The heat is on

A growing claims culture has put insurers under pressure to ensure the validity of claims, and they are increasingly relying on forensic accountants to do so. Jane Bernstein investigates

Forensic accountants have a higher profile than ever, thanks to the increasing employment of their services by both insurers and the insured, particularly on business interruption cases and where large losses are at stake.

Many claims specialists identify the credit crunch as a significant factor in the increasing popularity of forensic accounting. Sarah Civil, head of global technical services UK at Crawford and Company, predicts that as the economic downturn progresses, fraudulent claims will grow and the need for forensic accountants will increase accordingly.

Glen Marr, AIG's vice-president of financial crime, emphasises that forensic accountants are not solely utilised for scrutinising dubious claims, but adds: "These are tough times and the environment would suggest it may lead to an increase in fraudulent claims, which in turn may result in greater use of various fraud specialists."

Consensus suggests the nature of the claims culture has also helped bring these professionals into the spotlight. John Green, chief executive of Pierce Forensic, comments: "While there have always been forensic accountants working away quietly with lawyers behind the scenes, today they are at the glamorous end of the profession. This has been because of the increasingly litigious world in which we live."

Information overload

Others attribute the current popularity of the forensic accountant to the sheer scale of available information requiring analysis - particularly on more complex claims.

Harry Roberts, director of technical, risk and compliance at Cunningham Lindsey, explains: "Businesses now have vastly more management and financial information than they've ever had, and developments in IT mean they are able to deliver that information to the people handling the claims."

In addition, Neil Jackson, manager of specialist and large claims at RSA, says: "As a profession, it has been able to market itself better in recent years in terms of the services they provide and where they can add value."

One area that has seen particular growth is the use of forensic accountants by insureds. This is often seen as an attempt to level the playing field in cases where insurers have instructed their own. Jonathan Samuelson is a partner at Harris Balcombe and heads up the loss assessor's BI division. He asserts: "Quite often, if the insurers appoint a forensic accountant, we will do likewise."

He explains that where an excessive amount of information is requested, it makes sense for the insured to appoint their own forensic accountant - often their auditor - to provide the manpower for extracting the data without bringing the accounts department to a standstill.

Caroline Woolley heads up Marsh's forensic accounting and claims services team. She explains that the use of such professionals brings peace of mind to the insured. "We can keep them informed about what is expected and how to deal with specific requests from the insurer's representatives. We can also predict what will happen in meetings and ensure they are well prepared."

Mr Samuelson points out that where BI claims are concerned, the insurer is often required to cover the costs of a forensic accountant employed by the insured under an 'accountants fees' clause. "This is a standard clause in most BI policies," he explains.

David Hicks, head of forensic insurance for KPMG, explains that policyholder demand for forensic accountants is most pronounced in large losses, adding that the economics would not work effectively on smaller claims. "In a large loss, the policyholder would seek professional independent expertise to help prepare the claim, reduce the possibility of claim rejection and get it completed more quickly," he adds.

Insurers tend to limit their use of forensic accountants to larger losses, although not exclusively so. As Mr Marr points out: "At times they are used in high-volume claim environments, where their use can bring real benefits for an insurer."

But anecdotal evidence suggests their employment is more likely on larger or complex losses, which justify the costs, and that particular demand exists for their expertise on BI cases.

A common question when assessing the role of the forensic accountant is how far its role overlaps with that of the loss adjuster. Damian Glynn, head of financial risks at Teceris, believes the various parties work well together and that the different roles are 'self-evident'. "Most loss adjusters who are involved in significant BI claims tend to have worked with all of the forensic accountants before," he adds.

Mr Jackson emphasises that clarity of roles and responsibilities is vital: "You get the best result where you have a clear brief."

One recurring bone of contention, however, is that forensic accountants are often brought in part-way through the lifecycle of the claim. "Ideally, they should be involved from day one so they get a better understanding of the incident leading to the claim and can better assess its likely impact on the business," Ms Civil says.

Cost implications

Cost, of course, is an issue. But John Reynard, partner at BTG Forensic, a division of Begbies Traynor Group, points out that if parties can agree terms of business at the outset and bring the forensic accountants in from the start, then the cost implications are easy to manage.

The late introduction of a forensic accountant often slows down the claims process. Mr Reynard explains: "If forensic accountants are not brought in early on, insurers must make sure it gathers the information required for the forensic report as the investigation gets underway. Otherwise, a lot of work will have to be repeated later on and it will slow down the process. Getting monthly sales figures month-on-month is much easier to do than having to collate or recreate them further down the line."

Mr Hicks also puts forward the view that forensic accountants speed up the claims process rather than slow it down: "Employing a specialist to quickly make objective calculations reduces negotiation time."

Whether or not forensic accountants add to the lifespan of the claim, there is little doubt insurers value their involvement.

Ms Civil points out: "Insurers are under increasing pressure to ensure that claims paid out are not only valid but quantified correctly. The role of forensic accountants will certainly increase in future."

The whys and wherefores

What lies behind the rise in popularity of forensic accountants?

1. The general increase in litigation - both in volume and value - which affects insurers in many different classes of business.

2. A general increased awareness of the forensic accountants' worth in reviewing claims and analysing the numbers in the required detail.

3. Increased globalisation of the corporate world - mergers and acquisitions have made for larger companies, with more interdependent relationships, such that losses can escalate.

4. The increase, in perhaps more recent years, of a higher incidence and severity of natural and catastrophic disasters.- James Stanbury, partner at RGL.

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: