1. Insurance Community University www.InsuranceCommunityUniversity.com Business Income--The Five Key Issues You Must Understand 1  The webinar will begin shortly.  There is no audio at this time.  This presentation is being recorded for your viewing pleasure at a future date.  The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right.  The PowerPoint presentation is also available under ‘Materials’.  You will receive the course number for your state near the end of class.  Use the ‘chat’ window for questions on the content.  100% Participation in Polling Questions is required to receive credit for this class. Even if you do not intend to receive credit, please participate in the polls.

2. Insurance Community University www.InsuranceCommunityUniversity.com Welcome to your Insurance Community University All of you are currently on mute – Un-mute your own system – Telephone Option Select Telephone on your screen Dial in the PIN number so that your number becomes active – Microphone and/or Speaker Option You can use this option if you have a headset that you use with your computer Audio 2

3. Insurance Community University www.InsuranceCommunityUniversity.com Participation & Chat Window You will receive information from the monitor via the ‘Chat’ window. – Please locate window in the control panel Q & A is welcomed during the presentation and at the end of the presentation You will find the question box on your control panel – Write your question in that box and send it to the presenter/organizer The presenter will take those questions in the order submitted 3

4. Insurance Community University www.InsuranceCommunityUniversity.com DOI Requirements When you see a slide with the hand up symbol, touch the “hand” icon on your control panel – Click ONCE only If you do not raise your hand, the monitor will be in contact with you in the chat box If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times 4 = Hand is down

5. Insurance Community University www.InsuranceCommunityUniversity.com Polling Throughout the class we will be conducting periodic polls We need 100% participation on the polls The polls are intended to check participation but also to create discussion topics throughout the presentation 5

6. Insurance Community University www.InsuranceCommunityUniversity.com Forms To Complete for CE After class ends – Return attendance form – Proctors – return your form to email address Email address is in chat window or in email sent to you today 6

7. Insurance Community University www.InsuranceCommunityUniversity.com DOI Requirements We will file your hours with the DOI after the completion of this webinar and we have received the attendance form. You have 48 hours to return the form You will be sent a Certificate of Attendance/Completion by email. Please retain this for your records for five years. 7

8. Insurance Community University www.InsuranceCommunityUniversity.com Internet Disruption If the presenter looses internet connection STAY ON THE LINE The administrators will communicate with you

9. Insurance Community University www.InsuranceCommunityUniversity.com Internet Failure If the internet fails and all participants are kicked off line by Go To Training or other source then the seminar will be terminated You will receive instructions by email as to how we will proceed This is a precautionary notice, only 9

10. Insurance Community University www.InsuranceCommunityUniversity.com This class is being recorded Available in the University The archived class does NOT qualify for CE

11. Insurance Community University www.InsuranceCommunityUniversity.com Disclaimer 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 the instructor or the creator(s) of this material do not modify or revise insurance policy language. In providing these materials, the authors assume 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. Copyright 2010 – 2013 All Rights Reserved www.insurancecommunitycenter.com 11

12. Insurance Community University www.InsuranceCommunityUniversity.com Your Instructor Today Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center

13. Insurance Community University www.InsuranceCommunityUniversity.com It is all about TIME, MONEY and EXPOSURE to RISK

14. Insurance Community University www.InsuranceCommunityUniversity.com Business Income Business Income is a very complex topic. In order to correctly protect our business customer we must: Identifying exposures to risk Identifying transfers of risk to mitigate exposure Understand the insurance policies and endorsements that are available Set an adequate limit of insurance

15. Insurance Community University www.InsuranceCommunityUniversity.com 15 Business Income is Only A Band-aid It Is Risk Assessment, Risk Control and Risk Transfer

16. Insurance Community University www.InsuranceCommunityUniversity.com Follow the MONEY Sale of Furniture?? Financing???? Association lose money??? OR The Management Company??? Prepaid LIFETIME Estates Other Income

17. Insurance Community University www.InsuranceCommunityUniversity.com What this course will cover 1.The general purpose of Business Income and the importance of the valuation clause on the Commercial Property Form 2.The three major choices for coverage and their differences including a discussion of ALS on a BOP or CP: Coinsurance: Monthly Limit of Indemnity; Maximum Period of Indemnity 17

