1. Why do I need to carry business interruption insurance?
Property Insurance policies cover only direct losses to covered property. In many cases, damage to insured property can lead to an indirect loss, usually referred to as a time element or business interruption loss. This is a type of loss caused by a covered peril (fire) but is not caused directly by it. Business Interruption losses can far exceed the claims costs of a property loss. A lack of business interruption coverage is usually the primary cause of business failures after a fire or other catastrophe.
2. What is a co-insurance clause?
A co-insurance clause is a provision in a commercial property policy that requires an insured to maintain insurance equal to a specified percent of the property’s replacement cost value. Failure to do so causes the insured to be penalized and therefore receive a reduced claim payment. The fundamental purpose of co-insurance is to achieve equitable rating for all insured’s. Most property losses are partial losses not total losses. If everyone insured only for the partial loss rather than a total loss premium rates would be much higher.
A basic area of insurance management that deserves more attention than many firms give it is the selection of policy limits. Most uninsured losses are probably caused by selecting inadequate limits.
All insurance policies contain some type of requirement to report “as soon as possible” accidents or occurrences that may result in a claim. Failure to promptly notify your insurance broker or insurance company of known events that may lead to a liability claim can result in denied coverage for claims eventually made in conjunction with the occurrence.
Many companies make the mistake of not considering in advance the insurance implications of a new acquisition, merger, product or service. After the fact, companies often learn that they cannot obtain liability coverage or learn that it will be very expensive to cover. Consider approaching your insurance broker to find out the repercussions of your potential change in operations.
It has become common practice for one party to require the other party to include it as an “additional insured” on their policy. Failure to add an “additional insured” to a policy can lead to uninsured losses. It is important to have a procedure in place to review all contracts that may have insurance requirements placed upon you.