Business Income Exposure
Valuing Business Income Exposures: A Case for Blanket Business Income Insurance
Page 3 of 8 Previous 1 2 3 4 5 6 7 8 Next View issue on one page
Blanket coverage – the answer for complex businesses
When a business is more complex, involving tow or more “fire divisions” (separate but adjoining structures, each with its own property insurance rate) or locations, the problem of arranging adequate business income insurance also becomes more complex, requiring that the agent, broker or insurance consultant have a full understanding and appreciation of the insured's business operations.
The most basic method of insuring such an operation is to have a separate item of coverage—each with its own limit of insurance—for each separately rated fire division or location. This works well when there is no overlap or interdependency among any of the locations. However, where interdependency exists, problems can arise. These problems can best be resolved though the use of “blanket” insurance: a single limit of insurance covering the combined business income exposure of all locations.
The blanket method of insuring the business income exposure for organizations with more than one location should always be contemplated and often recommended by the insurance consultant— especially when the various locations of the business operations are interdependent upon one another. Failure to recognize and identify this interdependency can severely reduce the insurance recovery.
A good example of this potential exposure would be a retail business with five separate and distinct locations from which retail sales are made.
When a business is more complex, involving tow or more “fire divisions” (separate but adjoining structures, each with its own property insurance rate) or locations, the problem of arranging adequate business income insurance also becomes more complex, requiring that the agent, broker or insurance consultant have a full understanding and appreciation of the insured's business operations.
The most basic method of insuring such an operation is to have a separate item of coverage—each with its own limit of insurance—for each separately rated fire division or location. This works well when there is no overlap or interdependency among any of the locations. However, where interdependency exists, problems can arise. These problems can best be resolved though the use of “blanket” insurance: a single limit of insurance covering the combined business income exposure of all locations.
The blanket method of insuring the business income exposure for organizations with more than one location should always be contemplated and often recommended by the insurance consultant— especially when the various locations of the business operations are interdependent upon one another. Failure to recognize and identify this interdependency can severely reduce the insurance recovery.
A good example of this potential exposure would be a retail business with five separate and distinct locations from which retail sales are made.
All five locations are constantly supplied with inventory that is stored by the business initially in a warehouse at a sixth location at which no retail sales are generated. If the business should sustain a property damage loss at the warehouse— reducing or eliminating the company's ability to provide inventory to their retail outlets—sales would be drastically reduced at the five retail locations. If specific insurance were provided at each location, the insured might not collect for their business interruption losses at the retail locations resulting from the physical damage at the warehouse—particularly if the warehouse operates as the parent company, with the retail stores as subsidiaries not named as additional insureds on the parentﾒs insurance policy. This is a common scenario.
If instead, a blanket business interruption insurance policy was purchased, indemnification for the retail locations would be provided because blanket insurance responds as if the entire company, regardless of the number of locations, were under one roof. The physical damage sustained at the warehouse would be the trigger for the insured to make claim for business interruption/extra expense losses sustained at all five retail locations. Again, this assumes commonality of insurable interest between the stores and the warehouse.
It is sometimes incorrectly assumed that the warehouse need not be named as one of the blanket locations since sales are not generated directly from the warehouse. I have seen
It is sometimes incorrectly assumed that the warehouse need not be named as one of the blanket locations since sales are not generated directly from the warehouse. I have seen