18. Insurance Community University www.InsuranceCommunityUniversity.com What this course will cover 3.The Indemnity Provision 4.Basics in Limit Setting and Choosing Coinsurance 5.Available Endorsements and policy triggers 18

19. Insurance Community University www.InsuranceCommunityUniversity.com 1. The general purpose of Business Income and the importance of the valuation clause on the Commercial Property Form

20. Insurance Community University www.InsuranceCommunityUniversity.com 20 Business Income It Is Said: “Business Income, if properly purchased will do exactly what the business would have done, had no loss occurred--No More and No Less.” Chubb

21. Insurance Community University www.InsuranceCommunityUniversity.com 21 Business Income Perhaps: But What Really Happens? Inadequate Limits of Insurance Coverage Gaps Lengthy Claims Settlements Business Failures Competition Inadequate Business/Disaster Plans

22. Insurance Community University www.InsuranceCommunityUniversity.com Putting The Business Income Form Into Perspective 22 Commercial Property Business Income Cause of Loss

23. Insurance Community University www.InsuranceCommunityUniversity.com Declarations Page Common Policy Conditions Commercial Property Conditions Commercial Property Coverage Form Endorsements Cause of Loss Form Business Income Coverage Form Endorsements Cause of Loss Form Special BI Exclusions

24. Insurance Community University www.InsuranceCommunityUniversity.com Intent of the 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

25. Insurance Community University www.InsuranceCommunityUniversity.com 25

26. Insurance Community University www.InsuranceCommunityUniversity.com Intent of the Business Income Form Pay for the Financial loss due to Direct Physical Loss (Profits + ongoing operating expenses) To Property (Not necessarily “Covered”) 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 including endorsements

27. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #1 27

28. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #1 The insured is a large hotel located in a national park. There was a fire in the park and all the routes to the hotel were closed for over a week. The hotel sustained no damage. When the routes were re-opened the park was still filled with smoke and all the reservations to the hotel were cancelled. Will the Business Income Form pay for the lost revenue to the hotel? 28

29. Insurance Community University www.InsuranceCommunityUniversity.com 29 It’s Not Only A Business Income Issue How Does The Property Form Cover Profits And Operational Expenses?

30. Insurance Community University www.InsuranceCommunityUniversity.com 30 Where Is The Coverage? It is not just a Business Income Question Prices have three component parts – Cost of Good – Operating Expenses – Profit

31. Insurance Community University www.InsuranceCommunityUniversity.com 31 It is not just a Business Income Question Are the profit and operating expenses covered on the Property form? Are the profit and operating expenses covered on the Business Income form?

32. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #2

33. Insurance Community University www.InsuranceCommunityUniversity.com Covered Not Covered Your insured manufacturers canned tomatoes all packaged under the Kirkland label and sold exclusively to Costco. All of their goods are pre- ordered. There is a fire loss to the warehouse where all of the finished goods are stored which results in a loss of income to the insured.

34. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #3

35. Insurance Community University www.InsuranceCommunityUniversity.com Covered Not Covered Your insured manufacturers canned tomatoes and has a consistent clientele for their product but has not pre-sold the goods. There is a fire loss to the warehouse where all of the finished goods are stored which results in a loss of income to the insured.

36. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #4

37. Insurance Community University www.InsuranceCommunityUniversity.com Covered Not Covered Your insured has suffered a loss to their manufacturing facility with resultant damage to equipment and stock in process. As a result they will be closed for 4 months and will incur a loss of income.

38. Insurance Community University www.InsuranceCommunityUniversity.com Business Income = Operational Expense And Profit Reimbursement Stock Sold But Not Delivered Automatic on BPP Valuation Must evaluate coverage at Selling Price Add Manufacturing Selling Price Excluded in Special Form Unsold “Finished Stock” Future Value of Stock Future Value of Production Business Income Form 38

39. Insurance Community University www.InsuranceCommunityUniversity.com 39 Excerpt From Building And Personal Property Coverage Form CP0010 7. Valuation c.“Stock” you have sold but not delivered at the selling price less discounts and expenses you otherwise would have had.

