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December 22, 2022

Why contingent business income coverage is key

Steve Salmon

Today’s risk managers and CFOs must find new strategies to soften the blow of unforeseen financial impacts that affect the bottom line, especially after the pandemic and recent severe weather events.  Losses outside of your control, impacting key suppliers or vendors, or those affecting your property could be covered by contingent business income coverage. 

Contingent business income coverage and contingent extra expense coverage is an extension to property insurance that may reimburse lost profits. It may also provide for extra expenses resulting from an interruption of business at the premises of a key customer or key supplier. This includes physical damage to key customers’ or key suppliers’ property or to property on which the insured company depends to attract customers.

There are four factors that can help determine when contingent business income coverage is valuable: 

  1. Does a significant amount of your company’s operations rely on another entity? If your company depends on a single supplier or a few suppliers for materials and the source is disrupted, this could pose a significant challenge. Or, if your company counts on a neighboring business to help attract customers, known as an anchor or leader property, you may find yourself in situations beyond your control.

  2. Would a long-term computer outage disrupt your company’s ability to maintain normal business operations?

  3. Are you heavily reliant on a key source of raw material or component parts from a supplier? Or, does your company depend on one or a few recipient businesses to purchase the bulk of its products? If it becomes unavailable or is slow to arrive, that could pose a significant problem.

  4. Would your company need to cease operations should the financial markets or transportation sector be interrupted again in the United States?

These situations are arising more frequently in today’s environment. Contingent business income coverage is a key solution to help address these concerns and may also reimburse if your business’ loss is caused by physical damage.

Incorporating a contingent business income coverage policy into your company’s risk management program requires working with an expert in this space. The policy wording, limits, and deductibles are extremely subjective and require close collaboration between a company’s CFO, insurance broker, and the insurance carrier. 

For more information, please contact a business insurance specialist at Marsh McLennan Agency.