Financially Surviving a Catastrophic Loss to Your Buildings and Contents.
Most business owners (aviation or otherwise) wouldn’t think of owning or operating a business without insurance to protect their buildings and contents from a disastrous fire, vandalism, weather or other covered loss. However, most business owners fail to carry insurance to protect their revenue stream and cover the continuing expenses and the extra expenses that might incur should they suffer a catastrophic loss to their facility(ies). Fortunately, there are tools that can be incorporated into most property insurance policies to cover these exposures.
Business Income coverage is designed to cover the loss of income, net profit and continuing expenses when your business is shut down due to a covered loss on your property policy. The limit and time needed to restore a business will vary by each individual business’ needs. Business Income is designed to restore the business to where it would have been had the peril not occurred. Your insurance agent or company should have worksheets that can help you determine what limit and period of restoration is necessary or desired for your company.
The period of restoration is that period in which the business owner is incapable of resuming normal operations. This period begins immediately after a loss or more typically after a 48–72 hour deductible. This period ends when business resumes at a new permanent location or should have been resumed. Determining your individual period of restoration can be key to the survival of your business. The critical element you must understand is “how long will it take you to resume business after a major loss?” It can take up to one to two months for cause and origin investigations as well as debris clean up. It may also require two to three months to obtain all necessary permits to rebuild. The rebuild time itself could take anywhere from a couple of months to a year. Depending on the type of equipment you use there could be a time delay getting operating replacements. Finally, the EPA and other government agencies could provide further delays in the efforts to re-open. All of these factors must be considered in determining your specific period of restoration.
In addition to keeping your business afloat while operations are down, there are a number of other distinct advantages of carrying Business Income insurance coverage. It might help make the difference in obtaining a quick settlement on the real property loss from the insurance carrier since the ongoing Business Income payments may cost the insurer as much or more than the initial loss. It may also help you retain key employees by helping you take care of payroll while the business is without revenue and help you retain key contracts that you might otherwise lose.
Business Income coverage can be a valuable tool for your company’s long-term sustainability. Keep in mind, however, that the Business Income policy alone will only pay continuing expenses if they reduce loss. They will not pay additional expense you may incur to continue operations elsewhere. To cover these exposures you will want to add Extra Expense coverage to the policy.
Extra Expense insurance covers all necessary (up to purchase limit) expenses incurred during the period of restoration that would not have been incurred if the property loss that necessitated them had not occurred. This coverage pays for the costs incurred from leasing a new location to conduct business while repairs are being made to the permanent location. Other potential expenses might include moving expenses, additional advertising and costs to rent and set up new computer and telephone equipment. As with Business Income, the policy will only respond if there is a covered loss to trigger the coverage.
One factor to consider when purchasing these coverages is if you need Dependent Properties (formerly called contingent Business Income) coverage. The Dependent Properties coverage expands the Business Income coverage to include the following circumstances:
• Key suppliers that cannot produce goods or services on which the business depends;
• Key customers that cannot receive the business’ goods or services; and
• Manufacturers that cannot provide products for delivery to customers under contracts for sale.
There may be other situations where a civil authority closes access to an undamaged building. Standard indemnity policies provide coverage limited to loss of Business Income for periods extending to three weeks should ingress to premises be denied. You also need to consider possible exclusions to the Business Income policy including power failures that occur outside covered buildings, losses arising from direct physical damage to radio or television antennas and interruption of computer operations. There are endorsements to buy back these coverages, but you do need to pay attention if you have any of these exposures.
Business Income and Extra Expense coverage can be vital to your company’s ability to survive a damaging loss. Statistics show 43 percent of businesses that sustain a catastrophic loss will not resume operations. Six percent will change operations, 23 percent will fail within the first three years after sustaining the loss and only 28 percent will survive and return to their pre-loss operations. The need for these coverages and to what extent will vary based on each unique business needs, but it is important to be aware of these exposures anytime you are involved in a business and its risk management process. If you have further questions or would like to investigate these coverages please contact your insurance agent.
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