Insurance
companies (and their attorneys) frequently hire CPAs, especially those with CFE (Certified Fraud
Examiner) or CVA (Certified Valuation Analyst) to assist in claims investigations and to reduce the
risk of paying excessive losses on claims.
An
incident involving property damage sometimes also results in a business
interruption claim. When preparing a business interruption claim, it is very
important to understand the value involved. While loss in business income is
clearly defined, additional considerations are required to identify the many
factors involved.
The
specific procedures that a CPA or CVA will apply when measuring a business
interruption loss will vary from case to case; however, the following steps
should be performed when measuring the business interruption loss:
1.
Meet with the client and the client’s attorney.
2.
Request copies of the documents needed in the case, including a copy of the
insurance policy.
3.
Read the insurance policy and obtain clarification for any unclear
provisions.
4.
Consider meeting with the insurance broker, an attorney, and a public
insurance adjuster to gain an understating of the intended coverage of the
policy.
5.
Determine the period of restoration.
6.
Calculate the amount of lost revenue.
7.
Calculate the produce costs and continuing expenses.
8.
Calculate expenses incurred to avert or reduce the loss.
9.
Calculate the co-insurance policy.
10.
Check for duplication with the property damage claim.
11.
Calculate the amount of the claim by considering Steps 6 through 10.
12.
If requested, prepare the written claim documentation.
13.
If requested, participate in settlement negotiations.
14.
If requested, assist the attorney in any litigation.
Steps
6 through 10 are critical to assessing a business interruption
claim. In particular, Step 6 includes:
- Calculating
lost revenue from lost sales of the company’s products.
- Determining the
sales value of lost production.
- Determining
lost sales.
- Identifying
which is lower.
- Calculating the
sales value of lost production.
- Determining the
extent of actual production during the loss period.
- Determining the
best method of projecting lost production.
- Determining
production capacity.
- Identifying
outside influences on production.
- Identifying
opportunities to make-up lost production.
- Analyzing lost
sales.
- Determining
appropriate projection techniques.
- Considering the
effect of outside factors
- Considering
changes in inventory levels
- Considering
mitigation of loss.
- Calculating
other lost revenue (i.e., revenue from all operating sources, not just sales).
