Sedgwick’s Imagine 23 thought leadership list highlights “what if” scenarios. That is precisely the space in which we, as forensic accountants for the insurance industry, operate. Our job is to determine what would have happened from a financial perspective if a particular incident had not occurred. For instance, how much income would a business have brought in if it hadn’t been hit by a cyberattack, product recall or weather-related catastrophe?
Of course, we are not fortune-tellers and have no crystal ball. So, how do forensic accountants project what might have been had the events that sparked a claim never occurred?
No magic bullet
Forensic accounting combines financial and data analysis with thorough investigative processes. Our projections are based on investigations of available evidence, assessing the assumptions made in the claim, and judgments firmly rooted in our expertise, experience and professional principles. We look at everything from past performance and anticipated trajectories to seasonal changes and the impact of economic factors on various industries. Examples of the types of information we analyze include financial statements, balance sheets, production lists, payroll, sales reports and stock performance. Every business operates differently, so it’s never a one-size-fits-all process.
To successfully partner with a client or insured and cause minimal disruption to their day-to-day operations, we do all we can with the information they already have available. Our goal is to facilitate quick and accurate resolutions and get businesses get back up and running again — not weigh them down with complicated requests for new reports. Our job requires us to get to know the business swiftly, learn what documentation they have, and determine what will and won’t be helpful to our assessment. In cases where we discover information gaps, we’re often able to fill in certain details using economic data specific to the industry and location in question.
Many of the claims on which forensic accountants are enlisted also have assigned adjusters and other specialists. We aim to collaborate as a team, ensuring the files benefit from our respective areas of expertise. A notable advantage that forensic accountants bring to a claim is a fresh perspective independent of the adjusting process. Even if we come from the same organization as the adjuster, our professional ethics and guidelines ensure we avoid any potential conflict of interest. We work alongside one another to not only facilitate the most fair and accurate resolution possible, but also to identify mitigation options that may lessen the financial impact of the loss.
A particular set of skills
Like Liam Neeson’s character in the film “Taken,” good forensic accountants must have a very particular set of skills. (Thankfully, ours inflict far less pain and suffering.) The job requires a thorough understanding of financial records and accounting calculations, as well as in-depth industry knowledge. Forensic accountants for insurance must be familiar with how policies are applied and what kinds of variables affect those determinations. Further, specialties like builders risk demand expertise in the respective coverage complexities.
Data analysis is a key part of the job, so aptitude at Microsoft Excel and other data exploration tools is important. Proper use of these tools makes it possible to assess data in a timely manner, ensuring we can assist a business in resuming normal operations as soon as possible. We come across a lot of scanned documents in the course of our investigations; a level of comfort with tools that can accurately convert them into a structured digital form is key. We must also be familiar with the data security and transfer regulations and related compliance requirements for each geography in which we operate to ensure all information is properly handled.
But forensic accounting goes far beyond detailed knowledge and technical skills. The best professionals in the business are generally inquisitive by nature, strong communicators and unfazed by unpredictability. Additionally, consumers of forensic accounting services should look for experts who are realistic and focused on results. It’s important to know which cases are worth investigating down to the cent and which are not; customers should be able to depend on a forensic accountant’s sound economic judgment that it makes sense to spend the time and money needed to calculate the precise value of a claim. Forensic accountants who don’t at the outset establish the purpose and scope of their engagement risk overworking and overcomplicating matters, and they ultimately may not achieve the desired outcome for the client.
Don’t give away the farm: a case study
Here is a real-world example that illustrates the tremendous value of the skills, qualities and independent thinking that forensic accountants bring to the claim resolution process:
An insurer received a liability claim for farmers’ lost profits stemming from defective fertilizer. The farmers claimed US$800,000 in losses due to poor crop production, undernourished cattle and unforeseen feed and labor costs.
The insurer turned to Sedgwick’s forensic accounting team for assistance in assessing the true value of the claim and facilitating a reasonable resolution. Our experts combed through the claim details to accurately determine the amount of the loss. In-depth analysis revealed that the farmers had overstated market prices for their products, overestimated production losses, and didn’t properly account for their mitigation efforts or the savings associated with the reduced crop yield.
Thanks to the diligent efforts of our forensic accountants, the insurer reached a fair settlement with the farmers and paid the appropriate amount due based on the actual loss. The insurer avoided paying out more than $400,000 in unsubstantiated losses, which reduced the cost of the claim by nearly 54%.
Sedgwick’s team of 120 forensic accounting experts across six continents delivers results like these to clients every day. Our analyses save clients precious time, reduce loss costs, and lead to optimal outcomes.
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