person working and using a calculator

Understanding the Importance of Accurate Insurance Values

December 17, 2019

Understanding the Importance of Accurate Insurance Values

3 Minute Read

During crisis isn’t the time to discover your insurance isn’t adequate. MNP’s Gerald Kim discusses how to make sure your coverage is appropriate in an interview with BOE Report.

This article was previous published in BOE Report and is reproduced with permission.

Every year, you pay for insurance to cover your business if disaster strikes, but are you sure that your values are accurate?

Gerald Kim, Partner, Valuation, Forensics and Litigation Support at MNP works with oil and gas companies and sees how businesses consistently underestimate their insurance needs – and warns of the risks.

“Inadequate coverage is common, and leaves organizations footing a bill they can’t pay,” Kim explains. “It can lead to intense financial distress in the event of a loss.”

But how can you be sure your company has adequate insurance coverage? Only after an unexpected loss does it becomes clear the company did not have adequate coverage. Alternatively, you may have too much coverage and therefore may be paying too much premium.

To understand if your policy is enough, you need to test your policy against the realities of a loss scenario. Insurance brokers have tools and template forms to help you determine what you need, but they’re not a silver bullet.

“In our experience, companies are better at estimating the values to place on property damage. However, the values placed on business interruption exposure – the loss of income while their assets are out – are often wrong and sometimes very wrong,” Kim says.

What makes accurate estimates so difficult? Kim says there’s a variety of reasons. Oil and gas is a volatile industry and the uncertainty can lead to a wide range of income loss exposures for your business.

It is important to understand that an insured event could happen on the last day of your 12-month policy. If you have a 12-month indemnity period, the resulting business interruption could potentially occur two years from the date you set your insurance values. Asking business owners to predict what will happen two years in the future is a difficult task.

But there’s one key pitfall at the core of inaccurate evaluations: businesses are getting their values from the wrong department and often getting an incomplete picture of the impact of a loss.

“We see companies go to their accounting department to get their insurance coverage numbers, but they need to involve people who understand operations too,” Kim explains. “The operations team can describe what will happen during a business interruption and how this impacts the bottom line.”

Some examples of operational questions to ask include: what will you do with your staff? How will you service your customers? Is there capacity at any of your other plants? Are there interdependencies between this plant and others?

The answers to these questions provide business owners with a starting point to develop a clearer picture of the impact of a business interruption. But understanding exactly what will happen can be complicated.

You can create a strategic advantage by seeking advice from professionals who have seen many business interruption cases and know what organizations miss in their evaluations.

Learn more by contacting Gerald Kim, CPA, CA, CBV, CIP, Partner, Valuation, Forensics and Litigation Support, at 587.702.5995 or [email protected]


  • Progress

    May 20, 2022

    Enhanced hospital GST / HST rebates for long-term care facilities

    If you operate a long-term care facility and are currently only claiming the GST / HST rebate for charities or qualifying not-for-profit organizations, it may be time to revisit your eligibility for an enhanced hospital rebate announced in the 2022 Federal Budget.

  • Agility

    May 19, 2022

    Crypto asset mining – A review of recent proposals

    Proposed amendments to tax rules around crypto assets could impact business engaged in crypto mining activities. We explore how new definitions shift GST / HST costs under the proposed changes.

  • Agility

    May 17, 2022

    The power of putting people first

    For your organization to thrive in a modern and competitive workforce, you may need to shift your mindset and your approach towards employee satisfaction.