"Extra" is the E that largely stands for the concept of accelerating costs incurred to reduce the final loss. "These are unusual expenses." 1 They differ from the normal expenses for repairing and replacing damaged property covered by the property insurance policy. These accelerating costs are usually classified into three categories:
- Those who speed up the return to normal operation;
- Those who continue the business during the interruption period but at a higher cost than the normal cost;
- Those that arise after surgery are resumed to replenish inventory.
It should be noted that Extra Expense Coverage and its benefits are similar, but not the same, to this concept of an E in business interruption. The thesis, Business Interruption Insurance: Its Theory and Practice finds that savings for the loss amount during the interruption period need not be made under the traditional form of extra cost coverage [1
Extra costs, coverage of business interruptions and coverage of additional expenses are often overlooked and misunderstood by insurance agents and adjusters. I noted this a decade ago in a post, Business disruption and extra cost insurance are the most important commercial coverage – and often the most overlooked at the point of sale and adjustment where I said:
Insurance agents must do a better job to convince commercial policyholders to purchase business breaks and extra cost coverage. Insurance companies must do a much better job of paying these benefits much faster than they usually do. These two activities would help many more commercial establishments to remain in business after a disaster.
Christopher Boggs has written a down-to-earth book on business income insurance, Business Income Insurance Demystified: The Simplified Guide to Time Element Coverages . Buy it if you adjust claims on property insurance and want to do a better job of adjusting claims on corporate income. If you are an insurance company lawyer you should not buy it – I will use what he has written to your client and I do not need you more educated than you are. Risk managers need to buy it to explain to your CFO and CEO why this coverage is so important. Agents should buy the job to sell more business income.
Do some insurance companies have their own adjusters determine how much business income or is extra cost protection? Practically everyone hires external consultants and accountants to make the decision. Most adjusters wait weeks or months after a disaster to get these consultants and accountants to work on evaluating the income and expenses of a company after a disaster. As a result, most business income and additional benefits are delayed at the most crucial time following a disaster. Months, rather than days, are the normal sequence for evaluation and payment of time loss.
With regard to "Extra" in coverage of business breakdowns, it is important to remember that the insurer's point of view should exert all efforts to reduce the time required to resume business. This provision encourages the policyholder to take such measures by the insurer agreeing to reimburse the insured for certain rapid expenses. It is more than just due diligence and would be limited to the extent that these expenses reduce or make savings for the insurer.
So exactly what they are should make no difference as long as there are savings for the insurer. This concept is often forgotten by insurance adjusters who are simply not trained in what they need to adjust. In fact, we often find independent or field adjusters without the authority to approve these costs or deny them after the fact despite the savings that the insurer would have received.
As a tip for policyholders struggling with the insurance company, its adjusters or accountants about these accelerating costs, you should read pages 102 to 104 of Business Interruption Insurance: Its Theory and Practice carefully. I will warn you again, . Most insurance companies claim that adjustments simply do not have the commercial training of the GAB adjuster when I started in this business about 39 years ago. You have to be your own expert.
Thought for the day
A captain of the Navy should be a man of strong and well-connected sense, with an acceptable good education, a gentleman, as well as a seaman both in theory and in practice.
—John Paul Jones
1 Business Interruption Insurance: Its Theory and Practice page 59, Nat & # 39; l Underwriter Co., 1986.