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What's in Your Claim?
Jeff Esper
Claim preparation is as much about being prepared, as it is the information you are preparing. Knowing ahead of time what the final claim should include will help expedite the process and avoid delays or loss of recovery.
- As to format, all claims prepared internally by the business should:
- Contain a comprehensive index
- Include thorough explanations of unusual circumstances and events
- Be easy to understand and evaluate
- Provide maximum supporting documentation
The following generalized content is suggested for all claims:
- A brief narrative providing the factual background of the loss, the effects on assets and businesses, and the basis of loss calculations. The narrative can be several paragraphs in length to many pages, depending on complexity. But stick to the facts!
- A schedule entitled Summary of Loss listing losses by coverage type (Property Damage Repair Cost, Inventory Loss, Business Interruption Loss, Extra Expense Loss), and the total of all losses sustained.
- A schedule summarizing each loss by coverage type. These schedules should roll up to the Summary of Loss, and provide the mechanical calculation by component. For example, the property damage loss summary could include a summary of all invoiced charges, stores issues, internal labor, internal engineering allocations, and other sundry expenses. The business interruption loss summary could include the number of lost production days, calculated average production per day in units, the average sales value of lost production, the amount of non-continuing manufacturing cost, and expenses incurred to reduce an otherwise greater BI loss.
- Detailed schedules supporting each amount appearing in the summary schedules. For audit purposes, each number appearing on the summary schedules should be supported by a subsidiary calculation. For example, the vendor invoice component of a property damage claim could be supported by a detailed listing of each invoice charged to repair cost work orders, including the vendor name, invoice number and date, purchase order number, description of the service performed or material sold, and amounts paid. The average production per day statistic utilized in a business interruption claim could be supported by a listing of historical monthly production quantities, days worked, and a delineation of the base period utilized to compute the projected quantity per day.
- Source documentation providing further support of claimed amounts. In theory, every number appearing in the claim should be supported by the appropriate financial statements, subsidiary reports, or other source documentation used in the calculation. This is not always possible, but every reasonable measure should be taken to support the claim with business books and records. As such, any numbers that are not well documented will receive the greatest scrutiny during the adjuster’s review.
Insights Worth Sharing
Happy Holidays from RWH Myers & Company
Making a business interruption claim is more than just an accounting exercise. It requires a good strategy, a thoughtful process and perhaps most of all, patience. These lessons come from experience and the team at RWH Myers has earned it from decades of preparing BI claims. Though this topic is of the philosophical nature, it is just as important as the details behind a business interruption calculation. So let’s dive in and see what you really need to make a BI claim. Strategy Every loss is different. You can’t apply the same game plan and the same approach to every claim. You have to assess the situation and all its parts to devise a specific workable strategy. Experience will help ensure your strategy is appropriate for the situation, but the claim will take on a life of its own. The initial loss assessment is derived from the loss information such as what happened, the timeline of events, the impact to operations and how long it will take to get back to normal. As forensic accountants, we will look at the entirety of the situation and dissect it from every angle to figure out the full scope of loss and then determine the best approach to measuring and supporting the claim. We will also anticipate how the claim will be adjusted and plan for arguments against the claim. Taking the time to develop a proper strategy will pay off at every stage of the claim process. Process Once you understand the situation and have designed an effective strategy, you can lay out a process to get to the desired result. The process starts off with identifying and assembling the team to execute the plan. The claim will require data from various sources and input from key internal experts to provide insights as to the impact on operations, both upstream and downstream. The process also includes managing claim adjustment, from setting the timeline to handling requests for information. During the process, your claim preparer will work to keep all phases of the claim moving forward whether with data gathering or insurer feedback. Claims tend to start out with a high level of attention, but it is common to lose momentum. Simply put, a well-defined process will keep the claim moving, limiting distractions and roadblocks. Patience Patience doesn’t equate to conceding to a lengthy and arduous process. It’s just the opposite. By definition, it means, “quietly and steadily persevering or being diligent, especially in detail or exactness.” It is important to understand that certain parts of the claim take time to develop, and that time is critical to ensuring a thorough and well thought out claim presentation. For example, taking your time in the beginning of the process to lay out the foundational elements of the claim will avoid obstacles that may delay claim settlement and the amount recovered. It’s best to set expectations early and commit to the process. Again, practicing patience will expedite the claim process and improve the outcome. You can rely on the experience of your forensic accounting team to lead that effort. So, you see, it’s not all about the numbers. There is more to the intangibles than you may have thought. Every claim has its own unique challenges. You should be prepared for anything and everything. Again, preparing a claim is just as much strategy, process, and patience as it is the technical elements of claim preparation.
Property damage insurance claims are among the most infrequent for corporate policyholders, but this year Louisiana has suffered through a record number of Hurricanes. When catastrophe strikes, recovering insured losses essential to rebuild and resume operations. Effected policyholders will need expert help to evaluate, organize and document their claim to present to insurers. Forensic accountants that devote their practice to preparing claims for policyholders have every day experience just as adjusters and auditors do, so it is certainly to your advantage to hire a firm of experts to represent your interests throughout the property damage and time element claim process. Though the specific insurance claims and the policyholders may change, the vital steps to recovery remain the same. One thing both sides agree on is that the claim process goes smoother when the policyholder is well prepared for demands of a claim from start to finish. The partners at RWH Myers prepared a detailed guide to assist policyholders in preparation for claim recovery. It is designed to serve as a resource and a framework for the claim process and includes the following sections: Establish Appropriate Accounting Methodology: Provides guidance and an organizational framework for post-loss activities, establishing specific accounts to capture the loss. Property Damage Expense Categories: Explains the types of expenses that may be included in each category of coverage and the documentation required for these costs. Claim Preparation Objectives and Overview: Identifies objectives for the claim preparation process, and provides a conceptual framework for achieving them. What is Covered: Examines the direct and indirect exposures to loss that are typically encountered, and provides guidelines for determining whether specific types of property damage losses are covered under the policy. Claim Preparation Procedures: Suggests timetables for the submission of inventory, property damage, and discusses the format and content of standard claim submissions. Audit and Settlement Guidelines: Discusses the procedures undertaken by the insurers adjusters and experts, and provides an overview of the settlement process. Click here to download the full guide.
Questions?
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Phone: 412-498-2802
Email: ChrisHess@rwhMyers.com
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