Even though business interruption coverage is one of the most important components of an insured’s property loss insurance program, many companies fail to fully evaluate the benefits and limitations of their policies before a disaster strikes. Not only is it critical that a company have adequate coverage, but they must also ensure that their claim is prepared correctly. Failure to do so can lead to a number of issues.
Mistake #1: Overestimating losses.
Performing a comprehensive analysis of an insured’s business interruption claim requires a careful review of the loss calculation methodologies employed by the claims evaluator. As a result, there is the potential for mistakes to occur in the calculation of business income loss and extra expenses.
A Common mistake in business interruption claims occurs when finished goods insured at selling price are included as part of the BI claim without properly matching the valuation between the inventory and the BI loss calculation (revenue/selling prices versus margin or net BI value). Another frequent error is the failure to recognize that continuing expenses may not necessarily continue during the duration of the BI loss. Depending on the policy form and the method of valuation, this can lead to confusion and conflict in the BI loss calculation.
As the coronavirus crisis continues to disrupt global supply chains and sends customers scurrying for gauze, insurers are engaged in a scramble to assess losses related to their property, business interruption, and extra expense policies. To help ensure that the insured is properly compensated, many insurers seek the services of external forensic accountants to perform a detailed analysis of these complex engagements.