40. Insurance Community University www.InsuranceCommunityUniversity.com 40 Excerpt From Special Cause Of Loss Form CP1030 4. Special Exclusions (a) The following provisions apply only to the specified Coverage Forms: a. Business Income (And Extra Expense) coverage form, Business Income (Without Extra Expense) Coverage Form, or Extra Expense Coverage Form.

41. Insurance Community University www.InsuranceCommunityUniversity.com 41 Excerpt From Special Cause Of Loss Form CP1030 We will not pay for: (1) Any loss caused by or resulting from: (a) Damage or destruction of “finished stock”, or (b) The time required to reproduce “finished stock.”

42. Insurance Community University www.InsuranceCommunityUniversity.com 42 Excerpt From Special Cause Of Loss Form CP1030 G. Definitions (1) “Finished Stock” means stock you have manufactured. “Finished Stock” does not include stock you have manufactured that is held for sale on the premises of any retail outlet insured under this Coverage Part.

43. Insurance Community University www.InsuranceCommunityUniversity.com 2. The three major choices for coverage and their differences including a discussion of ALS on a BOP or CP: Coinsurance: Monthly Limit of Indemnity; Maximum Period of Indemnity Regardless of the form chosen, the INTENT of the coverage is the same

44. Insurance Community University www.InsuranceCommunityUniversity.com Business Income Defined 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.

45. Insurance Community University www.InsuranceCommunityUniversity.com 45 Actual Loss Sustained ALL business income forms are actual loss sustained unless they are “per diem” (valued) BOPs are referred to Actual Loss Sustained Forms (ALS). What they are actually are: – NO limit forms (unless they have a limit) – Subject typically to 12 months worth of coverage

46. Insurance Community University www.InsuranceCommunityUniversity.com 46 Actual Loss Sustained Actual Loss Sustained vs. Per Diem – Per Diem pays Per Diem for a pre-agreed amount – ALS pays 30 days after the proof of loss is signed based on determination of loss – Lost Revenue vs. Loss Business – Tax Benefit

47. Insurance Community University www.InsuranceCommunityUniversity.com 47 Actual Loss of BI Due to Suspension During Period of Restoration Due to Direct Physical loss of Property at the premises Caused by a covered cause of loss

48. Insurance Community University www.InsuranceCommunityUniversity.com 48 Business Income Defined Net Income (Net Profit or Loss before income taxes) that would have been earned plus continuing normal operating expenses incurred, including payroll.

49. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question # 5

50. Insurance Community University www.InsuranceCommunityUniversity.com 50 Covered Not Covered Your insured owns the Westward Ho apartment complex which has ten units. Due to the downturn in the economy five of the ten units have been unoccupied for the last eight months. The insured has sustained a fire to two of the occupied units and two of the vacant units and has put in a claim for loss of rental income for all four of the units

51. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance Automatic Maximum Period of Indemnity 120 days Monthly Limitation 1/3, ¼, 1/6 Overview of the Three Forms

52. Insurance Community University www.InsuranceCommunityUniversity.com Two Coverage Forms Business Income without Extra Expense Business Income with Extra Expense – ALWAYS WRITE THIS FORM Within the form there are built in options to change it from a Coinsurance basis

53. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance The Business Income form is a coinsurance form unless one of the other options is chosen The Declarations Page will be where the limit of insurance appears and the type of business income form chosen If it is a coinsurance form then typically a percentage will appear after the amount of insurance (50%-125%)

54. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance The coinsurance has an “insurance to value” requirement based on the Business Income Worksheet The Business Income Worksheet basically requires the amounts for the total sales revenue (first page of worksheet) from which the cost of the goods and other allowable deductions are subtracted (second page)

55. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance The coinsurance form’s requirement to insure to value is 50-125% of the amount determined on the worksheet for the 12 months of the policy period Coinsurance form has NO monthly limit of indemnity Coinsurance form has NO maximum period of indemnity

56. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance Form The only two events that will stop the coinsurance form from paying anything additional are: – Physical Restoration – Exhaust the limits of insurance

57. Insurance Community University www.InsuranceCommunityUniversity.com 57 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

58. Insurance Community University www.InsuranceCommunityUniversity.com 58 Maximum Period of Indemnity Coinsurance does not apply Loss is limited to lesser of – The limit of insurance – 120 days following the beginning of the “Period of Restoration”. (This contains 72-hour deductible.)

