1. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 1 Insight on How to Insure a Manufacturing Risk Designed for the Insurance Community Center by: Insight Insurance Consulting

2. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 2 Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc. In providing these materials, Insight assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Insight Insurance Consulting (714) 803-5830Fax: (949) 706-6880 Laurie@insightinsuranceconsulting.com www.insightinsuranceconsulting.com www.theinsurancecommunity.com Copyright 2010 All Rights Reserved

3. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 3 Some Facts About Manufacturing

4. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com About Manufacturing The U. S. is the world’s largest manufacturing economy U. S. Manufacturing produces $1.6 trillion of value each year or 11.5 percent of the U. S. GDP. Nearly 12 million Americans work directly in manufacturing—about 10% of the overall workforce. 4

5. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 5 Business Sectors and the Economy Note: Percentages do not add up to 100 percent, due to a statistical discrepancy between national income and national product. Source: U.S. Department of Commerce, Bureau of Economic Analysis

6. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 6 Small Firms Are the Largest Number Of Exporting Manufacturers According to the U.S. government, 92.6 percent of all exporting manufacturers have fewer than 500 employees.

7. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 7 Manufacturers Perform The Largest Share Of R & D Manufacturing plays a key role in inventing new products. Investment in research and development is the single most important source of technological advance. Manufacturing alone contribute 57% of total R & D. Three manufacturing industries-- transportation equipment, electronics and chemicals account for 38% of R & D. (www.nam.org)

8. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 8 Insurance is Only A Band-aid It is about Risk Identification, Risk Assessment, Risk Control and Risk Transfer

9. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 9 Enterprise Risk Management (ERM) Looking at the risk from both the insurable and non-insurable exposures In practice ERM is “a very encompassing, detailed and deliberate process of risk identification and remediation” John Liner Vol 21 #4 Winter 2008

10. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 10 Manufacturing risks are very complicated whether they are – Small – Large – Domestic – International – Low Tech – High Tech They all have similar and yet diverse exposures and insurance transfer capabilities Manufacturing Risks

11. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Manufacturing Risks Physical Risk PropertyLiability Financial Risk Business Risk Credit Risk Operational Risk ReputationMarket 11

12. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 12 Enterprise Risk Management According to the AON “Global Risk Management Survey “07” the top five risks include: – Damage to Reputation – Business Interruption – Third Party Liability – Distribution or supply chain failure and – Market Environment

13. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 13 Enterprise Risk Management Other concerns facing manufacturers today – The economy as a whole – Increasing regulations and compliance – Technology and E-Risks – Weather and Natural Disasters – Environment and Pollution; and – Terrorism is always a concern

14. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 14 Enterprise Risk Management Looking at the enterprise as a whole with an eye always to survival. – (It is no longer just trying to grow and prosper but rather to avoid failure and bankruptcy) Business Continuity Planning (BCP) Technology—Enterprise Resource Planning (ERP)

15. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 15 Disaster Planning - Duplicate “everything” Duplicate records updated and stored off-site. Identify alternatives for critical services and supplies. Identify alternatives for locations and equipment. Establish “Hot sites” containing critical equipment to enable insured to resume immediately.

16. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 16 Disaster Planning- Plan for all possibilities Plan for not just the obvious but the unusual and unexpected. Establish Reciprocal Agreements in order to continue operations and refocus loss to extra expense as opposed to Loss of Income potential.

17. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 17 Modern Manufacturing In today’s economy, you will find few self sufficient firms. Most manufacturers employ the “just in time” concept of manufacturing which originated by the Japanese. “Just in Time (JIT) is an inventory strategy that strives to improve business's return on investment by reducing in-process inventory and associated carrying costs. (Wikipidea)

18. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Modern Manufacturing  This entire process requires considerable planning, quality control, efficient production, and other risk management techniques because a breakdown in the chain of process can result in costly problems. 18

19. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Modern Manufacturing  From an insurance standpoint, the “JIT” concept should realize reductions in the need and cost of property insurance.  This property exposure not only will affect the values of raw material inventories but also finished goods in that finished goods should be shipped as they are completed rather then warehoused for long durations. 19

20. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Modern Manufacturing  The indirect loss exposures such as loss of business income and extra expense will be the major focus.  Since the purpose of the “JIT” reduce stockpiling of parts and finished product it is implicitly time sensitive and highly dependent on outsourced timetables.  Also, basic to “JIT” operations is a well thought out disaster contingency plan. 20

21. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Reviewing the Manufacturing Risk Exposures 21

22. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 22 Manufacturer’s Risk Analysis Type and Production of Product Relationships and Dependencies Locations and Geographic Entity including Stockholders Employee Advertising and Website

23. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Type and Production of Product 23

24. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Manufacturing Continuous manufacturing or flow shop Intermittent manufacturing or job orders Batch manufacturing Project manufacturing 24

25. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Manufacturing The American Bureau of Labor Statistics classifies manufacturing into hundred of subfields and sub-subfields, This list simplifies these into six general sectors Source: M. Johnson. eHow Contributing Writer www.ehow.com 25

26. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Manufacturing Clothing and Textiles Petroleum, Chemicals and Plastics Electronics, Computers and Transport Food Metals Wood, Leather and Paper 26

27. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Manufacturing—Contract Manufacturing Raw Goods Supplier/Source Seasonal Transportation Storage In Process Assemblers Sub-Assemblers Packers Location Finished Sold/Unsold Storage Installation/Assembly 27

28. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 28 erp.syspro.com

29. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Relationships and Dependencies 29

30. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Relationship with other Entities--Suppliers Name of Supplier McVayRTD What Parts Supplied Electric Switches Motors & Hydraulics Where Located IndianaChina 30

31. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 31 Relationships and Dependencies Product Suppliers Services Utilities Technology Shippers/Storage/Full fillment (3PL) Labor Exposures Adequacy of Coverage

32. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Relationships and Dependencies Supply Chain Risks – Creating charts – Identifying vulnerabilities – The supply chain starts and continues with the same “dynamic” issues (change, activity, progress) 32

33. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 33 Relationships with Customers The purpose of reviewing the list of clients of an insured is to determine: – The geographic breakdown in relationships; – If there is any one client or a couple of clients that have the majority of product being sold to them – To determine the financial stability of the major clientele.

34. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 34 Relationships with Customers This information is important in the overall insurance program for a couple reasons: – Determine if Credit Insurance is advisable

35. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 35 Relationships with Customers Analyze the impact of the loss of a major client would have on company in determining limits of insurance and the length of coverage for any extension of coverage under business Income. Determine if it would be appropriate to provide dependent property coverage “recipient” category for key “receivers” of product.

36. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Relations with Customers 36 PistonsSeals/GlandsPiping10% of Sales30% of Sales48% of SalesArizonaPuerto RicoEngland

37. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Location and Geography 37

38. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Location and Geography Chart of operational geography Exposures Adequacy of Coverage 38

39. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 39 Location and Geography Realities Manufacturers own or lease premises outside the U.S. Manufacturers may have relationships with operations outside the United States Manufactures export or import all or part of their goods

40. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Location and Geography Realities Manufacturers sell goods outside the US either directly or digitally Manufacturers send workers outside the US for business purposes Manufacturers own or rent cars outside the US And more…………………………… 40

41. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 41 Location and Geography Realities  Most US Commercial Property policies do not provide coverage outside the US and Canada  Most US Commercial General Liability policies do not provide coverage for suits brought outside the US, its Territories and Canada  Most US Business Auto Policies have a similar limitation regarding coverage territory

42. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 42 Location and Geography Realities  Most of the domestic crime forms have the same limited territory as above.  Each state’s Worker’ Compensation statutes handles the extension of benefits differently for temporary international travel.

43. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Location and Geography Actual Locations – Owned – Non-owned – Leased – Warehoused – Temporary – In Transit – Conventions, etc 43

44. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 44 Location and Geography Leased Building Exposures Contractual Analysis Adequacy of Coverage

45. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Entity Analysis Including Stockholders 45

46. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Entity including Stockholders Chart of past, present, dormant entities – Who are they? Who were they? Who are they becoming – Exposures & Adequacy of coverage 46

47. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 47 Stockholder’s Analysis – Chart of ownership percentages for past and present structure – Exposures Within and outside client organization – Corporate Entity Identification – Indemnification of Directors and Officers – Identify corporate required outside directorship

48. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Employee Analysis 48

49. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 49 Employee Analysis  Chart/Adequacy of Coverage  Exposures  Contracted Employees  Temporary Employees  Leased Employees  Foreign Employees  Adequacy of coverage

50. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Advertising and Website Review 50

51. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 51 Advertising Analysis The objective in reviewing the advertising practices and materials utilized by the company is to determine if the advertising is accurate and factual.

52. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 52 Advertising Analysis Forms of Advertising – Web – Brochure – Yellow Pages – Industry Magazines, Catalogues – Radio – Television

53. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Web Site Analysis Do they have a web site? What are they saying about themselves on the web site (as opposed to what do they really do?) Is the Web Site for Advertising (Presence) only? Do they sell product the internet? Do they offer any other services on their website? Are there any foreign operations? Are there any links or frames?

54. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Web Site Analysis Are there any warranties or representations made? Is there any form of social networking? Is there a bulletin board? Is there a chat room? Is there protection for credit card use? Is there a clear privacy statement?

55. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Approaches to Writing the Manufacturing Account 55

56. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Approaches Packaged Separate—Non Packaged approach – Depends on the risk (type/location) – Depends on cost – Depends on Limits Some coverages will necessarily be separate based on their specialization 56

57. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 57 Insurance Approaches BOP – Caution—very limited – Only appropriate for a very small, uncomplicated manufacturer Commercial Package Policy – Limited based on territory, movement, bailment

58. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Approaches Manufacturers Output or Company Forms – Combination Inland Marine and Property – A better solution for the manufacturer 58

59. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 59 Stock Through Put The Stock Through Put policy is a property only policy that combines a marine transit policy with a stock policy. Coverage is written on a worldwide basis. The policy is often tailor made to fit the varied and specific needs of the manufacturing client.

60. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 60 Stock Through Put Desirable characteristics of the candidate for a Stock Throughput include: – High turnover of inventory – Heavy transit exposures – Foreign as well as domestic exposures – Minimum annual sales of $l0,000,000 (varies) – Rated based on sales revenue – Automatically Selling Price

61. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Approaches Admitted Foreign Insurance International Difference In Conditions Exporters Protection Package 61

62. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Solutions 62

63. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 63 Types of Insurance Products Property Building and Property Coverage Business Income Dependent Property Coverage Spoilage Inland Marine Transportation International

64. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 64 Admitted Foreign Insurance Every country has their own requirements as to the placement of admitted insurance Countries require a minimum of property and casualty coverage be placed through an admitted market. Placement of such coverage can be done through a broker in the foreign country or through a U. S. carrier that has representation in that country.

65. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Foreign DIC – Difference In Conditions DOC – Difference of Conditions DIL – Difference in Limits 65

66. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 66 Types of Insurance Products Liability Commercial General Liability Umbrella Business Auto Workers Compensation & Employers Liability Products Liability Products Recall/Withdrawal Pollution Legal Liability

67. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Insurance Products Liability Directors and Officers Liability EPL EBL Cyber Liability Crises Management 67

68. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 68 Types of Insurance Products International and Miscellaneous Credit Insurance Ocean Marine Cargo Insurance Kidnap, Ransom & Extortion Political Risk Comprehensive Foreign Dishonesty, Disappearance and Destruction

69. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 69 Property Exposures BUILDING (S)

70. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Property Breakdown 70

71. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 71 OwnedLeased Manufacturing Plant Office Warehouse Tradeshows Conventions Showrooms Retail Operations

72. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 72 Issues Relating To Building And Location How important is the insured’s location to their continued operations? Can the insured relocate based on lease agreement? Can the insured relocate based on area consideration? Are there any zoning/building ordinance issues that would preclude them from rebuilding on site or impose additional costs?

73. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 73 Issues Relating To Building And Location Would the insured necessarily rebuild (ownership versus leasing)? Are there alternate facilities readily available? Are there temporary facilities readily available? Can the insured enter into a reciprocal agreement with another facility similar to theirs for temporary usage?

74. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 74 Building Solutions Stop Loss/Loss Limit Replacement Cost/Functional/Building Ordinance S. I. R.s All Risk Boiler & Machinery CAT Perils

75. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 75 Owned Leased Rented Production Equipment Specialized Foreign Made Computers Computerized Equipment

76. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 76 Issues Relating To Equipment Does the insured have any specialized equipment? What is the availability of replacement parts particularly if the parts are foreign or no longer manufactured? What is the availability of substitute equipment?

77. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 77 Issues Relating To Equipment What is the time frame of obtaining the equipment? If any of the equipment is certified, etc-- what would be the additional time frame to re-certify/re-customize? If the equipment is leased, what is the insurance requirement contained in the lease. Does the lessee have to insure the equipment for the “value of the lease”?

78. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 78 Machinery & Equipment Solutions Replacement Cost Functional Replacement Cost Soft Cost Equipment All Risk Coverage Boiler & Machinery EDP Cat Coverages

79. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 79 Manufactured by insured Manufactured by Others Stock In Process Pre-Sold Unsold Warehoused Trademark Confidentially of line

80. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Profit and Operational Expense Stock Sold But Not Delivered Business Personal Property Form Automatic Manufacturer’s Selling Price Endorsement Unsold Merchandise / Retail Selling Price Unsold Finished Stock Stock Future Value To Future Value Or Production Business Income Insurance 80

81. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 81 Insurance Solutions Peak Season Value Reporting Manufacturers Selling Price Agreed Value Manufacturers Consequential Loss Assumption (Pair and Set) Brand and Label

82. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 82 Insurance Solutions Control of Salvage Preclusion of Salvage

83. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 83 Issues Relating to Stock for the Manufacturer How much “finished stock” is maintained by the client that is not sold? What percentage of the “finished stock” is pre-sold? How much of the work in process is pre- sold? Can the product be produced by others for a fee?

84. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 84 Issues Relating to Stock for the Manufacturer Are there production bottlenecks? (Create a flow chart) Are there independent operations? Is the risk seasonal in any nature? (Lag time—Idle Periods) Does the insured have any retail outlets under the same or another name?

85. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 85 Issues Relating to Stock for the Manufacturer Finished stock valued at average selling price. Finished stock should include stock manufactured by outside firms which is distributed by the insured. Who are distributors or warehousers of insured’s stock? Do others hold the insured’s stock on consignment?

86. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 86 Issues Relating to Stock for the Manufacturer Are there any idle periods in production? – This should be taken into account in calculating the indemnity period. – This period represents the period of time during which a manufacturing plant is normally not in production. Examples would be when they are scheduled for retooling, vacations, etc.

87. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 87 Issues Relating to Stock for the Manufacturer Are some or all of the goods in process sub-contracted out for manufacturing? – If so, review contracts and insurance at sub- contracted locations Does the insured have other people’s patterns, dies, molds, models? – Must provide floater coverage for these goods or in definition?

88. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income and the Manufacturing Risk 88

89. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 89 Business Income and The Manufacturing Account The Major Concerns In Structuring Business Income Insurance Protection – Inadequate Limits Of Insurance – Coverage Gaps – Lengthy Claims Settlement – Business Failures – Competition – Inadequate Disaster Plans

90. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 90 Business Income Considerations Business Income with Extra Expense Dependent Property Coinsurance Waiver Global Coverage and Dependent Property Extended Period of Indemnity Foreign Coverage Transit Business Income

91. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 91 Business Income Dependent Coverage – Global – Non Specific--long Tentacles Off Premises – Broad Definition – No Distance Limitations – No Sublimits – Transit CONTRACT

92. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 92 Business Income Careful Analysis of the Amount of Sold Goods Amount of unsold finished goods – Use in Loss Settlement – Appropriate Selling Price – Amount of substitute goods available

93. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 93 Will The Insured Actually Suffer A Business Income--a Key Question Based on Risk Management techniques in place, what is the likelihood that the insured will actually suffer a Business Income claim?

94. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 94 Will The Insured Actually Suffer A Business Income--a Key Question Based on the size, duplication, and spread of risk what is the likelihood of a Business income claim? Does the insured have sufficient stock and/or merchandise in storage to satisfy a loss in process?

95. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 95 Will The Insured Actually Suffer A Business Income--a Key Question To what extent will income be deferred as opposed to lost? To what extent will Extra Expense be more of an issue than Business Income? Is the insured actually making money in the first place?

96. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 96 The Four Most Common Problems In Arriving At The Correct Amount Of Business Income Insurance 1.Determination of the period of indemnity - how long does the client need to have coverage? – Based on the definition in the policy forms as to how long it will pay based on “Period of Restoration” definition. – Based on the needs of the client beyond the point of “Period of Restoration.”

97. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 97 The Four Most Common Problems In Arriving At The Correct Amount Of Business Income Insurance 2.Determining which expenses of the business must necessarily continue, or, conversely, which expenses are non-continuing and therefore not to be allowed. 3.Determining the correct coinsurance clause. 4.Projecting the anticipated sales or sales value of production

98. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 98 Intellectual Property Copyright, Trademark, Patent Protection

99. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Intellectual Property A very important issue for a manufacturer – Patents www.uspto.govwww.uspto.gov In whose name Merger and acquisition Still valid Pending – Trademark – Trade Dress – Copyright 99

100. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 100 Intellectual Property “In simple terms, intellectual property is the product of the human intellect that has commercial value. Intellectual property encompasses a wide range of creations--from fiction, poetry, songs, designs and artwork to ads, product names, mechanical inventions, processes, chemical formulas, machines and software.

101. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 101 Intellectual Property The commercial value of intellectual property comes from the ability of its owner to control its use. If the owner can not legally require payment in exchange for use or ownership of the intellectual property, the property would have intellectual worth but no commercial value.”

102. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 102 Insurance Issues On a CGL there was never coverage for Patents Prior to 1998 CGL version there was limited coverage for copyrights and trademarks

103. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Issues The CGL changed in 1998 to narrow the response of the CGL under Advertising Liability for suits involving different categories of intellectual property. 103

104. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 104 1998 CGL Definition The l998 form inserted a definition of the word “advertisement”: “Advertisement” means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.

105. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 105 1998 CGL Definition 14.“Personal and advertising injury” means injury, including consequential “bodily injury,” arising out of one or more of the following offenses. f. The use of another’s advertising idea in your “advertisement”; or g. Infringing upon another’s copyright, trade dress or slogan in your “advertisement.”

106. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 106 Intellectual Property Insurance Coverage must be placed with carriers specializing in Intellectual Property Insurance under separate cover. Coverages Available – Defense Coverage – Offense (Abatement) Coverage

107. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 107 Product Recall or Withdrawal

108. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 108 Products Recall Exclusion (n.) Recall of Products, Work or Impaired Property Damages claimed for any loss, cost or expense incurred by you or others for loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of: Your product Your work Impaired property

109. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 109 Products Recall Exclusion If such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it

110. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 110 Products Recall – Special Products Exposures and Coverages Products Integrity Coverage Products Tampering Coverage Malicious Product Tampering (MPT)

111. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 111 Products Recall – Special Products Exposures and Coverages Accidental Product Contamination (APC) Products Extortion Coverage Products Withdrawal Products Recall

112. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 112 Products Integrity Coverage Products Integrity Coverage provides protection for loss of revenue and the extra expense in recalling a product in circumstances where fear can be shown to exist among the general public or customers associated with specific products manufactured by the insured.

113. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 113 Products Integrity Coverage The cause of fear could arise from a variety of causes including but not limited to actual bodily injury or property damage to humans or animals that consume the insured’s product.

114. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 114 Products Tampering There are three points at which a foreign object or other contaminant Can get into a product: – During Manufacturing

115. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 115 Products Tampering While the product is in distribution. – These are cases in which someone tampers with a product and returns it to the store shelf looking as untouched as possible so the purchaser is unlikely to detect the tampering.

116. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Products Tampering After Purchase – These include false report cases, such as the false claims of Pepsi tampering during the summer of l993. 116

117. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 117 Products Tampering Coverage is similar to Products Integrity Coverage. It covers the cost to recall, inspect, test, dispose or rehabilitate products following a known or threatened tampering incident, including interruption of business and lost income.

118. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 118 Policy Coverages Under MPT And APC Recall Expenses – Costs of chemical analysis – Transportation and relocation of contaminated products – Value of recalled or destroyed contaminated products

119. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 119 Policy Coverages under MPT and APC Lost Profit – Covers Lost profit of the “Named Insured” as a result of an incident covered by the policy. Be careful – does the policy say “net profit” or “gross profit?”

120. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 120 Political Risk and Credit Insurance

121. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 121 Political Risks Political risks are arbitrary or discriminatory actions, taken by home or host governments, political groups, or individuals, that have an adverse impact on international trade or investment transactions.

122. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 122 Political Risks Examples include: – A government interfering in a company’s ability to control or operate an overseas investment – A government not paying for a shipment of goods received – A government taking over a facility – A terrorist attacking a manufacturing facility. – Political Risk Insurance Guide, IRMI, Daniel Wagner

123. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 123 Political Risk Insurance (PRI) Demand for PRI has increased fueled by investors – Investors may be concerned about the political risks associated with investing abroad, especially with new partners. – The company’s ability to purchase PRI to prove their foreign abilities.

124. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 124 Political Risk Insurance (PRI) Most international banks have limits of the amount of lending they can provide to investors in a given country. Most will have insurance requirements that are part of the loan package. Lending institution requirements are the driving force behind the growth of the PRI sales.

125. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 125 Political Risk Insurance (PRI) Forced Abandonment - Key Operator Endorsement Financed Asset - Non-repossessions Deprivation / Contingent Deprivation Currency Inconvertibility / Non-transfer Political Violence Contract Frustration Trade Disruption Export Credit

126. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 126 Trade Disruption Insurance TDI Trade Disruption Insurance (TDI) provides coverage of a loss of earnings or extra expenses resulting from disruption of trade flow.

127. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 127 Trade Disruption Insurance TDI The primary focus of the program is to protect corporate financial statements against the loss of profits/extra costs caused by unforeseen disruption in sourcing, manufacturing, customer deliveries and/or project completion schedules which are uninsured under most traditional placements.

128. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 128 Trade Disruption Insurance TDI Coverage of TDI will encompass an aggregate of property, marine and political risks under a format in which “physical loss or damage” is not required as the proximate cause of loss. TDI can be used to protect specific projects or multinational global trade.

129. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 129 Trade Disruption Insurance TDI TDI can insure against a wide range of interest: – Loss of Profits – Contract Penalties – Product Replacement Costs – Expediting Costs and Expenses – Increased Purchase Costs – Relocation Costs

130. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 130 Trade Disruption Insurance TDI Perils can be selected individually and others can be added. Fire Perils Embargo, Third Party Blockade, License Imposition/Revocation, Border Closure Storm, Tempest, Flood, Snow, Fog, Ice, Landslip or Subsidence

131. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 131 Trade Disruption Insurance TDI Earthquake Overturning, derailment, collision or a conveyance, aircraft Emergency partial or total closure of any road, airport or railway line

132. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 132 Trade Disruption Insurance TDI Terrorism, Strikes, Riot, Civil Commotions Goods being discharged at the wrong port Commercial Strikes

133. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 133 Trade Disruption Insurance TDI Refusal of a Master/Pilot/Driver to proceed through any dangerous area Expropriation, Nationalization, Confiscation, Deprivation Locked or damaged port facilities War on land

134. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 134 Credit Insurance Protects insured against nonpayment from their client. Can assist in increasing market share. – Insured receivables can be used as collateral for expansion loans. – Increases cash flow. Expands sales by offering competitive credit terms. Allows expansion into unfamiliar foreign markets.

135. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 135 Credit Insurance Mitigates financial risks. – Offers protection against excessive credit losses. – Provides loss prevention guidance. Protects insured against protracted default. Protects against failure to honor Letters of Credit.