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Risk Management

Why business owners must plan and prepare for recovery

An organisation can suffer a loss at any given moment. The operations of a company can be interrupted not only through the physical damage to property, but through anything that prevents an organisation from carrying out its business as usual. Threats include any sudden, unexpected calamitous event that creates an inability for an organisation to provide critical business functions for an undetermined period of time. These interruptions range from events such as natural catastrophes, cyber-attacks and supply chain failures, which may result in great damage or loss to that organisation. There are also those incidents that are discovered, eg. fraud, which generally do not cause a significant interruption to the business operations, but certainly result in substantial loss. Companies are becoming increasingly exposed to risk and, more than ever before, need to be prepared to pay for loss mitigation and continuity plans.

Not enough business owners think about how they would manage if their businesses were struck by an unforeseen negative event. A business owner wondering what types of disasters exist in the environment, needs to at least be aware that disaster can strike both internally and externally.

Every year, one in every 500 businesses will experience a severe disaster that causes the business to be closed for one or more days. An alarming 43% never re-open and 29% close within two years. When this happens, that an entity suffers such a significant loss, obtaining assistance from the insurer for maximum financial recovery of the losses will be important— perhaps crucial—to the future of the organisation.

This calls for the skills of Forensic Accounting and Claims Services (FACS) specialists, a division of Marsh Africa, to calculate the value of the loss. FACS specialists are involved in the preparation and quantification of complex insurance claims. This is a highly specialised field which requires the focused attention of relevant experts. This isn’t just a case of number crunching, i.e. in the calculation of the loss of profit, costs or damage suffered, but also includes an overall support service to assist in the negotiation and settlement of claims.

Businesses do not always have the resources and expertise available to quantify, support and manage the claims process. This makes FACS a crucial business service for its ability to quantify the claim in accordance with the Insurance Policy, present the claim to the Loss Adjuster on the client’s behalf then negotiate a fair settlement for the client. This service provides clients with the much-needed assurance that their best interests are being taken care of which is especially important during times of distress where senior staff need to focus on the operational issues of the business rather than the claim.

It is important that FACS is appointed at the start of the claim to ensure that the claim is prepared in accordance with the policy, This is to address any issues that may arise at the beginning of the claim.

It is difficult to get involved further down the line when the claim is already in distress.

When preparing a claim, a FACS specialist must keep in mind that each claim is different and presents its own unique set of challenges. There is therefore no set formula for preparing a claim.

It’s important to verify that the loss is due to an insured event which is covered by the policy and that the claim is expected to exceed the deductible per the policy.

All the external factors, i.e. labour strikes, market trends, etc. that could have a bearing on the calculation of the claim must be considered and the claim must be prepared in accordance with the client’s insurance policy schedule and wording.

The timeline of a claim is also a key concern for business owners. It’s affected by factors such as the length of the loss period, the length of the indemnity period, whether there are any disputes in the interpretation of the policy and whether it is a partial or full loss of the business. Due to the complexity of each claim, the process of finalising a claim is a factor one cannot predict. The finalisation of a claim could range from a few weeks for a straight-forward claim to months for more contentious claims.

Marsh Risk Consulting’s FACS Practice works successfully with both in-house and external law firms in the pursuit of a claim. The multi-disciplined South African team is based in Sandton, Johannesburg and comprises Chartered Accountants, Forensic Accountants, Claims Advocates and Claims Preparers.

The South African FACS team has assisted hundreds of clients in all industries with complex losses ranging from approximately R500 000 to R2bn. We have performed work in numerous countries in Africa and the rest of the world.

Nolan Naidoo, Forensic Accounting & Claims Services at Marsh Risk Consulting

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