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


From equipment breakdowns and natural disasters to cyberattacks and pandemics, a range of force majeure events can ambush your business without warning, causing property damage, interrupting business operations, and, in many cases, impacting your bottom line.

And the reality is that disaster strikes more often than business owners may realize. The Insurance Bureau of Canada lists natural disasters and cybersecurity as primary sources of insurable risks facing Canadian businesses. In fact, from 2010 to 2019, the total financial impact of natural disasters in Canada was over $14.5 billion.

Despite the high risk, many organizations are not adequately equipped to deal with the labour-intensive and complicated claims process, hindering their recovery efforts.

7 ways to react strategically and set yourself up for recovery

When disaster strikes, time is of the essence. The response in the days following an unexpected disruption is critical and can determine whether a company survives or fails.

Here are seven key actions to help effectively manage an incident and the business interruption claim process.

All expenses incurred as a result of the loss need to be explainable, tracked, and supported. Simple summaries and general ledger account details are not enough to get reimbursements from an insurance company. You need receipts, financial records, and full documentation. If applicable, take photos to substantiate your claims.

Maintain a written record of all communication with the insurance adjuster and the vendors they engage. If you get a verbal update from an insurer's representative, make sure you follow up to get them to confirm what was said in writing.

Important: If the disruption occurred at a physical business location, do not tamper with anything, including moving or removing valuables until everything is documented. Consider locking down the site and keeping track of all personnel that has access to the premises.

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.

How BDO can help

As a business owner, you know to expect the unexpected, but the time following a crisis can be overwhelming and filing a commercial insurance claim can be both complicated and taxing on your team. Having the relevant expertise and support when a loss occurs is crucial.

BDO's Forensic Disputes & Investigations Services practice can provide counsel on all aspects of business interruption and insurance recovery through every stage of the claims process, reducing the burden on your staff while ensuring the proper submission of documents.

Here are the benefits of having the support of an experienced firm on your side:

We can assist you through the entire claims process, from loss assessment to mediation. Our team can help you review your insurance coverage and reimbursement policies, understand the process, and weigh your options. On the technical side, we can assist in substantiating business interruption losses, prepare a proof of loss submission, liaise with stakeholders, and assist with the mediation and appraisal processes.

Insurance companies require comprehensive substantiation for business interruption claims. Our risk advisory team has extensive market knowledge and experience assisting clients with insurance claims both big and small. We have substantiated and prepared business interruption insurance claims ranging in size from $100,000 to more than $75,000,000.

We learn about your business, its risks, and its risk management program. Working closely with your accounting team, we can help coordinate the substantiation process and assist in securing documentation immediately following a major loss.

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