They Say, Hearsay
I went searching for a lower business insurance rate for our property and found it. But now I'm worried about what I bought. My agent did not give me much help in deciding on coverage, so I made some decisions based on my own very limited understanding of our business risks. To say the least, my comfort level is not very high.
We Say
Ah, that nagging inner voice. Ignoring instincts piles up the baggage in your "discomfort zone," which does not go away all by itself. Businesses are cutting corners that should be left intact, and many owners will admit that not only are they uncomfortable with the decisions they have made, but their concerns run deep. That is the first big problem. The second one is that you, as their insurance advisor or provider, may not be comfortable with their decisions, either. The time to address it is now.
The complexities surrounding the purchase of a business owners policy (BOP) demand a higher level of partnership between agent and customer than discussions about other insurance, such as homeowners. (Frankly, any property insurance transaction in a state with Florida's vulnerability to hurricanes, sinkholes, tornadoes, and flooding deserves a risk management approach, not merely a policy sale.) While homeowners' coverage may be expensive, it is at least familiar. When it comes to BOP, too many business owners feel as if they are alone in the insurance wilderness, as the COO of a health services provider explained to me recently.
I was at a meeting of a disaster safety coalition whose members wanted to learn more about business interruption insurance. They had heard widely disparate views from colleagues that ranged from those who considered it a business imperative to those who felt it was downright worthless. The latter carried more weight because it came from those with bad experiences — and human nature causes the negative stuff to stick. So, I dug into why someone would think business interruption insurance is a waste of money and learned this: In a normal BOP transaction, people have no idea what they bought, how it is supposed to work, or what the limitations are. Specifically, the skepticism over the value of business interruption insurance can be attributed to:
? Failure to understand that coverage is triggered by direct physical loss to the property. Owners did not recognize that business interruption insurance is tied to their property insurance and is not a stand-alone product. Their businesses may have been interrupted, but coverage does not kick in unless the building sustains physical damage.
? Lack of knowledge of the waiting period or of time frame coverage limits.
? Policies usually have a 48- to 72-hour waiting period before business interruption insurance kicks in. After coverage is activated, a basic policy may provide for just 30 days of coverage. The recommendation is to purchase enough coverage for a 12-month period.
? Not knowing there are additional types of business interruption coverages to consider. "Contingent business" interruption insurance extends coverage to income losses that may result from a key supplier or customer suffering a property loss. While some policies combine "extra expense" coverage with business income coverage, it is also available as an add-on to help with additional costs, such as rent for a temporary location.
? Underestimating the amount of documentation required to support a claim.Of course, the amount of information needed depends on the complexity of the claim; however, a well-documented claim for business interruption insurance requires financial information, and if a business has not maintained offsite backup files, this step in the process can prove to be a major stumbling block. Additionally, the terminology to define loss calculations in a business interruption policy is often difficult to interpret, so business owners would be wise to involve an accountant in the claim process who is familiar with these policies.
This lack of understanding on the part of business owners is a gap that must be closed. Where should they start, and how can you help?
First, the owner needs a business continuity plan, and there is a toolkit for building one at www.DisasterSafety.org. The "Open for Business" program on this site is from the Institute for Business & Home Safety. It offers step-by-step guidance to help an owner take a good look at his operation, review critical business functions, and identify risks. By working through the process, the business owner will gain a level of confidence that will lead to better insurance decisions.
Ultimately, the responsibility to make good decisions about disaster recovery is the business owners', and insurers can help them assess their risks while educating them about the coverage options available. Without this partnership, the largest losses to the business may not come from direct damage from the disaster itself, but from the struggle to survive in the months and years following it.
A survey by the National Association of Insurance Commissioners found that only 35 percent of small businesses (defined as firms with fewer than 100 employees) have business interruption insurance. Without it, businesses are doomed. The U.S. Department of Labor estimates that over 40 percent of businesses never reopen after a disaster; at least another 25 percent close within two years. Those statistics should prompt a business owner to review insurance coverage and realize that business interruption insurance is akin to survival insurance.
Lynne McChristian is the Florida representative for the Insurance Information Institute. She may be contacted at 813-480-6446, lynnem@iii.org. Also, see www.InsuringFlorida.org for her insurance blog, "Straight Talk."
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