Editor's Note: This article has been contributed by Bruce D. Smith, CPA, CFF, CFE, is a consultant and expert witness. Smith provides forensic and investigative accounting services to the insurance industry and has also assisted non-insurance clients in business disputes, including misappropriation of assets.

To fairly value a business income (BI) loss claim, a claims handler must have an understanding of how a policyholder captures economic transactions on its financial statements and other relevant operating reports and records. Sometimes the valuation is a relatively simple task, as the claims professional is familiar with similar businesses and their recordkeeping, the loss period is short, and revenue and expenses have been stable over a number of years. In other cases, however, it is the polar opposite, resulting in an extremely challenging task.

A "Simple" ScenarioA fire damaged a restaurant. The policyholder contacted his insurance company's claims department to report the incident. The insurer deployed a claims adjuster to the loss location. The adjuster scoped the damage and reported to the insurer his determination of coverage, initial reserves, and an estimate of the time required to repair or replace the damaged property. The adjuster then engaged a forensic accountant to assist in the valuation of the policyholder's BI loss claim, informing the accountant that the Period of Restoration¹ was two months.