Source: asiainsurancereview.com

Claims presented for the coronavirus will be complex in terms of loss measurement but early engagement with the insured to understand the potential impacts is crucial to managing the loss, said Crawford Forensic Accounting Services (CFAS) in a whitepaper on the insurance impacts of the novel coronavirus.

CFAS is the forensic accounting services unit of global claims management firm Crawford & Co and comprises qualified forensic accountants/loss adjusters worldwide. The failure to manage the loss actively from first awareness often results in loss mitigation opportunities being missed, said CFAS based on its experience of prior losses and dealing with crisis situations including infectious diseases. Insurers should also understand business factors specific to the insureds’ business model.

As a result of the ongoing pandemic, contingent business interruption losses tend to arise from a weakness in the supply chain such as a sole source supply for a time critical component. This means that business interruption losses arising from a small but critical supplier can lead to large losses. The quality of the documentation trail available to prove the direct causal link between the insured peril and financial losses becomes critical with the complexity of the coronavirus situation possibly creating a nexus of potential trigger points for a financial loss. Given that financial losses accrue over time unlike physical damage, CFAS notes that it is also important for insurers to clarify cause and effect in policies.

CFAS points out that there is not necessarily a single proximate cause of a loss – if two causes operate at the same time and one is expressly excluded from the policy, the policy does not respond. This is why early clarification and documentation of facts helps with the later measurement of financial losses.

In the face of uncertainty, it is also extremely difficult for companies to devise effective mitigation strategies. Therefore, it becomes critical for the insured to document their thought processes and cost/benefit analysis at the time of decision-making as this may later signify predicted benefits at a given point in time.