Business Interruption: how many of your customers are properly protected?

Each and every year, there are a significant number of E&O claims arising from problems with Business Interruption. The issues include customers not having the coverage, not having the right type of coverage, not understanding the coverage they have or not having the right amount.

Customers who don’t have the coverage. This coverage is designed to cover the loss of business income/profits if normal business operations are disrupted by a covered physical damage loss to property. It is fair to say that most of your commercial customers have some type of business interruption exposure.

An effective approach to handle this with your customers is to use an Exposure Analysis Checklist to get a firm handle on all the Business Interruption forms that might be applicable to your customer. Each of these forms is fully defined with extensive explanations regarding issues for you to consider.

Customers not having the right type of coverage. There are many forms available and thus it is important to ask the customer various questions to better understand their exposure and which form and limit will achieve the desired result. Questions such as:

– Can the business operate at a temporary location rather than suspend operations?

– Could your client’s business be interrupted because of a loss at one of its suppliers?

– Would the customer suffer a loss if one of their service providers – electrical, fuel, water, heat, refrigeration, communication, etc. – suffered a loss?

– Is there a need for Extra Expense Insurance?

– Are there any new state Ordinance or Law requirements or code upgrades that could delay the customer from getting back in business?

Customers not understanding the coverage they have. It is suggested to include in your proposals the industry definition of that specific type of business interruption and any unique terms / phrases such as “waiting period” or “co-insurance”. Also look to include real life claim examples to help your clients / prospects understand the importance of this key coverage.

Customers not having the right amount of coverage. In many cases, because the current coverage was based on a projection made last year – and especially with the changes in the economy – there may be, and probably are, circumstances where the coverage and limit from last year is no longer adequate. A projection of your client’s sales needs to be factored into the correct limit for the upcoming year. It is highly recommended that you work with the customer’s accountant to ensure calculation of the right coverage amount. Bottom line: Business Interruption is definitely not a coverage you want to renew “as is.”

Business Interruption is an extremely important coverage. Take the necessary time to ensure your customers know the importance of Business Interruption, how it works and what coverage form best fits them.

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