- Most business interruption losses are difficult to quantify due to uncertainty and financial flux and therefore subject to some kind of negotiated settlement. Pg.03
- A) Loss from reduction in sales (turnover) and B) Loss resulting from an increase in costs, to avoid a reduction in sales. Pg. 04
- Determining the financial condition that would have existed requires recreating the conditions that would have existed during the period of loss and projecting the operating results that could be expected under those conditions. Pg.03
- Two standard forms for business interruption insurance:
- Profits Form
- Gross earnings form. Pg. 04
- Gross Profit: Net profit before taxes and all insured standing charges. Pg.04
- Standing charges: expenses that would continue in the event of an interruption.
Variable expenses: Expenses that vary in direct proportion to sales (i.e. if a sale is lost, the variable expense is not incurred). Pg.04-05.
- Examples of standing charges: fixed and semi-variable charges such as - mortgage interest, rent, important salaries, depreciation of property, office expenses, property taxes etc. Pg.05
- (i) Depreciation of stock;
(ii) Bad debts;
(iii) Wages and salaries other than salaries to permanent staff or important people. ``Ordinary payroll``. Pg.05
- Increase in cost of working: The additional expenditure necessary to avoid or diminish the reduction in ``turnover`` during the indemnity period – subject to an economic test. Pg.05
- Measure of recovery: ….Something to do with coinsurance???
- Total net sales + Other earnings of the business – less the cost of:
- Merchandise sold
- Materials and supplies consumed in supplying the sevices
- Services purchased from outsiders. Pg. 06
- Such expenses necessary for reducing loss; to the limit that that such expenses exceed the amount saved. Pg. 07
- Such length of time as is required to rebuild, repair or replace such part of the property that was destroyed or damaged. Pg. 07
- The definition of gross earnings is based on the sales value of production (Manufacturing form) rather than that of sales (non-manufacturing sales). i.e. Finished stock is excluded from the indemnity agreement since it represents past production. Pg. 07
- Ten steps to settlement:
- Understand the Coverage
- Understand the Business
- Identify the Cause of Damage and Expected Impact on Business
- Help Insured to Recover Quickly from Damage
- Estimate Required Reserve
- Gather Financial Information and Records
- Examine Business Outlook
- Calculate the Loss
- Examine Related Coverage
- Settle the Claim. Pg. 08
- General Manager, people from production, finance, marketing and HR. Pg. 09
- The business interruption coverage will still respond subject to policy limitations. However, the deduction for savings in standing charges or non-continuing costs will be substantial. Pg. 10
- 3 names for Recent historical operating statements:
- Profit and loss
- Statement of Operations
- Income statements Pg. 12
- Recent historical operating statements, review internal statements, forecasts, sales records, productions records, equipment maintenance, payroll records, invoices for additional expenses. Pg. 12-13
- Investigate the activities of competitors, regulatory bodies, suppliers, and customers. Pg. 14
- To ensure that items are not claimed twice. Pg. 16
- Expenses incurred that do not meet the economic test associated with the additional expense coverage in the policy. This may be purchased in order to protect reputation or keep regular customers. Pg. 17