Financial Forensics Blog

Navigating Business Interruption and Extra-Expense Claims When Inflation, Workforce Shortages, and Supply-Chain Issues are High
November 17, 2022

By Grant Mizel, with Danielle Gardiner

This year’s Hurricane season was not quite as active as anticipated by the scientific community in terms of storm volume. But it did bring Hurricane Ian, which – from the perspective of both insured and uninsured damages – is shaping up to be one of the costliest hurricanes in reported history.

And while no hurricane is ever convenient, Ian has proven especially challenging because it arrived on the heels of a number of serious macroeconomic issues. In the coming months, resolving Ian-related business interruption and extra expense claims will require particular attention and consideration to these items.


At the recent PLRB Regional Conference series in Rhode Island, Lowers Forensic International SVP Danielle Gardiner co-presented “Not Your Typical Business Interruption,” a continuing education session for adjusters that provided real-world examples of how to navigate these unique and challenging times.

ISSUE #1: The Great Resignation

Workforce shortages have impacted every area of the economy in recent years, and we have seen a monumental shift in employment leverage from employers to employees and job seekers. As this situation persists, it will end up having a direct, significant impact on the ability of businesses impacted by Hurricane Ian to reopen their doors.

A critical piece of incurring Extra Expense costs to reduce periods of indemnity and, ultimately, business interruption costs, involves hiring contractors and temporary laborers to assist in various tasks like clean up or operations. This task has proven to be much more difficult than it has following previous hurricanes because of the persistent shortage of individuals working or seeking these types of jobs. Where franchise businesses have also historically been able to shift employees from one location to another for additional support, those that were struggling to retain an optimal number of employees before the storm will not be able to take advantage of those internal efficiencies this time around.


Danielle: The workforce shortages may result in increased costs for payroll expenses and repair labor costs. Increased payroll costs may impact the insured’s extra expense claim. It may also impact an insured’s ability to reopen, potentially extending the period of restoration and increasing the business interruption claim.

ISSUE #2: Inflation

Everyone is likely well aware by now of the impacts that inflation and rising interest rates have had on the market for goods and how that has, in turn, resulted in a significant increase in the cost of insurance claims across the board as insurers must pay more for construction, inventory replenishment, and equipment replacement. With the Fed continuing to raise interest rates in an effort to curb spending and combat inflation, those who have no choice but to spend, like the victims of a major hurricane, will be victims of high prices as well.

Unfortunately, the sectors that have been impacted the most by inflation are the most critical sectors that play a role in the recovery process; Oil & Gas Extraction, Petroleum & Coal Products Manufacturing, Primary Metal Manufacturing, Furniture & Home Furnishings, Wood Product Manufacturing, and Building Material & Garden Equipment & Supply Dealers all land within the top 10, having experienced pricing increases of at least 22% year over year from 2021 to 2022.


Danielle: This leads to further consideration when analyzing financial statements and evaluating whether increased costs are potential extra expenses related to the loss occurrence or are the increases simply a result of inflation. In dealing with the financial impacts of inflation, consideration should be given to whether the business incurring increased costs is subsequently passing along those increases by raising their prices for goods or services.

ISSUE #3: Supply Chain Disruption

The global supply chain, ravaged by the inability of companies in every industry to meet the surging demand of consumers during the COVID-19 Pandemic, has been no stranger to news coverage or social media publicity over the last few years. Now we are seeing that, largely as a result of rising interest rates and rampant inflation, that demand has dropped abruptly, and suppliers are decreasing production to meet lower demand. This is best evidenced by the traffic of goods moving through the port of Los Angeles, which saw a 21% drop in year over year container volumes in September from 2021 to 2022 after setting a record by moving nearly 11 million containers in 2021.

What does this mean for claims? Well, if suppliers who provide anything that an insured might need to get their business back up and running after the hurricane such as building materials, heavy equipment, or computer hardware are reducing supply volumes, then those insureds may struggle even more than they have in the past 24 months to get their hands on key materials and equipment, thus extending periods of indemnity and eliminating opportunities to reduce loss costs via Extra Expense coverage.


Danielle: In some situations, suppliers may be able to expedite equipment delivery for an additional cost above and beyond normal delivery charges. When evaluating whether to pay extra expense, one must ask the question, ‘does this allow the business to get up and running faster, is this equipment critical to business operations?’ In the decision-making process of whether to incur the extra expense, the economic impact of an increased business interruption claim and the ripple effects of a longer period of restoration should be weighed.


Interested in a CE presentation for your company on business interruption and extra-expense? Adjusters, insurers, and claims professionals looking for additional insight can contact Danielle here.

Get our latest posts delivered to your inbox: