Valuing Business Income Exposures

ADJUSTERS INTERNAT IONAL . COM 9 A D J U S T I N G T O D A Y Establishing Potential Exposures – Do a Worst-Case Scenario Determining Insurable Business Income Values: Under actual loss conditions, many unforeseen problems can arise. Remember that there seems often to be a “Murphy’s Law” at work; that losses tend to occur at the worst possible time and under the worst possible circumstances, so the worst-case scenarios should be considered (it is better to be a little pessimistic than unduly optimistic). Among the many factors that should be considered are: Time Element Coverage: Some Choices With the results of such a study, the various impacts can be quantified and costs projected to determine the appropriate amount of coverage to purchase. The type of coverage should also be carefully evaluated to be sure that optimum coverage is provided. Following are the typical choices of time element coverages: 1. In the worst-case scenario, if operations can be fully restored and back to normal within a four-month period (which is rarely the case), consider the Maximum Period of Indemnity option of the Business Income form. 2. For operations that might take longer than four months to restore, use business income insurance with coinsurance or the agreed value option. 3. If operations are to be maintained with little or no interruption, but at a higher cost, consider extra expense insurance. Along with this, have a “worst-loss” disaster plan laid out that can be implemented • In the worst scenario, how long will it be before the premises can be rebuilt and reoccupied? • Could alternate premises be found and used either temporarily or as a permanent replacement? How quickly? • How quickly can replacement equipment be located and installed? • Are there seasonal variations either in production or sales volume, or in the time needed to restore occupancy, or both? • If seasonal stock is lost at a critical time, can replacement stock be found to get back into operation quickly? • If rapid replacement of equipment would be difficult, can temporary alternative equipment be substituted? Will there be a loss in efficiency, with a higher operating cost? • Can operations be resumed quickly at another site? At what probable cost? • How long after operations are restored will it be before the flow of business is restored to its former level? What are the added costs, if any, of advertising, special incentives, etc.?