You might recall several years ago that there was a devastating fire at an East Coast Textile Mill. This fire leveled a New England town’s primary employer. The fire and events around it were reported widely for months following. The owner of this mill was able to pay a great majority of his work force for an extended period of time following this event. He was correctly lauded for doing this and became somewhat of a town hero for taking care of his people during this terrible time. He was able to do this in large part because he carried business interruption insurance. He also likely had an agent or broker that provided this coverage and helped him navigate the details.
Simply put, Business Interruption Insurance is an contract that can pay for lost profits and normal operating expenses (including ordinary payroll) during the period of reconstruction and following a covered loss. It is meant to make a commercial client “whole” after an event that reduces or stops a customer’s ability to sell their goods or services. On the surface this coverage is not terribly complicated. The tough part however is calculating what limit to carry.
Cue the business income worksheet. This one or two page tool can provide a strong basis for what limit to carry….often times your insurance carrier will require it to be completed for the coverage to be activated completely. This important calculation will allow you to properly schedule the limit needed making sure your business is “made whole” after a covered property loss. The limit chosen logically would go up or down each year depending on estimated sales, payrolls and other factors.
If your business is not carrying this coverage, it would may be prudent to at least review options with your agent. Interestingly enough, the coverage normally carries a lower rate than a business’s real property such as buildings and contents. So to answer the second question above…..it CAN be complicated, but with the help of your professional insurance agent, it is palatable and more understandable. Hopefully you will never need to use this coverage, but if disaster strikes, it can be the difference between survival or the end of a business.
Joe Buick, CIC, CRM
Kapnick Insurance Group