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Home / Insurance / The last "E" – Has the policyholder purchased "Sufficient" business break insurance to avoid co-insurance or contributions? | Property Insurance Coverage Right Blog

The last "E" – Has the policyholder purchased "Sufficient" business break insurance to avoid co-insurance or contributions? | Property Insurance Coverage Right Blog



We have come to the last of Six P & # 39; s and Six E & # 39; s, if you have followed this series of business break insurance. "Enough" is the last element in these. This is the concept that the policyholder must have "sufficient" insurance to collect for the loss in its entirety. The crux of this is:

[N] the obvious fact that the sum insured for insurance must be equal to the amount of the loss if the insured is to collect in full. Rather, it is the provision found in most business interruption policies called a Coinsurance clause, which penalizes the insured if the sum insured for the insurance does not correspond to an agreed percentage of the total risk amount ̵
1; the amount that the earnings stream would have produced over a period of twelve months if none damage had been suffered, called Business Interruption Value. 1

Unlike other coin insurance clauses with simply a value at the time of a loss, the business interruption provision regarding Coinsurance reflects time periods that will be created in the future. It is neither the value at the time the policy is written nor the insurance value at the time of the physical damage. It is a value related to a future income stream that would have been produced. Obviously, there can be a lot of disagreement about this number because it is in itself an estimate.

Insurance agents and policyholders should use a spreadsheet to make these calculations. In my experience, this is not often done. In fact, insurance agent trainers need to highlight this area as it is not uncommon for instructions to be given to estimate "income", which is an ambiguous term as it causes the policyholder to think of "net income" versus loss of income stream or income.

The "educated guess" for the time frame can be bizarre and contain a guess about lost revenue, not just for the next twelve months, but for the next two years! For example, what happens if the loss occurs a few days before the end of the police period? Most revenue losses that are subject to currency insurance are not only in the coming year at the time of purchase, but over a period of time that will be greater than one year. How educated is the guesswork when it comes to business income?

The educated guess of value becomes even more complicated when considering whether LIFO or FIFO inventory values ​​should be made or when revenues grow or decrease without a simple way of evaluating past growth patterns and other macro factors in economic reality – for example, what does you to estimate future income streams with the current economic situation?

Consequently, my proposal to agree on values ​​or business interruptions without currency insurance is always explored at the time of sale.

I will have a post summarizing the previous blogs. In fact, let me know if you would like us to publish a book on these topics.

Tomorrow there will be no Tuesday with Chip at. 2 due to the GAPIA remote seminar all day. [19659004] Since there is no Tuesday at 2 with Chip, Tuesday will be on Wednesday this week. I will present a call of 45 minutes to an hour on Wednesday at Topics will be the new Colorado Cooperation Act, a quick review of this series of business breaks and a new topic of conversation – adjusting commercial property losses when leases are involved.

Here is a link for this Wednesday.

Thoughts for the afternoon

Events in this area are out of reach for accurate prediction due to various factors in operation, not due to lack of order in nature.
—Albert Einstein
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1 Business Interruption Insurance: Its Theory and Practice s. 60, Nat’l Underwriter Co., 1986.


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