Understanding Business Interruption Insurance.In the November/December issue, we identified business interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. as one of the risks camp directors have a tendency to overlook. Many risks might cause an interruption of your business, such as physical damage to your real and personal property (buildings and contents) from a catastrophic fire or windstorm wind·storm n. A storm with high winds or violent gusts but little or no rain. windstorm A storm with high winds or violent gusts but little or no rain. . The magnitude of the loss of income that could result is determined by the type of loss, when it happens, and how long it will take to resume operations. By asking yourself "what if" questions you can plan solutions and respond more effectively if you are confronted with a real-life interruption of your business. The objective of your planning and problem-solving should be to stay open at all costs. To accomplish this, you will probably need to consider different scenarios. You will also need to work with your insurance representatives to become more familiar with the insurance offered to help you cope with a business interruption situation. Insurance does not solve all of the problems you will be confronted with in the event your camp business is suspended sus·pend v. sus·pend·ed, sus·pend·ing, sus·pends v.tr. 1. To bar for a period from a privilege, office, or position, usually as a punishment: suspend a student from school. or interrupted in·ter·rupt v. in·ter·rupt·ed, in·ter·rupt·ing, in·ter·rupts v.tr. 1. To break the continuity or uniformity of: Rain interrupted our baseball game. 2. . However, by becoming more knowledgeable about how business income insurance responds, you will avoid blindly assuming risk. Brainstorming Real-life Scenarios Consider what would happen if your dining hall burned to the ground two weeks before opening day. What would you do? How would you respond to this possible interruption of your business? Here are some issues to consider after the fire is out and everyone is safe: * How quickly can your insurance company get a claims representative on site to authorize To empower another with the legal right to perform an action. The Constitution authorizes Congress to regulate interstate commerce. authorize v. to officially empower someone to act. (See: authority) clean up? * Who would you hire to clean up the debris and grade the site? How much would this cost? Could they complete the job in time for camp to open? * If the site can't be cleaned up in time, should you cancel camp or delay opening? * What should you tell your camper families? How would you do it? Who will help you with this task? What can you do to maintain their goodwill in this time of crisis? * What are the obstacles to staying open and using a field kitchen, large tent, picnic tables A picnic table (or sometimes a picnic bench) is a modified table with benches expressly for the purpose of eating a meal outdoors (picnicking). In the past, picnic tables were typically made of wood, but modern tables can be made out of anything from recycled plastic to , paper plates, and plastic utensils? How would you manage these obstacles? Is there anything you can do in advance to reduce these obstacles or eliminate them? Where would you find this equipment? How much will it cost? * As an alternative to a field kitchen, is there another location or brother or sister camp nearby that you could use by transporting your campers to their site to eat? This is the mutual aid concept. Is there a firehouse, grange hall, or other facility you could use temporarily? How much would one of these solutions cost? * If none of these alternatives is viable and you have to cancel the season or session, what are the implications for your business? How many employees are you obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to pay? What other expenses would continue (i.e. mortgage, taxes, telephone, electric, automobile leases)? * How would you deal with refunding tuition? Would you have enough financial resources to refund tuition immediately? * Are you likely to lose customers to other camps? Will you be able to get them back next year? How long will it take you to recover from the closing and build your enrollment back to pre-loss levels? * Would your situation be different if this fire occurred the day before camp opened? While camp was open and the campers were already there? In September? What Business Income Insurance Covers The business income and extra expense coverage form designed by the company's insurance services office Insurance Services Office, Inc. (ISO) is a provider of data, underwriting, risk management and legal/regulatory services to property-casualty insurers and other clients. Headquartered in Jersey City, New Jersey, the organization serves clients with offices throughout the United is typically used to insure Insure can mean:
Business income insurance covers net income (profit or loss) that would have been earned had there been no loss to your dining hall, plus continuing expenses incurred. The physical damage to your dining hall must be from a covered cause of loss such as fire. Reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. for the loss of net income is for "actual loss sustained." There is a misconception mis·con·cep·tion n. A mistaken thought, idea, or notion; a misunderstanding: had many misconceptions about the new tax program. that business income insurance provides reimbursement for gross income. Or, that the limit of insurance purchased is what is paid in the event of a suspension or interruption of operations. The coverage does not work this way. In some situations, you may recover under business income insurance even if your business would have incurred a loss rather than earned a profit, during the period of restoration. In such a situation you may recover continuing expenses, to the extent they would have been earned by the business during the period of restoration. But certain payroll expenses, if they are not vital to restoring the business, may not be covered. Expense Insurance Covers Necessary Payments Expense insurance is an important part of the coverage camps need and is built into the business income and extra expense coverage form mentioned above. This insurance covers necessary expenses incurred, as a result of the fire, during the period your business is being restored and is designed to provide you with financial resources that may help you stay open. It will pay: * extra expenses to avoid or minimize the suspension of business and to continue operations at your location, at a temporary location, or at replacement location. * extra expenses to minimize the suspension of business if you cannot continue operating. * relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. expenses and the costs to equip e·quip tr.v. e·quipped, e·quip·ping, e·quips 1. a. To supply with necessities such as tools or provisions. b. and operate the temporary or replacement location if you can continue operating. Coverage also includes extra expenses to repair or replace any property or to research, replace, or restore information on damaged valuable papers or records -- to the extent that the expenditure reduces the amount of a loss that would otherwise be covered under the loss of net income portion of the coverage. There are numerous options and nuances to these coverages too extensive to discuss here. It is imperative that you work with your insurance representatives to fully examine your risk and the solutions in this area of business income insurance as part of your response to the risk of business interruption or suspension. Knowing How Much Insurance to Buy How can you determine how much insurance to buy? This takes some thought and planning. First, with the help of your insurance representative and your accountant prepare a business income worksheet based upon your worst what-if scenario. Your insurance representative can supply you with a copy of the worksheet. This will result in a formal determination of your net income. Then, as a result of your thought and planning, you should be able to identify how much extra expense insurance you may need in this worst-case scenario worst-case scenario n → Schlimmstfallszenario nt . These two amounts should be added together plus some cushion Cushion In the context of project financing, the extra amount of net cash flow remaining after expected debt service. cushion See call protection. for unforeseen contingency. This will establish the amount of business income and extra expense insurance to purchase. Don't over insure; only buy as much as you think you need after thoughtful analysis. This seems like a lot of work. But the reality is you can do it now or do it later if you have a loss. Prudent management and good stewardship stewardship the occupation of being a steward or custodian. Referring to animals it implies the caring sort of relationship based on an acceptance of the need to include the rights of animals in overall plans to maintain financial viability. would suggest that you take the time to do it now. A claim, particularly a property insurance claim, can be a nightmare because the settlement requires so much documentation. As a risk manager, one of your primary responsibilities is to keep the enterprise operating. You will accomplish this goal more effectively and have a better experience with your claim adjustment if you take the time to prepare and buy the right amount of insurance. Remember, insurance is only one of the methods of managing risk. It is not always a complete solution. By learning more about what business income insurance covers, you will be able to identify what is not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. so you can make appropriate financial arrangements. There are many other risks of business interruption and suspension that cannot be transferred to an insurance company. Be prepared and use the risk management process to your advantage. Ed Schirick is vice president and division manager of Frontier Insurance Group in Rock Hill, New York Rock Hill is a hamlet (and census-designated place) in Sullivan County, New York, United States. The population was 1,056 at the 2000 census. Rock Hill is in the Town of Thompson by New York Route 17. , where he heads their CampPRO insurance program. He is a chartered property casualty underwriter Chartered Property Casualty Underwriter (CPCU) is considered to be the premier professional designation in property-casualty insurance and risk management. The rigorous curriculum includes eight (8) post-secondary undergraduate, or graduate-level courses covering topics such as and a certified insurance counselor In the United States, Certified Insurance Counselor (CIC) is an insurance agent professional certification designation. The CIC certification program was started by the National Alliance for Insurance Education & Research in Austin, Texas in 1969. . |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion