Insurance Community University Business Income CE Webinar The webinar will begin shortly. There is no audio at this time. This presentation is being recorded for your viewing pleasure at a future date. The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right. The PowerPoint presentation is also available under ‘Materials’. You will receive the course number for your state near the end of class. Use the ‘chat’ window for questions on the content. Good things you should know… This class is currently approved for credit in: CA, CO, FL, ID, IN, IL, IA, LA, ME, MA, MO, NE, NV, NH, NC, OR, PA, TN, TX, UT, WI, WY We have a new look! Check it out!

Insurance Community University Your Instructor Today Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center

Insurance Community University Business Income Business Income is a very complex topic. In order to correctly protect our business customer we must: Identifying exposures to risk Identifying transfers of risk to mitigate exposure Understand the insurance policies and endorsements that are available.

Insurance Community University 4 Business Income is Only A Band-aid It Is Risk Assessment, Risk Control and Risk Transfer

Insurance Community University What this course will cover 1. The general purpose of Business Income and the importance of the valuation clause on the Commercial Property Form

Insurance Community University What this course will cover 2. The three major choices for coverage and their differences including a discussion of ALS on a BOP or CP: Coinsurance: Monthly Limit of Indemnity; Maximum Period of Indemnity

Insurance Community University What this course will cover 3. The Indemnity Provision 4. Basics in Limit Setting and Choosing Coinsurance 5. Available Endorsements and policy triggers

Insurance Community University 1. The general purpose of Business Income and the importance of the valuation clause on the Commercial Property Form

Insurance Community University 9 Business Income It Is Said: “Business Income, if properly purchased will do exactly what the business would have done, had no loss occurred--No More and No Less.” Chubb

Insurance Community University 10 Business Income Perhaps: But What Really Happens? Inadequate Limits of Insurance Coverage Gaps Lengthy Claims Settlements Business Failures Competition Inadequate Disaster Plans

Insurance Community University Putting The Business Income Form Into Perspective 11 Commercial Property Business Income Cause of Loss

Insurance Community University Intent of the Commercial Property Form Pay for the Direct Physical Loss To Covered Property At the “insured premises”  Subject to definition and extensions Damaged by a Covered Cause of Loss For a value described in the insurance contract

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Insurance Community University Intent of the Business Income Form Pay for the Financial loss due to Direct Physical Loss To Property (Not necessarily “Covered”) At the “insured premises”  Subject to definition and extensions Damaged by a Covered Cause of Loss For a value and time frame described in the insurance contract including endorsements

Insurance Community University Claim—Covered Not Covered Fedex has gone on strike which lasted a week. Your insured, “I Wrap It and Pack It” solely depends on Fedex to deliver their product. The alternative shippers would cost the insured 25% more in delivery charge costs. Because of the strike, the insured can prove they are losing income 15

Insurance Community University 16 It’s Not Only A Business Income Issue How Does The Property Form Cover Profits And Operational Expenses?

Insurance Community University 17 Where Is The Coverage? It is not just a Business Income Question Prices have three component parts – Cost of Good – Operating Expenses – Profit

Insurance Community University 18 It is not just a Business Income Question Are the profit and operating expenses covered on the Property form? Are the profit and operating expenses covered on the Business Income form?

Insurance Community University Covered Not Covered Your insured manufacturers canned tomatoes all packaged under the Kirkland label and sold exclusively to Costco. All of their goods are pre- ordered. There is a fire loss to the warehouse where all of the finished goods are stored which results in a loss of income to the insured.

Insurance Community University Covered Not Covered Your insured manufacturers canned tomatoes and has a consistent clientele for their product but has not pre-sold the goods. There is a fire loss to the warehouse where all of the finished goods are stored which results in a loss of income to the insured.

Insurance Community University Covered Not Covered Your insured has suffered a loss to their manufacturing facility with resultant damage to equipment and stock in process. As a result they will be closed for 4 months and will incur a loss of income.

Insurance Community University 22 Business Income = Operational Expense And Profit Reimbursement

Insurance Community University 2. The three major choices for coverage and their differences including a discussion of ALS on a BOP or CP: Coinsurance: Monthly Limit of Indemnity; Maximum Period of Indemnity Regardless of the form chosen, the INTENT of the coverage is the same

Insurance Community University Choosing the Right Form Of Insurance for YOUR client There Is No Magic Potent

Insurance Community University Business Income Defined We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations.

