Study 1 – Introduction C40 – Business Interruption Insurance

Study 1 - Introduction » Explain the need for business interruption insurance and summarize its benefits. » List typical business expenses. » Discuss the difference between the American and British approaches to business interruption insurance. » Identify and explain certain terms or concepts. » Comment briefly on the rating of business interruption insurance.

Business Interruption Insurance

The Martins

Business Expenses » The cost of goods or services sold » Payroll, salaries, commissions » Mortgage or rental payments » Power, hydro, fuel, telephone bills » Transportation » Advertising, professional fees, bank loans » Equipment » General office expenses

Commercial Exposure » Are there alternative sources of money? » Capital reserves? » When will the business return to normal? » Other causes of interruption?

Business Situations » A business that can resume normal operations » Loss of customers » A service or monopoly » Skilled workers » One supplier » One customer » Tenants forced to move

Business Interruption Forms Gross Earnings. Profits.

» Paid per day (net profit plus continuing expenses). » Fixed daily amount. » Rarely written in Canada.

Gross Earnings. » Reduction in gross earnings » Provides coverage from the date of loss until repairs are completed. » American approach.

» Provides coverage from the date of loss until the business income achieves the level it would have achieved had no loss occurred. » British form Profits.

New Family of Forms » Business Income and Extended Income » Fall into 3 basic types of coverage: » Business income » Rental income » Extra expense

Manuscript Wordings

Terms » Duration or length of time for which indemnity will be provided under the policy.

Terms » Loss of economic value

Terms » Duration or length of time for which indemnity will be provided under the policy.

Co-insurance Formula Amount of insurance carried ____________________ x Amount of Loss Amount of insurance required or Did ____________________ x Amount of Loss Should

Financial Terms » Money received by the business for goods sold or services rendered.

Financial Terms » Costs incurred by the business to function. » Variable » Fixed » Semi-variable

Financial Terms » Gross profit » Net sales less cost of goods sold » Net profit » Gross profit less operating cost expenses

Rating

Benefits of Business Interruption rovides income voids further debt ankruptcy less likely \ leases banks

Benefits of Business Interruption eeps key personnel nhances stock value enefits government rovides employment

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