1. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insight On Business Income Insurance 1 Designed for the Insurance Community Center By Insight Insurance Consulting

2. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 2 Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc. In providing these materials, Insight assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Insight Insurance Consulting (714) 803-5830Fax: (949) 706-6880 Laurie@insightinsuranceconsulting.com www.insightinsuranceconsulting.com www.theinsurancecommunity.com Copyright 2010 All Rights Reserved

3. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 3 1.Explain the general purpose of Time Element Coverages specifically Business Income Insurance 2.Identify the types of exposures businesses have to business income losses 3.Discuss the components of the Business Income form

4. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 4 4.Discuss the types of endorsements available for Business Income 5.Discuss the rating structure for business income

5. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Putting The Business Income Form Into Perspective 5 Commercial Property Business Income Cause of Loss

6. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Commercial Property Form Pay for the Direct Physical Loss To Covered Property At the “insured premises” – Subject to definition and extensions Damaged by a Covered Cause of Loss For a value described in the insurance contract 6

7. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income Form Pay for the Financial loss due to Direct Physical Loss To Property At the “insured premises” – Subject to definition and extensions Damaged by a Covered Cause of Loss For a value and time frame described in the insurance contract 7

8. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 8 The General Purpose of Business Income It is all about “Time” and “Money” following a loss to get to the projected “pre-loss” level of operation

9. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 9

10. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 10 Santana Row Fire

11. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 11 Definition of Time Element “Time Element” refers to the “element of time” during which an insured is either losing money or incurring extra expenses as a direct result of a covered loss. The magnitude of a financial loss is determined by the length of time it takes for a business to get back in business following a direct property loss.

12. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 12 Definition of Time Element The insured must prove that they are “losing” money due to the covered loss for the Business Income form to respond. The insured must prove that they are incurring Extra Expenses due to the covered loss to recover under the Extra Expense form.

13. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com The Purpose of Business Income The basic intent of the Business Income form is to pay for continuing operating expenses and loss of profits (following a covered loss). 13

14. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com The Purpose of Business Income The challenges in writing the coverage are to: – Identify the exposures of the insured both directly and those assumed through relationships – Choose the right Business Income form – Correctly endorse the coverage – Choose an adequate amount of insurance 14

15. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Exposures to Loss Identifying the Financial Impact of a loss; how long a business will be either non-operational or under-operational; how long it will take to financially rebound after physical restoration. 15

16. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 16 Institutional Hospitals Schools Habitational Apartments Condos Research & Development Retailers International Manufacturers Contractors Property Owners Office Building Retail Space All Have Similar and Unique Exposures To Loss

17. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Exposures to Loss Loss of Income Loss of Tuitions Loss of Rents Loss of Valuable Leases Loss of Market Share Loss of Client Loss of Market Position Delays—Loss of Timely Revenue Extra Expenses to Operate 17

18. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Components of the Business Income Form 18 Cause of Loss Form Explains “what” situations or “perils” can be covered Business Income Coverage Form Explains “what” is being covered Declarations Page Declares What is Being Covered

19. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Time Element Forms There are four coverage forms that comprise the “standard” Time Element Coverages – Business Income Coverage Form (And Extra Expense) – Business Income Coverage Form (Without Extra Expense) – Extra Expense Coverage Form – Leasehold Interest Coverage Form 19

20. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Parts of the Business Income Coverage Form Insuring Agreement (Coverage Statement) for Business Income/Extra Expense Cause of Loss—directing to the separate form Limitations/Additional Coverages Limits of Insurance Loss /Determination and Conditions Exclusions Definitions Endorsements 20

21. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 21 Business Income Coverage Statement We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations.

22. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Requirement Business Income is written on a coinsurance basis The requirement is based on the sum of profits and all operating expenses for the 12 months of the policy period Coinsurance runs from 50-125% 22

23. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Determining Loss Net Income before loss occurred Likely net income if no loss occurred Can not benefit from a loss Continuing Expenses Extra Expenses 23

24. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 24 Monthly Limit of Indemnity 1/3, ¼, 1/6 Maximum Period of Indemnity 120 days Agreed Value Waives Coinsurance Extended Period of Restoration Adds more time to the coverage Optional Coverages

25. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Special Exclusions in the Cause of Loss Form 1.Off Premises Service Interruption 2.Finished Stock 3.Antennas 4.Delay, loss of use, loss of market 5.Other Consequential 1.Utility Interruption End 2.Manufacturers Selling Price 3.Antenna BI Coverage 25

26. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Endorsements 26

27. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income Endorsements CP 1510ORDINARY PAYROLL LIMITATION OR EXCLUSION CP 1511POWER, HEAT AND REFRIGERATION DEDUCTION CP 1503BUSINESS INCOME - LANDLORD AS ADDITIONAL INSURED (RENTAL VALUE) CP 1504DISCRETIONARY PAYROLL EXPENSE 27

28. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income Endorsements CP 1515POWER, HEAT AND REFRIGERATION DEDUCTION CP 1520BUSINESS INCOME PREMIUM ADJUSTMENT CP 1531ORDINANCE OR LAW - INCREASED PERIOD OF RESTORATION CP 1525TUITION AND FEES 28

29. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income Endorsements CP 1532CIVIL AUTHORITY INCREASED COVERAGE PERIOD CP 1545UTILITY SERVICES - TIME ELEMENT CP 1550RADIO OR TELEVISION ANTENNAS - BUSINESS INCOME OR EXTRA EXPENSE CP 1555BUSINESS INCOME CHANGES - TIME PERIOD 29

30. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income Endorsements CP 1508BUSINESS INCOME FROM DEPENDENT PROPERTIES - BROAD FORM CP 1509BUSINESS INCOME FROM DEPENDENT PROPERTIES - LIMITED FORM CP 1501BUSINESS INCOME FROM DEPENDENT PROPERTIES - LIMITED INTERNATIONAL COVERAGE CP 1502EXTRA EXPENSE FROM DEPENDENT PROPERTIES - LIMITED INTERNATIONAL COVERAGE 30

31. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com How to Rate a Business Income Form 31

32. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Rating The rates for Business Income are based on the building rates where the business is located It does not matter if the owner of the business is the owner of the building—a building rate is still used Building rates are published by ISO at 80% Coinsurance 32

33. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Rating All endorsements added to the Business Income form are either debits or credits against the building rate times the amount of coverage. 33

34. Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Remember— Business Income is Only A Band-aid It is Risk Assessment, Risk Control and Risk Transfer that are essential in designing a disaster plan for the business client 34