How to effectively manage a business interruption and the insurance claim process

Read your insurance coverage thoroughly and ask questions to fully understand the policy. Issues to consider include:

• Is extra expenses coverage available for labour costs or property losses such as inventory, equipment, and buildings?
• Do you have coverage for professional fees to retain claims consultants to help you prepare the claim?
• What are your policy's limitations?

Be aware that many policies include coverage that applies in the absence of physical damage, such as in the case of business closures mandated by civil authority, contingent business interruption, service interruption, interruption of supply, or an equipment breakdown.

The insurance company assigns a claims adjuster—either an internal or external/independent adjuster—who inspects the property damage and identifies the amount of coverage available. They also assist in the approval of expenses and replacement costs. You primarily deal with this individual on a claim.

Depending on the size of your business, some individuals may take on more than one task. Consider delegating the following responsibilities:

• Operational continuance: A designated point person responsible for drafting a plan of action for repairs, listing out the impacts to business operations, and developing solutions to how the business will carry forward following the disruption.
• Primary point of contact: The main person to liaise with the insurance company, the claims adjuster, and the various other parties involved in the claims process.
• Claims preparation: Consider hiring an external expert to assist you. In most cases, the professional fees paid to claims consultants or accountants are covered by the insurance policy. Outsourcing this service relieves significant pressure off your internal finance team and ensures the claims are prepared in accordance with policies.
• Legal matters: Engage a lawyer to help manage the legal issues, if any.
• Records keeping: Someone to manage the recording of all costs and expenditures related to the loss and recovery efforts. This person also provides historical production and financial records for the claim preparation.

Create a specific general ledger (GL) account to document all loss-related charges, including materials, supplies, vendors, contractors, and other items. These accounts are kept separate from normal operating expenses, which means all abnormal expenditures are both trackable and traceable for the claim. Without a GL account, it's far more difficult to track incremental costs.

Write down your backup plan to keep operating. Consider factors like whether you need to move operations to an alternative location, whether you need to hire additional personnel to assist with operations in the interim, and whether there is a way to reduce your losses while you repair and rebuild.

Documenting why you didn't choose certain mitigation strategies, and the reasoning for the ones you did choose, will help in case of a claim challenge.

Set up a protocol to ensure consistent meetings are held with the adjuster or insurance company to discuss the claims process, the flow of information, payment plans, and deadlines.