One critical piece of advice to your client about BI cyber claims

Preparing in advance for how a cyber-related business interruption loss may play out can help transform the claims process, speakers said earlier this month at NetDiligence’s Cyber Risk Summit in Toronto.

A lot of the “claims frustration” can be avoided if insureds consider simple things like what sort of documents will be required to prove a business income loss, said Simon Oddy, a partner and forensic accountant at advisory firm Baker Tilly.

“That preparedness can transform a very frustrating process, in which they are just not ready for possibly a six-month discussion about business income,” Oddy said. “A fairly straightforward discussion about business income is catching our team by surprise. People are like, ‘I really didn’t expect you to be digging so deep into these financial records. I didn’t expect to have to wait so long for this to be dealt with.’”

Business interruption loss can be challenging: some companies may not have experienced it before. Those that have likely haven’t experienced it too often. “There isn’t a huge number of business income loss claims rolling around the marketplace, so there isn’t a huge amount of past experience to draw upon,” said Oddy.

Consider the example of a client in the wholesale retail distribution space who experiences a ransomware attack and ransom demand.

“The first question is, ‘Are we going to pay the ransom?’” said Summit speaker Joe Fidilo, head of claims at AIG Canada. “How long do you think you are going to be down? What does the business interruption look like? ‘Do we really want to get involved with criminals? Do we really want to risk not getting correct information, not getting the proper encryption key?” Other questions, he added, include: “Are they still going to be in the system? Are they going to come back later?”

Clients who have thought that through in advance are better prepared to answer those questions, or at least deal with those questions when the crisis comes up, Fidilo said, “as opposed to thinking about it for the first time during the height of the crisis when emotions are high and the stakes are high.”

In the example above, the client decided not pay the ransom, even though back-ups weren’t available either. They were down for three weeks in their peak season. “So, you can imagine there was a lot of concern about what was going to happen with their customers and what their profit loss was going to be,” Fidilo said.

But the client was prepared; it had manually documented its processes. “When we have an insured that is organized, prepared and consider that business interruption is part of their business continuity planning and what that looks like, that makes the process easier and smoother for us,” Fidilo said. “We’ve effectively had other insureds who have basically given us a shoebox of receipts.”

BI loss assessment and analysis can take a while. “It can be a source of frustration and friction if the client isn’t prepared for that,” Fidilo said.