I am often asked to assist professional services firms, such as attorneys, accountants, engineers, and doctors, with estimating their business income values at risk. My advice to professional services firms is often the same: assume you will collect nothing for your lost business income. I know that this advice sounds harsh and may seem shocking. But professional services firms should be aware that proving lost business income to your insurance company after an event such as a fire or natural disaster is one of the most-difficult scenarios. So, why is supporting a business interruption insurance claim for a professional services firm so difficult? Because the insurance company will assume that you, the professional services firm, will make up the lost time.
When I started my career, I worked for one of the biggest forensic accounting firms that prepares insurance claim calculations for the insurance company. In other words, I worked for the “other side,” and my client was the insurance company. During this time, when a professional services firm (a group of attorneys) submitted a lost business income claim, I was trained to ask the following:
- Please provide the names of the clients that you had at the time of the loss. Of these clients, which ones did you refer to another attorney? Which attorney did you refer them to? Please provide the contact information for the attorneys who are now providing services to your clients.
- Please provide the contact information for all potential clients who contacted you following the incident, that you told you could not provide services because of the incident.
You get the picture. The attorneys didn’t send any clients away and didn’t turn away any new clients. They may have lost some incoming phone calls before the phones were forwarded to cell phones, but that type of communications loss is often extremely difficult to support with records kept in the normal course of business.
Professional services firms often lament, “We lost the billable hours and we can’t make it up!” But the fact of the matter is that I have heard an adjuster respond, “Work late, work on the weekends, do whatever you have to do. You are not insured for extreme inconvenience.”
So what can professional services firms do when determining their values at risk for a lost business income scenario? My advice is simple. Have a strong business continuity plan and make sure you work with your broker to have adequate extra expense limits. While it is still prudent to have business income insurance, be aware that your loss will most likely be an extra expense issue and implement procedures to make sure any losses of new clients are minimal.
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