors and helping set the direction for the final resolution.

The period after a disaster can be a very trying time for a claimant. Properly preparing them for the claims process is a critical step in facilitating a smooth review. This involves outlining the steps in the process, setting expectations and defining the role and purpose of any financial experts hired. Adjusters should also help claimants understand the financial documents that will be requested and what the timeline for resolution will be.

Radar (Image; Bram Janssens/Thinkstock/Hemera)

(Image; Bram Janssens/Thinkstock/Hemera)

Documenting and reviewing a BI claim is about more than reviewing the historic numbers. Forensic accountants seek to understand the whole picture of the insured and their business. The goal is to answer the “who, what, when, where and why” of not only the loss, but also of the affected business. Using widely accepted methodologies and industry understanding, the forensic accountant then utilizes this information to piece together the story behind the numbers and quantify the reasonable business insurance loss for each claim.

Paper Books vs. QuickBooks

In today’s computerized world, many businesses store their data and documents on remote servers or utilize programs that back up to the Cloud. Evaluating a claim following a hurricane can be much more efficient than it was in the past, simply because important documents and financial records are no longer lost in the storm. However, it is important to remember that there are still businesses which operate on paper and when those records are lost, it will be crucial to hire an expert who has experience in identifying other processes for tracking down these types of documents and missing information.

In either scenario – Cloud or paper – some basic items and records will be required from the insured to conduct a review:

  • Revenue or sales documents.

  • Expense documents.

  • Profit & Loss statements.

  • Inventory reports (if applicable).

  • Business plans, budgets and/or forecasts.

  • Business history, changes and milestone events.

  • Business environment and community factors.

Many of these essential documents might need to be provided in different formats and increments, and an expert can help determine what the insured needs to provide. Using a forensic accountant early in the process can help reduce surprises (and lessen frustration) as the claims review progresses.

Related: Time is of the essence: Repairing, replacing damaged property

Context Is Key

In the aftermath of a catastrophe, complex claims will benefit from an expert review. Context is key, and forensic accountants look at each business and claim individually to identify trends and market factors that may change the outcome of the review. There can often be distinctive or extenuating factors that affect the amount of the loss, such as a seasonal business cycle or the recent addition of a competitor to the marketplace.

Talking with the insured about their business and developing a keen understanding of their business environment will help ensure a proper assessment of the loss.

Prepare for Success

A number of the skills and strategies adjusters need for working with insureds in the aftermath of a hurricane can only be developed by actually working with insureds in the aftermath of a hurricane. Being aware of the basics early in the response period will aid both adjusters and insureds dealing with consequences of Hurricane Harvey and any storms that come later.

— Read Will LTC Providers Keep Your Clients Safe from Disasters? on ThinkAdvisor.

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