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Business Income Loss Formula
Expected Net Income - Actual Net Income
What does Business Income insurance cover?
the reduction to a business's income when operations are interrupted by damage to property caused by a covered peril
expenses, in addition to normal expenses, that an organization incurs to mitigate the effects of a business interruption; are only payed because the loss occurred (ex: rent on a new, temporary location)
expenses that must be payed even after a loss has occurred (ex:property taxes)
expenses that do not have to be paid after a loss occurs (ex: minor employee salaries)
What are the 2 general events that could cause a BI loss?
- 1. Damage to property at the organization's own premises
- 2. Damage to property away from the organization's own premises
What are the 5 types of losses that occur to property away from the organization's premises?
- Loss from:
- 1. The orgo's own property off premises
- 2. Dependent property exposures
- 3. Interruption of utility services
- 4.Acts of civil authorities
- 5. Adverse weather
Dependent Property Exposure
the possibility that an organizaion will incur BI and/or extra expense losses bc of damage to property at the premises of a firm on which the orgo depends; (exs: suppliers, key buyers, leader properties)
What time elements must be taken into consideration in relation to a BI loss?
- 1. When do we expect business income to be reduced?
- 2. How long do we expect business income to be reduced?
2 time factors taken into consideration when decidng "how long:"
- Time required to:
- 1. Replace damaged property
- 2. Restore normal rate of income
NOT EML; the sum of the insured's estimated net income and operation expenses for the 12 months following policy inception, minus only those expenses listed in the form (continuing expenses, not extra)
Adjustments to CI basis (7):
- 1. Non-continuing expenses
- 2. Time required to restore property
- 3. Peak seasons
- 4. Extended business income loss
- 5. Changes in expenses/revenues during restoration period
- 6. Extra expenses
- 7. Anything else (e.g. potential errors)
Purpose of the BI Worksheet
- Calculates insurance limits necessary to comply with CI condition if business income insurance
- Reports BI values to insurers
- Assists underwriters in accurately evaluating BI exposure
What CI percentages are available for BI?
50, 60, 70, 80, 90, 100, and 125%
As CI% ______, rates __________.
What is the appropriate limit of insurance?
- The higher of:
- Amount needed to satisfy CI requirement (CI%*CI basis)
What is the appropriate CI percentage?
EML/ CI basis
What are the 3 types of Business Income Coverage (BIC)?
- 1. BIC w/o extra expense
- 2. BIC with extra expenses (3 options: 1. with rental value, 2. other than rental value, 3. rental value only)
- 3. Extra expense coverage form
What are the major points of the BIC insuring agreement?
- Actual loss of income sustained
- Due to the necessary suspension of your operations
- During the period of restoration
- Caused by direct physical loss of or damage to property at the described premises
- Caused by a covered loss
3 categories of extra expenses:
- 1. those incurred to avoid or minimize the suspension of business and to continue operations (at or away from the premises)
- 2. those incurred to minimise the suspension of business if operations cannot be continued
- 3. those made to expedite repairs
Period of restoration
think of this as a time deductible; begins 72 hours after loss for insurance purposes and ends when property should be replaced or when business is resumed at a new permanent location
BIC does not cover these 2 losses related to finished stock:
- 1. loss of revenue from damaged stock
- 2. time to reproduce/ manufacture damaged stock