The floods impacting the Midwestern region of the U.S. this year have been devastating, with farms, homes and lives lost, and damages close to $2 billion in the state of Iowa alone. The brunt of the rain and melting snow occurred earlier this year, but weather remains a threat as flash floods and record rainfall continue to hit throughout the country this Summer.
As forensic accountants, we play a big role in natural disasters and assist insurance companies in a variety of ways. We work with adjusters to quantify the policyholder’s loss of business income, analyze coinsurance compliance, value lost inventory, and assist with property damage measurement. In doing so, we review the historical books and records of the business such as profit and loss statements, tax returns, sales documents, depreciation schedules, etc.
While there are similarities to how we handle flooding versus other natural disasters, flooding is unique from a coverage perspective when compared to perils like fire or wind. Unlike homeowners insurance (where if you own a home within a designed flood plain you may have the option to purchase flood insurance from the National Flood Insurance Program), commercial insurance may limit amounts payable for this cause of loss or exclude flood altogether. Some businesses, depending on the magnitude or complexity of operations, may have large industrial risk endorsements if they are in a flood plain. In other instances, a company may have the first million dollars covered with a National Flood Insurance Program and the excess with private insurers. Flood insurance doesn’t normally cover a loss of income; it depends on the specific business insured and the risk-management advice that was relied upon to make insurance purchasing decisions prior to the event.
Farmers were one of the most hard-hit groups from this year’s floods. Farmers may have had insurance in place to cover their operations, which can cover crops, equipment and the logistics networks necessary to get the product to market. This type of insurance can be provided through federal programs or private insurance. More often than not, we are asked to get involved in matters where the normal modes of transportation have been impacted. Much of the transport of commodities is conducted on the nation’s networks of waterways. When floods occur, transportation on the water is disturbed. Barge traffic is normally stopped, bringing the sales process to a halt. Farmers must determine other, usually more inefficient, methods of getting product to grain silos to be offloaded and sold. This is usually done at substantial additional costs to the farmer. Depending on the coverage in place, items like these may or may not be addressed.
We know firsthand how devastating these floods are and have received a number of new assignments in Nebraska and Iowa. Fortunately, we were brought in early in the process and have been able to communicate with business owners in real-time as we learn the impacts of damage while the waters begin to recede. As we like to tell everyone, the earlier we are brought into the situation, the more effective and efficient the process becomes for all parties involved.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.