Five tips to assist the processing of your business interruption claim
Forensic Focus - February 2023
Many business owners across Auckland and the upper North Island are flat out dealing with the effect of the flooding. The immediate focus will understandably be on the clean up, supporting affected staff and suppliers, and getting the business operational again.
While most business owners and managers will be finding ways to continue trading and minimise negative impacts, some businesses will not be able to mitigate the loss caused.
Business interruption (BI) insurance will likely play a critical role in helping these businesses get through this challenging period.
The purpose of this article is to set out the top five things business managers and owners can focus on to help ensure their BI claim is settled as quickly as possible:
- Notify your insurer of your claim immediately. Insurance policies typically require the insured party to notify insurers of potential claims immediately. The sooner you notify your insurer the sooner the insurer can get the claim process underway;
- Maintain a timeline of key events. 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. flooding started/trading stopped, premises cleaned, trading started at alternative premises (or virtually), normal trading resumed).
- Identify additional expenses. Most BI policies will cover additional costs the business incurs to continue trading (i.e. costs that would not usually be incurred). A common example of “additional costs” is lease of temporary premises. If a significant volume of additional costs is being incurred to enable the business to continue trading, we recommend applying a flag or similar in the accounting system to enable the ready identification of these additional expenses to support the claim. You should also carefully check that the additional costs are worthwhile (e.g. there is no point incurring $100 of additional costs to generate $20 of gross profit).
- Maintain supporting documents. We recommend maintaining a file with the essential supporting documents to support the timeline and claim (e.g. photos, notices from authorities, invoices, etc).
- 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 sales that would have occurred had the premises not been damaged, given the change in demand following the floods; and
- Determining the level of business successfully transferred to other branches.
A forensic accountant experienced in quantifying loss 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 costs involved in preparing the claim.
Where can I get further information on preparing my business Interruption claim?
Jason Weir and Lorinda Kelly have considerable experience in assessing loss for insurance and litigation purposes and are happy to discuss this further.
Limitation: This article is not a substitute for professional advice tailored to your specific circumstances. Deloitte accepts no liability to parties that rely on this article.