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The Fiery History of Business Income Loss Protection

January 9, 2021

As businesses struggle with the difficulties of an isolated workforce and changing consumer needs during the COVID-19 pandemic, income loss has threatened to make business closures and cutbacks permanent. Across the insurance industry, loss of business income claims have surged and forensic accounting firms, such as SDC CPAs, are tasked with investigating and verifying these claims. From the earliest iterations of loss of business income insurance, the prospect of assessing business income claims daunted insurers.

Making Loss of Business Income Policies Possible

Modern insurance is widely considered to have formed in England after the Great Fire of London in 1666. These earliest forms of fire insurance were almost exclusively dedicated to protecting material assets. As the insurance field grew, some companies – notably Minerva Universal – experimented with policies that addressed difficulties beyond the initial damage caused by fire. These policies were unsustainable due to fraud and a lack of formal accounting standards and procedures.

In 1817, the loss of business income policies took leap forward in Germany with the introduction of a per diem system that covered landlords’ lost rent after fires. This policy model became perhaps the first coverage to resemble modern loss of business income insurance. Similar policies became popular across Europe and eventually the United States.

Into the twentieth century, loss of business income insurance became commonplace for fire insurance policies. Some insurers balked at the thought of expanding loss of income coverage, thinking it was impossible to verify—an invitation for companies to “cook the books” and receive a payout. Government-backed accounting standards and policies eventually helped loss of business income insurance become a necessity for businesses and a staple for insurers.

Now, with the assistance of forensic accounting firms, insurers protecting businesses during hard times are, themselves, protected against fraud. In a global community where businesses try to balance their needs with their circumstances, business income loss protection is a key factor in achieving that balance.

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