Chetan Sehgal:
My name is Chetan Sehgal. I'm a partner in BDO's Financial Advisory Services practice. Specializing in providing forensic accounting services within the context of insurance claims, fraud investigations, and contractual disputes.
In this role, I regularly work alongside lawyers, insurance brokers, adjusters, and policing authorities to assist our clients investigate and quantify the financial impact of the matter at hand.
[What is business interruption insurance coverage?]
Any event that interrupts normal business operations can result in significant losses. Business interruption insurance coverage provides a potential avenue for a business to recover from those losses.
It is typically associated with property insurance coverage for events such as a fire, flood, equipment breakdown, or natural disasters. However, it can also help recover lost profits as a result of cyber attacks, supply chain disruption, product recall, and construction deficiencies.
The key is to understand the risks associated with your business, where insurance coverage may be available, and evaluate the appropriate type and level of coverage with your insurance advisors.
Risks should be reviewed regularly. For example, your businesses may operate in areas that weren't previously prone to natural disasters but may be now due to climate change.
[How can business interruption insurance help you?]
The objective of insurance coverage is to put your business in the same financial position as if no loss occurred. It covers the ongoing or fixed expenses, such as salaried payroll, rent, and pre-tax net income.
Business interruption coverage is a contract between the insured and the insurance company to provide coverage for a limited period of time, commonly referred to as the indemnity period. It represents the length of time the insured has agreed to purchase coverage to mitigate its business losses.
There are two types of business interruption indemnities. A limited policy will cover for lost profits only until the property is replaced or the damage is repaired. While an extended policy will cover losses until your business returns to normal, up to a maximum period of time.
Remember, insufficient coverage can result in a negative impact on your financial performance and may threaten your business continuity.
[Understanding your policy and coverage.]
Ensure you understand what incidents, length of time, policy limits, type of expenses, and level of profit your business is covered for so there are no surprises when it's time to make a claim.
Policies can be vague and templated at times. Ensure the policy wording is appropriate for your business, industry, size, geographic location, and other factors.
Consider getting additional coverage if needed. Work with an insurance professional and a claims consultant to play out the different scenarios if your business was interrupted and what you would lose in profits.
When calculating how much insurance is sufficient, you need to consider the future performance of your business. Expected growth or decline. You might experience substantial sales growth in the next year, expand, or raise prices - which can positively impact future revenue.
Further, consider any incremental expenses that may be required to carry on business. Such as outsourcing, temporary location, and additional wages.
[How can BDO help?]
BDO has professionals across Canada and globally with significant expertise in assisting businesses of various sizes and from a wide range of industries with their insurance claims.
Our team is comprised of professional accountants, business evaluators, and forensic professionals. We have helped clients with insurance claims in several areas, such as property and business interruption, fidelity and employee dishonesty, product recall, construction claims, and cybersecurity breaches.
We also assist our clients before a claim arises by reviewing loss scenario models and help them understand their potential loss exposure.
Visit us at BDO.ca to learn more.