Time element insurances provide the income which would be derived from assets which are no longer available for production due to an insured loss.
Two main forms of business interruption insurance are:
1. Loss of Income2. Extra Expense
The difference between the two is the financial approach. Is the impact of loss derived from lower income or greater expense to achieve current income?
If the loss can be mitigated by spending marginally more overhead money, extra expense insurance will be cost effective. If any loss of vital assets means months of recovery with no commercial activity possible, loss of income is the correct approach.
The deep and long-lasting nature of the current recession offers opportunities to revisit business interruption insurance strategies.
Two scenarios are now commonplace:
1. The economic situation has created decreased demand, and thereby sales, so the business is over-insured and burdened with too much premium.2. The economic condition has eliminated competition, and thereby increased sales, which leaves your firm under-insured and ill prepared for a loss.
Given the last decade, predicting your company’s financial future is a difficult task. Some thought provoking questions to ask your team:
1. Are we introducing new products into or withdrawing old ones from the market which will significantly impact expenses or incomes?2. Have competitors entered or left your market in significant numbers?3. Is your traditional product or service list doing well in the economy?4. Is your supply chain adversely affected by the economy? This question is particularly relevant to contingent business interruption if a sole provider were to burn down.5. Is your company making money now?6. Would you significantly change operations if a major insured loss were to occur?
Review your time sensitive coverage today. The market demands attention to this detail. Using the above guideline will help you choose wisely between extra expense and loss of income.