Insurance Community University 26 Actual Loss Sustained ALL business income forms are actual loss sustained unless they are “per diem” (valued) BOPs are referred to Actual Loss Sustained Forms (ALS). What they are actually are: – NO limit forms (unless they have a limit) – Subject typically to 12 months worth of coverage

Insurance Community University 27 Actual Loss Sustained Actual Loss Sustained vs. Per Diem – Per Diem pays Per Diem for a pre-agreed amount – ALS pays 30 days after the proof of loss is signed based on determination of loss – Lost Revenue vs. Loss Business – Tax Benefit

Insurance Community University 28 Actual Loss of BI Due to Suspension During Period of Restoration Due to Direct Physical loss of Property at the premises Caused by a covered cause of loss

Insurance Community University 29 Business Income Defined Net Income (Net Profit or Loss before income taxes) that would have been earned plus continuing normal operating expenses incurred, including payroll.

Insurance Community University 30 Covered Not Covered Your insured owns the Westward Ho apartment complex which has ten units. Due to the downturn in the economy five of the ten units have been unoccupied for the last eight months. The insured has sustained a fire to two of the occupied units and two of the vacant units and has put in a claim for loss of rental income for all four of the units

Insurance Community University Coinsurance Automatic Maximum Period of Indemnity 120 days Monthly Limitation 1/3, ¼, 1/6 1. Overview of the Three Forms

Insurance Community University Coinsurance The Business Income form is a coinsurance form unless one of the other options is chosen The Declarations Page will be where the limit of insurance appears and the type of business income form chosen If it is a coinsurance form then typically a percentage will appear after the amount of insurance (50%-125%)

Insurance Community University Coinsurance The coinsurance has an “insurance to value” requirement based on the Business Income Worksheet The Business Income Worksheet basically requires the amounts for the total sales revenue (first page of worksheet) from which the cost of the goods and other allowable deductions are subtracted (second page)

Insurance Community University Coinsurance The coinsurance form’s requirement to insure to value is % of the amount determined on the worksheet for the 12 months of the policy period Coinsurance form has NO monthly limit of indemnity Coinsurance form has NO maximum period of indemnity

Insurance Community University Coinsurance Form The only two events that will stop the coinsurance form from paying anything additional are: – Physical Restoration – Exhaust the limits of insurance

Insurance Community University 36 Monthly Limit of Indemnity 1/3, ¼, 1/6 Maximum Period of Indemnity 120 days Agreed Value Waives Coinsurance Extended Period of Restoration Adds more time to the coverage Optional Coverages

Insurance Community University 37 Maximum Period of Indemnity Coinsurance does not apply Loss is limited to lesser of – The limit of insurance – 120 days following the beginning of the “Period of Restoration”. (This contains 72-hour deductible.)

Insurance Community University Limit Of Insurance $100,000 Maximum Of Indemnity Option Date Of Loss $100,000 Limit120 Days Payment Period BEGINS $60,000$10,000 Payment Period ENDS Remaining $10,000 Of Coverage Is Not Available

Insurance Community University 39 Monthly Limit of Indemnity Coinsurance does not apply. Loss is limited by fraction shown in Declarations multiplied by limit of insurance for each 30 consecutive days following the beginning of the “Period of Restoration”. Extended Period of Indemnity may be used with this form

Insurance Community University Limit of Insurance $100,000 Monthly Limit of Indemnity $100,000 (1/4) Amount Available each 30 days $25,000 Amount Loss Proven $25,000$20,000$15,000$10,000 Amount Available in subsequent months 0$ 5,000$10,000$15,000 Total Amount Available In Succeeding Months $30,000 Not To Exceed $25,000 In Any 30 Consecutive Days

Insurance Community University #3. The Indemnity Provision It is all about “Time” and “Money” following a loss to get to the projected “pre-loss” level of operation

Insurance Community University Period of Indemnity and Projection based on physical length down and financial loss

Insurance Community University 43 Covered Not Covered Sam's Bar and Grill had water damage on Friday morning and had to close their restaurant for an entire weekend beginning Friday after breakfast and did not open until Tuesday in time to serve dinner. Sam’s is not open on Mondays. They submitted a claim for the loss of revenue beginning for lunch on Friday through Monday through dinner.

