Best Practice in Claims Management: Large and Complex Business Interruption Losses

  • Date02 October, 2020
  • Location EMEA

Business Interruption (“BI”) has hit the headlines in the Middle East possibly more than ever this year, with disputed claims over COVID-19 closures, cyber incidents and anticipated losses following the recent Beirut explosion.  This is in addition to BI claims caused by more common perils, such as machinery breakdown and fire.

In this article, I aim to cover some of the key areas to successfully managing a BI claim:

  • Pre-Loss Stress Testing of the Policy
  • Early Notification and Engagement of Experts
  • Exploration of mitigation options
  • Sharing of information
  • Management of Stakeholder Expectations

Pre-Loss Stress Testing of the Policy

Whilst some companies have excellent business continuity plans as part of their risk management strategy, when businesses have never experienced a major loss before there can sometimes be a “rabbit in the headlights” response in the immediate aftermath of an incident.

Regardless of the cause of the interruption, risk managers on larger accounts are increasingly seeking to stress test the BI policy prior to an incident to ensure it will respond appropriately. A BI assessment seeks to ensure that Maximum Indemnity Period, Sum Insured, limits and sub-limits are adequate to cover likely loss scenarios. Estimated Maximum Loss (“EML”) can be determined so that if the worst was to happen, such as an explosion (as was the case with Beirut port) or a severe cyclone, sufficient cover is in place.  BI assessments can often highlight the requirement for additional coverages such as Customers/Suppliers extensions, or “non-damage” cover such as Cyber or infectious disease, depending on the business circumstances.

Cyber BI policies seeking to mitigate the risks posed by Denial of Service (“DoS”), malware, ransomware or other attacks on businesses, such as the well-publicised WannaCry and NotPetya, will usually cover the financial impacts of a network interruption, including a loss of income, system and data restoration costs, public relations costs, legal costs related to data breaches, and in some cases ransom demands.

Best practice can also include pre-loss workshops which involve the Insured, broker, Insurer/Reinsurer and key service providers such as the loss adjuster and forensic accountant who would be involved in the event of a loss, to run through some scenarios and to ensure the processes and protocols to be followed are understood.

Many companies affected by COVID-19 have found that they only have cover for BI following direct physical damage or machinery breakdown. Other policies may explicitly exclude coverage due to infectious disease or pandemic. Those with infectious diseases or denial of access extensions may have clauses which restrict the cover or sublimits and would only cover a small portion of the losses incurred.  Some Insured’s are awaiting the results of coverage analysis from Insurers to see if their particular extensions respond given the wide range of wordings in the market. Many Insurers seem to be awaiting the results of the FCA test case in the UK before making a final decision on coverage.  Others with the foresight to purchase specific pandemic cover, perhaps having been financially burned by the previous SARS and MERS outbreaks, have seen losses covered.

Any successful BI claim begins with the right cover being in place. If you are not sure what cover is in place in your organisation, then it would be advisable to speak to your risk manager or broker before the worst happens.

Early Notification and Engagement of Experts

Immediate notification (either directly to the Insurer or via a broker) is vital in the event of a loss.  It ensures the early appointment of loss adjusters, forensic accountants and other key experts who have experience with large, complex losses, can quickly identify essential documents to assess the potential exposure, and suitably advise Insured’s regarding mitigation efforts, potentially suggesting alternatives not previously considered by the Insured. Protocols can also be established for capturing insurance-related costs and losses along with explanation of the documentation necessary to support the claim.

Early involvement of experts can also assist in the preservation of evidence (for example in a potential subrogated recovery) and facilitation of interim payments to protect the Insured’s cashflow, where prompt accounting support is provided.

In the case of a cyber attack, policies can often provide cover for experts such as breach coaches, lawyers, IT forensics and accountants in order to provide support and advice to the Insured, deal with ransom demands from a bad actor and ensure regulatory notification requirements are followed.

Sharing of Information

The calculation of a BI loss typically involves the examination of financial documentation including: historical sales, production and inventory records, management accounts and audited financial statements.  Other tailored requests will be made depending on the Insured’s business.  For example, hourly availability and output data for power plants or daily occupancy and rate data for hotels. Given the privacy of this documentation, it is commonplace for confidentiality agreements to be signed with the adjustment team. Understandably, there can often be a reluctance to share this information, however an experienced forensic accountant will be able to explain why the documentation is necessary in order to quantify the BI loss.  The most successful claims involve an open and honest dialog with the Insured’s accounting department along with a collaborative sharing of information during the claims process.

Explore Mitigation Options

Examples of Increased Cost of Working (“ICW”) incurred to mitigate the duration of outage on recent BI claims have included: airfreighting items with long lead times; supplier incentivisation to “jump the queue” for replacement equipment, and the hiring of temporary premises.  The economics of these decisions can be computed and discussed early in the process to ensure every effort is explored to mitigate the loss exposure.

In the case of Beirut port, the critical path items will include the debris removal in order to resume temporary operations, although storage capacity will inevitably be limited with vast amounts of warehousing and silo space destroyed. This may lead to ICW such as overtime and temporary warehousing.  Companies that ordinarily use Beirut port may also look for other alternatives such as Tripoli port, some 80km North or Airfreighting some products which may give rise to additional transportation costs.

Management of Stakeholder Expectations

Throughout the course of a large and complex BI claim, there are vast numbers of stakeholders who need to be managed, far too many to list and address in this article.

However, the Insured’s CFO or Finance Director is arguably one of the most important, as they will be the one ultimately signing off on the amount to be received.  It is therefore important to have regular meetings so that the various stages of the claim process and timeline to resolution is understood by all sides. It is also advisable for any discrepancies in quantum or differences in opinion to be raised and discussed contemporaneously, so there are no surprises at the end of the claim.  For example, the Insured’s quantum expectations may differ to the amount calculated after applying the policy terms and conditions (for example where a 30 day or 60 day waiting period is applicable). An experienced forensic accountant will be able to provide a reconciliation which clearly explains any differences between the claimed and the calculated loss amounts.


BI claims are not always straightforward. However, the right adjustment team along with frequent and open communication throughout the process will assist in reducing the time to resolution and afford a better claims experience.

Originally published for Middle East Insurance Review in October 2020.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.