The 4th of July has come and gone, but we should not forget the reason we celebrate this holiday- Independence. The freedom and liberty we enjoy in our lives started with the need for independence. It is also a critical part of business, law, medicine, accounting and insurance.
In the insurance industry, policyholder’s insure against business risks in order to protect their financial integrity. When these risks become a reality, claim recovery is the return on investment. Unfortunately, it’s not quite that easy. Claim recovery is a process that requires expertise to secure a fair settlement. As you know, your carrier has experts assigned to adjust and audit your claim, so in turn, you should have experts to help you quantify your losses and prepare a well-documented claim. But expertise is not enough. If you want the best chance to be made whole, independence matters.
As service providers to insurance policyholders for several decades, the partners of RWH Myers have remained the independent specialists, free of conflicts of interest, and devoted to policyholders. This means that your interests, needs and objectives are all that matters. Many companies promote themselves as focused on client needs, but in claim preparation, it’s more than a slogan. It’s a matter of ethics and a code of conduct.
“According to AICPA Practice Aid 08-1, Independence and Integrity and Objectivity in Performing Forensic and Valuation Services, before accepting a forensic accounting engagement, one should carefully evaluate their relationships, if any, with all parties to the action to identify potential actual and perceived conﬂicts of interest. These parties include named and potential adverse parties, and counsel for the parties on the opposing side.” Richard Fletcher, Accountingtoday.com
In the claim preparation business, true independence isn’t as common as you might think. So why does independence matter so much in claim preparation? Independent loss accounting is the only way to preserve “client interests,” professional integrity, and freedom from conflicts. The partners of RWH Myers understand the code, but to us, it’s really a matter of principle. How can you put your clients interests first if you have other interests and influences? The only way is to remain independent.
Is your loss accountant independent? The most common claim preparers are forensic accountants. Let’s take a look at where they exist in the insurance industry:
• Insurance company forensic accountants
• Insurance Broker forensic accountants
• Consulting firms with forensic accounting service offering
• Accounting firms with forensic accounting service offering
• Independent loss accounting firms
It should go without saying that the firms hired by insurance companies cannot provide independent and unbiased service to policyholders, but many still do rely on the insurers accountants to measure their losses. If asked, the insurers accountants would likely recommend the insured retain an independent firm to assist them, yet there are those who don’t know and don’t ask. For the policyholders in this category, hopefully, you see the light after reading this article.
Broker owned accounting firms have their own set of potential conflicts starting with the strategic relationship they have with insurance companies. As a former broker, I can tell you these relationships are sacred and, for the most part, one cannot exist without the other. The carrier’s profitability is directly related to claims paid and they will reward their brokers for profitable accounts with a bonus commission, aka contingent commissions. If you are on a fixed fee arrangement, it does not mean there’s no contingent commission in play. Your broker wants to serve your needs and will work hard for you, but when you have a loss, they have a conflict of interest. It’s also important to remember, your claim can last longer than your broker agreement. It’s hard enough to end a relationship with your broker, but if they’re preparing an outstanding claim, it will prolong your dealings with them. If you change carriers and your broker at the same time, it can make it harder to resolve. If you are using your broker for claim preparation, consider an independent option that only serves one master, you.
The large accounting firms with consulting practices will scale back their consulting activities when faced with financial debacles that cause regulators to scrutinize their independence. The inherent conflict of an auditing firm preparing a claim for a client should be obvious. The audit firm will have a direct impact on creating an asset and/or revenue stream, which they would then audit the financial results. Those two activities need to remain separate to maintain independence. Also consider what it means if your claim preparation firm is also the auditor for your insurer. As you can see there are potential conflicts on both sides. Why not avoid potential conflicts and work with an independent specialist?
Hiring consulting firms present similar conflicts to consider. Are they a provider of another service to your company? Do they also serve your carrier in some capacity? Making this determination can be time consuming and conflicts can be easily missed. Any firm you consider should be clear about possible conflicts, but it’s your recovery at stake so it’s best to do the proper vetting.
In the insurance industry, it’s the policyholders right and obligation to value their own losses for submission to their insurer. Your insurer will be happy to help you measure your loss, but is that what is best for your company? Recovering your losses is the reason policyholders invest in insurance, so be sure to hire a firm that knows how to prepare a claim and is working on your behalf. Loss accounting is a specialized craft that comes as a result of experience and expertise with insurance claims. Seeking an independent, third party, valuation of your losses is not only smart business but may be a fiduciary responsibility, especially with a large property and business interruption claim.
RWH Myers stands by our declaration of independence and we’re proud to support your interests and your success. It’s clear, Independence matters to us. If you like the idea of conflict free claim preparation, then Independence matters to you too.