59. Insurance Community University www.InsuranceCommunityUniversity.com Limit Of Insurance $100,000 Maximum Of Indemnity Option Date Of Loss $100,000 Limit120 Days Payment Period BEGINS $60,000$10,000 Payment Period ENDS Remaining $10,000 Of Coverage Is Not Available

60. Insurance Community University www.InsuranceCommunityUniversity.com 60 Monthly Limit of Indemnity Coinsurance does not apply. Loss is limited by fraction shown in Declarations multiplied by limit of insurance for each 30 consecutive days following the beginning of the “Period of Restoration”. Extended Period of Indemnity may be used with this form

61. Insurance Community University www.InsuranceCommunityUniversity.com Limit of Insurance $100,000 Monthly Limit of Indemnity $100,000 (1/4) Amount Available each 30 days $25,000 Amount Loss Proven $25,000$20,000$15,000$10,000 Amount Available in subsequent months 0$ 5,000$10,000$15,000 Total Amount Available In Succeeding Months $30,000 Not To Exceed $25,000 In Any 30 Consecutive Days

62. Insurance Community University www.InsuranceCommunityUniversity.com #3. The Indemnity Provision It is all about “Time” and “Money” following a loss to get to the projected “pre-loss” level of operation

63. Insurance Community University www.InsuranceCommunityUniversity.com Period of Indemnity and Projection based on physical length down and financial loss

64. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #6 & 7

65. Insurance Community University www.InsuranceCommunityUniversity.com 65 Covered Not Covered Sam's Bar and Grill had water damage on Friday morning and had to close their restaurant for an entire weekend beginning Friday after breakfast and did not open until Tuesday in time to serve dinner. Sam’s is not open on Mondays. They submitted a claim for the loss of revenue beginning for lunch on Friday through Monday through dinner.

66. Insurance Community University www.InsuranceCommunityUniversity.com Period of Indemnity Defined Begins with Covered Property Loss - (Note: 72 hour waiting period is only for business Income, not extra expense) Ends when property should be repaired or relocated Period of Indemnity is NOT tied into financial restoration—only physical restoration 66

67. Insurance Community University www.InsuranceCommunityUniversity.com Polling Question #8

68. Insurance Community University www.InsuranceCommunityUniversity.com 68 Covered Not Covered Relaxing Day Spa sustained a major windstorm loss that affected a large area of town. The Spa was closed for repair for 3 ½ months from June until September 15 th. When they re-opened a lot of their regular customers had found other spas and it took until January 15 th for them to have the same amount of revenue from their operations that they did prior to the loss. Judy’s has put in a claim for the entire period from June until January 15 th

69. Insurance Community University www.InsuranceCommunityUniversity.com Period of Indemnity Defined Must extend the indemnity period with the Extended Period of Indemnity Policy expiration will not limit period Some forms have a 12 month “restoration period/indemnity”. Some companies will extend this restoration/indemnity 69

70. Insurance Community University www.InsuranceCommunityUniversity.com Period of Indemnity Defined Period does not include extra time required due to building laws or pollution clean-up – Ordinance or Law—Increased Period of Restoration 70

71. Insurance Community University www.InsuranceCommunityUniversity.com 71 Period of Restoration Language "Period of restoration" does not include any increased period required due to the enforcement of any ordinance or law that: (1)Regulates the construction, use or repair, or requires the tearing down of any property; or (2)Requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants". The expiration date of this policy will not cut short the "period of restoration".

