Business Interruption Insurance Review

Business Interruption Insurance Review:

Many businesses close after a natural disaster because they didn’t have a contingency plan in place. A Business Interruption Review will help you a long way toward such a plan.

Review Your Current Policy
How does your policy define business interruption and what triggers the coverage? What time periods must pass before coverage takes effect? How long will the coverage stay in effect?

Develop a Loss Plan (What to Do in Case of Loss)
All carriers require prompt notice and that you act in good faith to limit the total loss. Know if there are maximum time limits within which you need to report. Make sure your insurance agent has access to copies of your policies in case yours are destroyed or unavailable. One officer in your company should have a list of policies and carriers at an off-premises location.

Know What Is Needed for Proof of Loss
Usually this will simply be a statement what happened, what property was involved, and documentation of loss.

What Needs to Be Done to Mitigate Loss or Recover Quickly
Are alternative facilities available?
Could you operate elsewhere?
Can you rent equipment?
Would it be efficient to add overtime?
Will your current inventory satisfy your customers during loss period?
If you use current inventory, how long will it take you to replenish inventories to the quantities before the loss?
What is your economic advantage of having your current level of inventory?
Do you have limited markets or suppliers?
How much production can be deferred?
Are long-term contracts at risk?

What Will You Need for Bookkeeping
You have the burden of proof of loss. You will need to account for additional rent, relocation expense, IT additional expense, increased marketing and advertising to sustain business, and extra expense to do temporary repairs.

What Documentation Is Needed in Case of Loss
You can expect that the insurance company will need five years of tax returns, monthly sales tax returns for prior three years, W-2s and 1099s for five years, annual and monthly financial statements for five years, current aged accounts receivables, depreciation schedules, customer lists, and suppliers lists. In addition they will want articles of incorporation, by-laws and partnership agreements. They will also want board minutes, business leases, rental agreements, and all business contracts and agreements.

How Long Will You Likely Be out of Business
Under many Business Interruption Insurance policies, the period of loss will be determined by the time it should reasonably take to repair, rebuild or replace the property after the initial damage has been sustained. A lot of policies have language asserting that the period of loss does not included periods in when the business would have ceased operations for any other reason besides the insured coverage.

Civil Authority
What is your likely exposure to shutdown by Civil Authority?

Also see: Business Interruption Insurance - Don't Be Caught Short!
                Losses Covered By Business Interruption Insurance
                Understanding Coinsurance as It Applies to Business Interruption Insurance
                Calculating Your Needed Coverage Amount for Business Interruption Insurance