Business Interruption insurance claims – Top 5 tips to ensure your claim is quickly processed
Forensic Focus - December 2016
The Kaikoura earthquakes and aftershocks over the last few weeks will be a good test of New Zealand’s resiliency, particularly on the back of the Canterbury earthquakes in 2010/2011.
Business Interruption (“BI”) insurance will again have a critical role to play in helping the businesses affected get through this difficult period.
The purpose of this article is to set out the Top 5 things that management of businesses affected by earthquakes can do to ensure their claim is processed as quickly as possible:
1. Notify your insurer of your claim immediately. Most insurance policies require the insured party to immediately notify insurers of potential claims. The sooner you notify your insurer the sooner the insurer can get the claim underway;
2. Prepare a timeline. Maintaining a simple diary or timeline of key events will assist with the later quantification of the claim. Ideally the timeline would record key operational events relevant to the claim, e.g:
- 14 Nov 2016 – Earthquake struck, premises damaged.
- 15 Nov 2016 – Engineer’s report the business is unable to operate from premises until further notice. Staff operating from home where possible.
- 20 Nov 2016 – Temporary premises secured, lease signed.
- 22 Nov 2016 – A1 Construction engaged to complete the fit out.
- 25 Nov 2016 – Phase 1 of the fit-out complete. ABC Transport engaged to move furniture to the temporary premises.
- 27 Nov 2016 – The marketing and operations team operational in the temporary premises.
3. Identify additional expenses. Most BI policies will cover additional costs the business incurs to continue trading, with one of the more common “additional costs” typically incurred being rent at temporary premises. If there are a significant volume of additional costs being incurred to enable the business to continue trading, we recommend considering applying a flag or similar in the accounting system to enable the ready identification of these additional expenses to assess the claim.
4. Maintain supporting documents. We recommend maintaining a file with the key supporting documents to support the claim (e.g. copies of the BI policy, engineers’ reports, invoices, etc).
5. Engage an experienced forensic accountant. BI claims are conceptually simple, however, even modest claims can quickly become complex when faced with the realities of:
- Incomplete and/or missing records;
- Seasonality and trends;
- Determining the level of sales that would have occurred had the premises not been damaged given the change in demand following the earthquake;
- Determining the extent to which business has been deferred vs. lost; and
- Determining the level of business successfully transferred to other branches.
A forensic accountant experienced in BI insurance claims will be well placed to ensure that your claim is robustly prepared and well presented, making it easier for the insurers to consider and approve in a timely manner. Most policies cover the reasonable claim preparation costs. It is in everyone’s interests to engage an experienced forensic accountant to assess the claim as early as possible.
Where can I get further information on preparing my Business Interruption claim?
See our 2011 article “Business Interruption insurance claims – Getting it right" and “Business Interruption insurance claims – contentious areas.