Accounting News

Thursday, November 1, 2012
Accounting for Insurance Claims

Hurricane Sandy is gone and in its wake is a path of destruction that will cost billions to repair. If you would like to help the victims of the hurricane you can donate the to Red Cross. Our thoughts go out to everyone who was impacted by the storm and the resulting flooding.

Some estimates put the insurance claims in the $5-$10 billion range. On top of that is damage to the economy that could run up to $20 billion based on early economic forecasts. That could impact the national economy by 0.6% over the quarter. The good news is there is likely to be a bump up as all the rebuilding takes place over the next months.

To put this storm in perspective  it is around the costs for hurricane Irene that hit the US last year. It will be much smaller losses than were experienced in the earthquake in Japan last year. That disaster resulted in $40 billion in insurance claims alone.

Much of the insurance claims by businesses will be for be for business interruption (BI) and contingent business interruption (CBI). These may be included as part of the businesses general liability insurance. They generally start after 72 hours of the business location being shut down by either is a disaster or a civil authority. CBI may also apply to the shutdown of a significant business supplier but most businesses do not carry this type of insurance. This 72 hour hold makes it difficult to estimate this early in the clean up.

So if you are a business affected by sandy, or if you have a client in this situation, then you need to keep accurate records of your losses. This information will be required to file a claim with your insurance company. As with everything keep all receipts related to the storm. Planning records, hotel reservations, inventory records, and labor related costs will also be needed. Your claim will be based on the lost revenues from not being able to access your location. Taking pictures of any damage is also useful when submitting a claim.

If you don't have a business plan and need to file a claim it is a good time to schedule a meeting with your management team and accountant. This will allow you to re-create the plan for 2012 and also get the plans in motion for 2013.

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