Xcelerate was recently appointed by an insured for a third opinion on a claim for business interruption to validate claim settlement. This is a common occurrence and we have completed many similar reviews.
The circumstances are that my client, via their broker, engaged a claim preparation company to manage their business interruption claim and liaise with the loss adjusters assessing the claim on behalf of the insurer.
I was surprised to see that no Claim Recovery Plan had been created by the claim preparer which clearly details the loss, expected cashflow over the life of a claim and strategies to get the business operational as quickly as possible.
On review I note:
There was a great divide between economic loss calculated by the loss assessor and claim preparer mainly regarding ICOW expenditure and sales forecasting techniques.
The insured was advised by their broker that a significant expenditure in relocation and setup costs would be covered under ICOW and AICOW policy allowance.
The insured acted on this advice and proceeded with the expense.
Unfortunately, the assessor and insurer rejected the ICOW expenditure.
Additionally, the insured was (for a variety of reasons) underinsured and correspondingly attracted a significant co-insurance penalty.
Business Interruption is a common source of conflict between Insureds and Brokers. Insureds are ultimately responsible for ensuring they are correctly insured however Brokers (whilst they are not mind readers) have a duty of care to question all facets of cover required and advise accordingly.
The insured (our client) is now out of pocket for the ICOW spend and, coupled with co-insurance penalties applied to the settlement, their path to recovery has been severely impacted. After liaising with the loss adjuster, I was able to negotiate an increase in the settlement offered to the insured as entitled under their policy.
Our message to insureds and their insurance brokers
Develop a Claim Recovery & Mitigation plan (no matter how big or small a claim)
Understand how each product/policy treats ICOW And AICOW
Present the plan to the loss adjuster and insurer for approval PRIOR to incurring any expenditure
Maintain constant overview on Indemnity Period, Sums Insured, and Benefit Limits (specific to ISR policies)
The business interruption cover was taken out on an ‘Annual Revenue’ basis. The policy wording regarding ‘under insurance’ prescribes actual revenue is calculated based on the forecast of income over the period of loss not the 12 months immediately prior to the cover start date. As the insured business was growing more than 10% per annum this had the effect of increasing the co-insurance penalty by an additional 4%. An unintended consequence of cover selection.