Insurance Community University Period of Indemnity Defined Begins with Covered Property Loss - (Note: 72 hour waiting period is only for business Income, not extra expense) Ends when property should be repaired or relocated Period of Indemnity is NOT tied into financial restoration—only physical restoration 44

Insurance Community University 45 Covered Not Covered Relaxing Day Spa sustained a major windstorm loss that affected a large area of town. The Spa was closed for repair for 3 ½ months from June until September 15 th. When they re-opened a lot of their regular customers had found other spas and it took until January 15 th for them to have the same amount of revenue from their operations that they did prior to the loss. Judy’s has put in a claim for the entire period from June until January 15 th

Insurance Community University Period of Indemnity Defined Must extend the indemnity period with the Extended Period of Indemnity Policy expiration will not limit period Some forms have a 12 month “restoration period/indemnity”. Some companies will extend this restoration/indemnity 46

Insurance Community University Period of Indemnity Defined Period does not include extra time required due to building laws or pollution clean-up – Ordinance or Law—Increased Period of Restoration 47

Insurance Community University 48 Period of Restoration Language "Period of restoration" does not include any increased period required due to the enforcement of any ordinance or law that: (1)Regulates the construction, use or repair, or requires the tearing down of any property; or (2)Requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". The expiration date of this policy will not cut short the "period of restoration".

Insurance Community University 49 Extended Business Income Extends the time that a business income loss will be paid after actually repaired, rebuilt or replaced, and "operations" are resumed. Ends when insured restores "operations" to previous conditions or 30 days after. Not additional insurance

Insurance Community University Extended Business Income Automatically provided for 30 days in the ISO forms Number "30" replaced by number shown in Declarations. There are several options to choose from as extensions from 60, 90, 120, 150, 180, 270, 360 up to 730 days past the point of physical restoration. 50

Insurance Community University Loss Payment Physical Restoration Complete—Period of Indemnity Ends Extended Business Income 30 automatic ( Extension ) No Extension Available for Extra Expense Extra Expense ends at physical restoration Loss Occurs (EE) No Waiting Period Period of Restoration Begins Limits on Loss Payment Ends lesser of relocation or repair Loss Occurs (BI) BI Deductible 72 hours Reduce or Remove BI Period of Restoration Begins BI Period Ends at Physical Restoration + 30 days 51

Insurance Community University 4. Basics in Limit Setting and Choosing Coinsurance

Insurance Community University Coinsurance—the dreaded word It is simply an insurance to value clause AND a method to reduce the amount of insurance to a level that makes sense. Remember the work sheet (total sales minus cost of good) This may be more than the insured feels they need to insure so coinsurance allows them to reduce that amount

Insurance Community University Percentages Reflect the Amount Carried (begin with $1,000,000 Sales minus Cost of Goods) $500,000 (50%) $600,000 (60%) $700,000 (70%) $800,000 (80%) $900,000 (90%) $1,000,000 (100%) $1,250,000 (125%) 54

Insurance Community University 55 Suspending Coinsurance with Agreed Value Indicated on the Declarations Page Coinsurance suspended until 12 months after effective date or expiration. Business Income Report/Work Sheet (CP 15 15) must be submitted to the company This date must be advanced every year or coinsurance is automatically reinstated. Agreed Valued does NOT agree to the value

Insurance Community University Determining Coinsurance Factors – Continuing versus non continuing expenses – Peril causing the loss (CAT) – Potential time down – Alternatives Secondary locations Secondary resources – Duplication/Redundancy of operation 56

Insurance Community University 57 Payment Statement for Coinsurance (Coverage) A.Coverage 1.Business Income Business Income means the: a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and b. Continuing normal operating expenses incurred, including payroll.

Insurance Community University Trending minimum 1 year prior to inception Policy Year Basis for Coinsurance Agreed Value Physical Length Down (Like, Kind, Quality) Loss Settlement Construction Physical Length Down (Ordinance or Law) Policy Year Other Options Financial Length Down

Insurance Community University 5. Available Endorsements and policy triggers

Insurance Community University Endorsements Ordinary Payroll Exclusion Ordinary Payroll Limitation Discretionary Payroll Expense Power, Heat and Refrigeration Exclusion Waiting Period (Reduced to 24 hours) Waiting Period (No Waiting Period Ordinance or Law Increased Period of Indemnity

Insurance Community University Endorsements Radio and TV Antenna Business Income Civil Authority Premium Adjustment Electronic Media and Records Dependent Property Broad Dependent Property Limited Business Income Landlord as Additional Insured (Rental Value)

Insurance Community University 62 Upcoming Dates University Classes FREE Community Classes 2/28 Flood Insurance 3/7 Cyber Liability 3/14 Products Liability and Products Recall 3/ Commercial Property Forms Explained 4/4 Insuring Wineries Join the Community TODAY at: