With Stephen Dodd, MBA, CPA, CMA, Director Forensic Accounting
In the aftermath of an insurance loss, discovering that your business interruption coverage falls short can be a costly revelation. To avoid these scenarios, it is essential to understand the complexities of insurance policies, asset valuations, and shifting risks before a loss occurs. This is where pre-loss reviews, conducted by forensic accountants specializing in insurance, play a pivotal role in safeguarding against underinsurance and potential financial losses.
Pre-loss reviews are comprehensive assessments conducted before any loss event occurs. Their primary objective is to evaluate the adequacy of insurance coverage by analyzing policies, valuing assets, assessing risks, and determining if coverage limits align with potential losses. Forensic accountants bring specialized expertise to the table, particularly in financial analysis and insurance evaluation. Leveraging their skills, they scrutinize insurance policies to identify potential gaps in coverage and recommend adjustments to ensure accurate protection against various risks.
Benefits of Pre-Loss Reviews
The benefits of pre-loss reviews are multifaceted. The assessments can mitigate the risk of being underinsured and receiving than required to return to normal, they enhance financial resilience in the worst times and will lead to fewer disputes between you and your insurance company.
Being underinsured can result from a number of factors, including not updating your policy when renewing, participating in a variable market, or not being fully aware of what the policy is covering. All these situations will limit the amount recoverable after a loss and place the business in a worse state than it should be in. By embracing pre-loss reviews, businesses gain the confidence to navigate the complexities of insurance coverage with ease.
Modelling Future Revenues
Forensic Accountants are trained to shed light on the future trends of businesses. By applying this knowledge in a pre-loss review, they allow a business to fully prepare for a loss situation. Modelling scenarios where coverage discrepancies would be identified, they can lead the process to adjust the coverage required and highlight the financial impact of potential interruptions.
Consider a business interruption coverage review where a forensic accountant identifies a discrepancy in coverage limits compared to the actual financial impact of a potential interruption. In another scenario, a property valuation review reveals discrepancies in asset values, prompting necessary adjustments to coverage limits. With inflation and other cost increases, values from previous years may provide enough coverage when a loss occurs. These real-world examples showcase the tangible benefits of proactive assessments in safeguarding against financial setbacks.
Implementing Pre-Loss Reviews
Collaboration between insurance brokers and forensic accountants is essential for effective pre-loss reviews. Leveraging their combined expertise and experience ensures tailor-made recommendations specifically for each client.
The role of pre-loss reviews conducted by forensic accountants is pivotal in a full risk management plan. By proactively assessing coverage adequacy, businesses and individuals can mitigate the risk of underinsurance, avoid disputes, and improve their financial resilience against unforeseen losses. As the insurance landscape continues to evolve, embracing proactive insurance assessment practices becomes crucial for staying ahead of potential risks and safeguarding financial stability. Make pre-loss reviews an integral part of your risk management strategy.
Connect with Stephen and his team today - assignments@mbc-group.ca