Forensic Accounting: The Keystone of Liability Claim Insurance

Forensic Accounting: The Keystone of Liability Claim Insurance

Forensic Accounting - In the complex landscape of liability claim insurance – where the financial stakes are high, and the situation is riddled with complexity – forensic accounting acts as a pillar of truth-finding and claim-status verification. Especially in such conditions, the field seems unavoidable as it allows the use of sophisticated accounting and investigative skills to dissect imperfections of the liability claim and reporting of the cause of the events.

The following blog will elucidate the relationship between forensic accounting and insurance of claims, specifically restating the role of forensic accounting across different categories of policies:

Crime Insurance: Unveiling Financial Deceit.

It covers the losses that arise from dishonest acts of theft, fraud, or embezzlement. In this front, forensic accountants essentially function as financial sleuths. They examine financial records with great care, track transactions with purpose, and reveal any disparities that point to deceit, like fancy embezzles. By presenting hard evidence for their findings, forensic accountants support insurers in verifying the validity and magnitude of crime insurance claims, ensuring that only ones that are due gets reimbursed.

A few cases in India that involved claims on the abuse of power of attorney and fraudulent actions have seen the Supreme Court decide on whether or not the insurer is entitled to indemnify the insured.

Bajaj Allianz Life Insurance Company Ltd is another matter investigated by the Supreme Court on the issue of non-disclosure of material facts and repudiation of Claims.

 

Recent Popular Case: Bernie Madoff Ponzi Scheme (2008): One of the largest financial frauds in history, resulting in extensive crime insurance claims related to investment losses and fraudulent activities.

 

Cyber ​​liability: Explaining complex digital issues

In an era filled with digital threats, cyber liability insurance has become a necessity. Cyber ​​events, including data breaches and business disruptions, require forensic statistical expertise in order to assess the financial consequences. Forensic auditors analyse the digital footprints left by cybercriminals, quantify losses due to data breaches, and analyse the costs associated with policy recovery Their insights help guide insurers in cyberspace in the complexity of discussion.

The average cyber settlement is reported to be $4.88 million, with data breaches reportedly the biggest loss.

Case studies from CFC Underwriting highlight a variety of cyber incidents affecting businesses, including ransomware attacks and data breaches.

 

Recent Popular Stories: Equifax Data Breach (2017): A massive data breach exposed sensitive information held by millions of consumers, leading to a massive cyber-liability scandal for Equifax

 

Director & Officer (D&O) Responsibility: Access the governance website

D&O liability results from decisions made by corporate directors and officers that result in economic loss. Forensic auditors examine financial transactions and decisions that reveal mismanagement, breach of duty, or violation of policy. By analyzing these complex issues, forensic accountants help insurers determine coverage liability and scope under D&O policies.

Recent events have highlighted the ever-changing landscape of D&O liability, which has important implications for the insurance market.

A landmark case from India involves United India Insurance Company Limited, where the Supreme Court dealt with issues relating to insurer liability.

 

Recent Popular Case: Wells Fargo Sales Practices Investigation (2016): A prominent case where Wells Fargo’s board and officers faced scrutiny over unauthorized account openings, resulting in substantial liability claims.

 

Professional Indemnity (PI): Safeguarding Professional Integrity

PI claims result from professional negligence or failure to meet industry standards. Forensic accountants assess the quality of professional work, compare it against established benchmarks, and calculate economic damages incurred by clients. Their role is pivotal in deciphering whether professionals are truly liable for financial losses claimed by clients.

Allianz Global Corporate & Specialty reported that the legal, construction, and insurance sectors are most impacted by large PI claims, with over 90,000 PI claims globally valued at €2.2 billion.

The Supreme Court of India has also delivered judgments impacting the insurance sector, providing guidance on coverage matters.

 

Recent Popular Case: Theranos Securities Litigation (2016): Allegations of misleading investors about revolutionary blood-testing technology led to significant PI claims against company directors.

 

Commercial General Liability (CGL): Covering Diverse Risks

CGL insurance shields businesses from various liabilities, including property damage, bodily injury, and advertising claims. Forensic accountants play a versatile role here, ensuring that claims are substantiated with accurate data and evaluating the legitimacy of losses alleged by policyholders.

A landmark case involved a $1 million CGL insurance policy that resulted in a defense cost win of $91.5 million for the policyholders, illustrating the value of the duty to defend under such policies.

The Supreme Court of India’s interpretations in insurance law have been pivotal for understanding coverage extents and insurer liabilities

 

Recent Popular Case: Johnson & Johnson Talcum Powder Lawsuits: Allegations of health risks associated with talc products led to significant bodily injury claims under CGL policies.

 

The Impact of Forensic Accounting on Insurance Fraud Prevention

The role of forensic accountants extends beyond claim evaluation; it is instrumental in detecting and preventing insurance fraud across these liability categories. By leveraging their investigative skills and financial acumen, forensic accountants:

Identify suspicious patterns in claims data.
Uncover misrepresented information or fabricated losses.
Provide evidence to support fraud investigations and legal proceedings.

 

The Role of Forensic Accountants in Determining True Liability

Forensic accountants are pivotal in determining the true value and facts of frauds and liability claims. Their responsibilities include:

Analyzing financial transactions to uncover irregularities.
Calculating economic damages accurately.
Providing expert testimony in legal disputes.
Assisting in subrogation efforts to recover losses from responsible parties.

 

Conclusion

Forensic accounting serves as the cornerstone of integrity in liability claim insurance. By illuminating financial truths, forensic accountants bolster insurers' ability to navigate complex claims scenarios, safeguard against fraud, and uphold policyholder trust. As the landscape of risks continues to evolve, the synergy between forensic accounting and liability claim insurance will remain indispensable, ensuring that justice prevails in the realm of financial liabilities.

 

 

Darwin Makhija

Forensic Accountant & Author