In the world of property and casualty insurance, any crisis or disaster that shuts down operations is referred to as a “business interruption.” A rather cool term for what may be an emotional time, but as you’ve heard before, the health of your business requires a level head and proper planning.
The losses due to a business interruption can be daunting: damaged property, the affect on workers, lost sales, and the challenges of re-starting production. The better prepared you are, the quicker you can expect to overcome these kinds of setbacks.
There are numerous concepts, terms and formulas used when calculating business interruption expenses, such as: time element, expected sales, continuing loss calculations, etc. Experienced brokers and accountants can walk business owners through these calculations and process and how they apply to individual cases.
The important thing is to discuss possible scenarios with your support team and ensure that your brokers and accountants have a background in these areas.
After the Event
After a business interruption event, be sure to review your policies and coverage to have a better understanding of what is covered. Develop a claims team that includes personnel who are knowledgeable, have the appropriate financial documents and understand the business affected by the loss. Next:
- Contact your property broker, who will typically notify your insurers of the loss.
- Set up initial meetings with your claims team and your insurer’s claims team (adjusters and various experts).
- Develop a list of damaged assets and assess need to repair or replace.
- Gather the documents necessary to substantiate your loss to insurers.
- Develop reconstruction or repair timelines. This includes considering whether the damaged facilities will be restored, or whether you will make improvements or updates.
- Prepare preliminary estimate of overall loss for reserve purposes or advance payments from your insurers. In many cases, insurers will advance payments on claims in order to help a business begin the restoration process.
Sales, Revenue, and Payroll
Companies will have to determine how much revenue has been lost in sales and payroll, as well as calculate extra expenses caused by the business interruption. Businesses do best with these claims when they are realistic with their calculations and have good documentation to back their case. It can be difficult to convince insurers that sales would’ve boomed, for example, had the event not occurred. Again, experienced brokers can help a company come up with a good formula for these projections.
Look for Part Three of our three part series on crisis management next week.
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Check out this recent article in Brink, "Insurance for Poor Could Protect the Most Disaster Prone"