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Architecture and engineering firms sit in a uniquely vulnerable position when it comes to business interruption losses. With so much of its intellectual property existing digitally, a firm can suffer extensive losses of time and revenue in the event of a ransomware attack or other cyber breaches.
In 2021, Risk Strategies saw a 173% increase in claims frequency for cyber liability clients, including a 300% increase in reported ransomware claims. Architecture and engineering (A&E) accounted for two of the four industries with the highest number of reported claims.
Capturing Opportunities Lost
While carrying robust cyber insurance is essential for A&E firms to safeguard themselves and earn compensation for their losses, many are missing out on recovering the opportunity costs that also arise from these disruptions.
In assessing business interruption losses to an A&E firm, claim adjusters often simply see the black and white: while the firm suffered an interruption to its business in the short term, in the long term, they were able to recover and complete the job for the client. From an insurer’s perspective, while the firm may have suffered a delay in completing their work, the actual calculable loss is considered minimal, at best.
But from a business perspective, the losses cut much deeper—and with the right documentation, can be recovered.
For A&E firms, opportunity costs arise out of the potential business lost while systems are down. This can be easily accounted for by showing that a client canceled an existing contract due to delays. However, there are also the potential revenue losses incurred by a firm’s inability to solicit and launch new business during these interruptions. These costs are difficult to calculate and recover—but it is possible.
Taking a Forensic Approach
A successful claim entails navigating the gray areas inherent in business interruption.
Implementing the disciplined internal processes necessary to accurately capture opportunity costs for submitting a business interruption claim is a critical step for any professional service firm, especially A&E. Often, it requires outside help to tackle correctly.
Firms that engage forensic accountants often have greater success establishing—and recovering—a wider range of bonafide losses, including opportunity costs. A qualified forensic accountant can offer insights on how to establish billing systems, maintain accurate documentation and specify contract language that can be factored into claim calculations by insurers.
Forensic accountants often also have professional knowledge of the claims process to help a firm understand differences of interpretation about the reliability of projections or the meaning of policy provisions.
Maximize Protection, Minimize Loss
As the sophistication of threat actors grows, so do the potential losses for professional service firms that rely on digital platforms. While firms should prioritize strengthening cybersecurity protocols, calculating, and recovering business interruption losses from cyber attacks is an additional fluid concern.
First party cyber coverage offers an important first layer of protection, but to further safeguard your firm’s best interests, consider the opportunity costs that are incurred in a cyber attack—and make sure you know how to account for them.
Putting the right policies, processes, and documentation in place up front is fundamental to the successful resolution of a business interruption claim. As a specialty broker, we are always happy to provide insights on how to maximize your protection and engage experts who can guide you to minimize potential losses.
Want to learn more?
Connect with Risk Strategies Architects & Engineers team at email@example.com
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The contents of this article are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.