As forensic accountants, we like to say we have our boots on the ground as soon as a catastrophe strikes. We are able to do that with localized situations such as hurricanes, floods, and fires, quantifying losses that arise from a crisis in any situation. But what happens when a catastrophe impacts the entire world? COVID-19 is unique for all of us. No one has ever seen an event of this magnitude that has hit every aspect of business across the globe. The importance of having boots on the ground takes on a whole new meaning in a crisis this far-reaching, where both local knowledge and global understanding are key.
COVID-19 has elicited a complex patchwork of government response. Nearly every community within every country is facing a diverse range of issues, mostly driven by the many different responses and approaches taken by local government. The wording on government stay-at-home and business closing and re-opening orders differs not only by country, but in the U.S. it varies by state and sometimes even by city or county within a state. When and how a local government announces that businesses should close or reopen has a major impact on both business and supply chain operations, as well as consumer behavior. Understanding these local nuances is critical to gauging business interruption losses.
As many countries begin to re-open, we are seeing that COVID-19 has altered and, in many cases, taken down the global supply chain of nearly every business to some degree. Supply chains are complex and far reaching, with numerous moving pieces and multiple layers that need to line up. The reaction time is often slow because of these complexities, which is difficult when everyone wants, and needs, quick answers. And with reaction time slowed, it’s hard to plan for what might happen in a business interruption loss.
Businesses are completely shifting supply chain strategies as they try to mitigate their losses. In the early stages of the pandemic, businesses that relied heavily on China were severely impacted whereas those that sourced product from multiple locations and other regions were largely unaffected. Now that the pandemic has spread around the globe, it is difficult to find locations that are not impacted. A coordinated global network can provide the ability to anticipate supply chain issues, as well as quantifying and minimizing business interruption losses as they arise.
Local knowledge is also important when it comes to government response and financial relief for businesses. The U.S. has the CARES Act, while other countries throughout the world have their own relief plans, each with its own set of rules and parameters. An important question in determining business losses will be how loans or other relief is regarded, and whether or not these loans will need to be paid back or will be forgiven. These are local issues, so it’s important to have a good understating of accounting and tax laws in those countries, as well as how the insurance policy will apply.
While we can’t control the spread of the virus, we can control how we help our insurance clients quantify business interruption losses and prepare for future crises. Baker Tilly’s global footprint equips us to serve clients and quantify losses throughout the world for global insurance claims. Our network provides us with knowledge of government response and funding, and supply chain interruptions at the local level so we can react quickly.
For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.