All of us who are in, or parallel to, the insurance and risk management industry can point to the people who helped us learn and become experts in our chosen fields. Rena Lynn Hirsch was the first reporter who took me under her wing while I was a college student, helping me navigate the ropes of writing for a daily newspaper.

When I moved on to the insurance industry, there were many people who shared in my on-the-job education—the underwriters who patiently answered my questions, the claims adjusters who explained why something was or was not covered, and others at the independent agency where I worked who schooled me in the ways of the insurance world.

The most influential was the owner of the agency, Rob Gleason, who used to call me into his office, telling me to bring “all the files” for a particular account so he could go over them with me. Later I began to think of these sessions as being grilled, especially when a claim had occurred on a major account I had handled. He always wanted to be sure we had provided the best insurance coverage possible—or had explained to the insured when arranging the coverage what was not available.

One of the rules I learned early on was that no matter how good the insurance coverage is, a business never, ever, can recoup all the losses it suffers during a period of business interruption. Business interruption losses are the most difficult to handle. Unlike a physical building value, the future earnings used to calculate business income insurance limits are uncertain, and many factors can change between the time the limits are selected and a loss occurs.

To complicate matters, insureds may not want to “bother” with completing a business income insurance worksheet. They often want to pick a number seemingly out of the air (or ask their agent to do so) without investing the time necessary to fully consider all of the factors needed to arrange adequate business income insurance. An example of the unexpected that can impact a business interruption was shown when Toyota announced it was watching its parts inventory after the earthquake and tsunami hit Japan.

I'm sure this multinational corporation's risk management team had considered the global nature of its business when arranging business interruption contingencies well before the earthquake. But how many small- or mid-sized companies accept the need for contingent business income insurance when talking with their agents or brokers? Do they understand that coverage typically is available for their interruption when a supplier or main distributor is shut down as a result of a covered cause of loss?

The business also must understand that business income insurance is triggered only by a covered cause of loss. So, for example, if earthquake is not a covered cause of loss, business income insurance will not be available to them—even if they bought the coverage. Again, the adage is that business interruption losses are the most difficult to plan for as well as the most difficult to adjust.

What has been your experience with business interruption losses? Are insureds unhappy when they don't have the correct business income coverage? Have you agents explained how difficult they are to handle?

This blog post is meant to provide insights into insurance coverage issues in general, and does not necessarily account for the differences in law and practice in different venues. As such, the opinions expressed within should not be construed as legal advice for the unique circumstances of any particular claim or suit.

Special Reports /

An Education on Business Interruption

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