Business interruption (BI) losses and claims can be pretty complex. There are so many variables and “if/then” scenarios to map out. You will need to take certain actions that can be made prior to a loss to ensure you are prepared for significant property damage and a business interruption claim.
Are you looking to spruce up your risk management program? While no business wants to suffer a loss of earnings, the more prepared you are, the better the results will be. The following steps may take time to fully develop but will greatly help prepare for any worst-case scenarios with the best-case solutions.
Preparing Accurate Values
The annual ritual of preparing the business interruption worksheet should be viewed as an opportunity to measure risk for accumulating annual values for future trending. You will want to explain your business completely and in depth to policy underwriters. For an effective BI values methodology, solicit help from the specialists, as the results should translate into more appropriate coverage for your business’s specific risks. Once a system is enacted, you will likely see an improvement in place, accuracy, consistency and efficiency.
Once the ratable values are calculated, you should then explore realistic loss scenarios. The annual BI value number does not factor in real-life responses that would generally mitigate a claim. To get to the actual exposure to risk, determine the maximum foreseeable loss (MFL) and probable maximum loss (PML) measurements. The MFL measures worst case scenarios in the event that all of the loss-control protections fail. The PML involves realistic loss scenarios, in which mitigation systems and contingency plans are successfully executed. For each, the property damage and business interruption effects are calculated as if they had occurred.
Loss scenarios should be thought out in detail (location and occurrence) considering all factors. Prepare these numbers as if presenting a claim, exploring all “what if” possibilities. Insurers may offer some assistance in this process, but you can always prepare your own scenarios and your own calculations according to your understanding of your operations to accurately value the losses.
Analyze Contingent Risks
What are your suppliers’ and customers’ exposures? All leadership should be involved in helping to identify contingent exposures. With a sole supplier involved, contingent exposures could be much larger than expected and should be reviewed.
It is important that you fully understand how your current policy would respond to the contingent loss scenarios you’ve identified. For instance, if suppliers in your policy are referred to as a “direct” supplier, be sure you understand how this would be interpreted in a claim. If “direct” refers to only suppliers with whom you have a direct contract, and an indirect supplier encounters a loss that affects you, would you be covered? These scenarios should be discussed with your agent so you are not faced with any surprises. Once the values and scenarios are evaluated and updated, you will be equipped to make informed decisions about your coverage.
About The Rubin Group
Based in New York, The Rubin Group provides insurance in most of the 50 states. Our full-service insurance brokerage provides insurance and risk management services to individuals in all income brackets and businesses of all sizes and types. We understand that every client has unique coverage requirements, and we are passionate about providing the ideal individualized coverage for each customer. Each member of our team takes the time to truly understand your situation, the particular risks you anticipate – and the very real risks you’ve not yet contemplated. For all of your insurance needs, contact us at The Rubin Group at (877) 806-7239.