72. Insurance Community University www.InsuranceCommunityUniversity.com 72 Extended Business Income Extends the time that a business income loss will be paid after actually repaired, rebuilt or replaced, and "operations" are resumed. Ends when insured restores "operations" to previous conditions or 30 days after. Not additional insurance

73. Insurance Community University www.InsuranceCommunityUniversity.com Extended Business Income Automatically provided for 30 days in the ISO forms Number "30" replaced by number shown in Declarations. There are several options to choose from as extensions from 60, 90, 120, 150, 180, 270, 360 up to 730 days past the point of physical restoration. 73

74. Insurance Community University www.InsuranceCommunityUniversity.com Loss Payment Physical Restoration Complete—Period of Indemnity Ends Extended Business Income 30 automatic (60-730 Extension ) No Extension Available for Extra Expense Extra Expense ends at physical restoration Loss Occurs (EE) No Waiting Period Period of Restoration Begins Limits on Loss Payment Ends lesser of relocation or repair Loss Occurs (BI) BI Deductible 72 hours Reduce or Remove BI Period of Restoration Begins BI Period Ends at Physical Restoration + 30 days 74

75. Insurance Community University www.InsuranceCommunityUniversity.com 4. Basics in Limit Setting and Choosing Coinsurance

76. Insurance Community University www.InsuranceCommunityUniversity.com Coinsurance—the dreaded word It is simply an insurance to value clause AND a method to reduce the amount of insurance to a level that makes sense. Remember the work sheet (total sales minus cost of good) This may be more than the insured feels they need to insure so coinsurance allows them to reduce that amount

77. Insurance Community University www.InsuranceCommunityUniversity.com Percentages Reflect the Amount Carried (begin with $1,000,000 Sales minus Cost of Goods) $500,000 (50%) $600,000 (60%) $700,000 (70%) $800,000 (80%) $900,000 (90%) $1,000,000 (100%) $1,250,000 (125%) 77

78. Insurance Community University www.InsuranceCommunityUniversity.com 78 Suspending Coinsurance with Agreed Value Indicated on the Declarations Page Coinsurance suspended until 12 months after effective date or expiration. Business Income Report/Work Sheet (CP 15 15) must be submitted to the company This date must be advanced every year or coinsurance is automatically reinstated. Agreed Valued does NOT agree to the value

79. Insurance Community University www.InsuranceCommunityUniversity.com Determining Coinsurance Factors – Continuing versus non continuing expenses – Peril causing the loss (CAT) – Potential time down – Alternatives Secondary locations Secondary resources – Duplication/Redundancy of operation 79

80. Insurance Community University www.InsuranceCommunityUniversity.com 80 Payment Statement for Coinsurance (Coverage) A.Coverage 1.Business Income Business Income means the: a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and b. Continuing normal operating expenses incurred, including payroll.

81. Insurance Community University www.InsuranceCommunityUniversity.com Trending minimum 1 year prior to inception Policy Year Basis for Coinsurance Agreed Value Physical Length Down (Like, Kind, Quality) Loss Settlement Construction Physical Length Down (Ordinance or Law) Policy Year Other Options Financial Length Down

82. Insurance Community University www.InsuranceCommunityUniversity.com 5. Available Endorsements and policy triggers

83. Insurance Community University www.InsuranceCommunityUniversity.com Endorsements Payroll Limitation or Exclusion (0012) Discretionary Payroll Expense (0607) Power, Heat and Refrigeration Deduction (0708) Waiting Period (Reduced to 24 hours) Waiting Period (No Waiting Period Ordinance or Law--Increased Period of Indemnity

84. Insurance Community University www.InsuranceCommunityUniversity.com Endorsements Utility Services—Time Element Radio and TV Antenna Business Income Civil Authority Premium Adjustment Electronic Media and Records Dependent Property Broad Dependent Property Limited Business Income Landlord as Additional Insured (Rental Value)

85. Insurance Community University www.InsuranceCommunityUniversity.com Please Hold Up Your Hand 85

86. Insurance Community University www.InsuranceCommunityUniversity.com Upcoming Classes 4/1Business Income 5 Key Issues in Limit Setting 4/8Flood Insurance 4/10Workers Compensation 5 Key Issues