Recently, my son had a major fire in a 45,000SF warehouse he owns. While asking me about dealing with insurance and getting the building back to working order, he told me that one of the smartest things he had done was purchasing Business Interruption Insurance on the building. He suggested I pass along to others the benefits of having Business Interruption Insurance.
I spoke with Don Bury about BII, here are some of his thoughts.
BII coverage is among the least understood and often most poorly written coverage. Too many companies have deficient coverage, and that is the cause of many business failures after a fire. It’s important to have the right limit set and use the right coverage form, unless unlimited coverage is provided in a generous form.
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For example: for many construction-related businesses, extra coverage is needed to pay for a temporary office/shop. But unless a construction-related business has a realistic disaster plan, they can’t quantify how much extra coverage they would actually need if the office and shop burned to the ground. A common mistake is for brokers to allow a limit for extra expense, but then have it doled out over 3 months. Most of the money is needed day one, and coverage should be written that way.
Here are some of the questions you need to answer and then communicate to your broker in an effort to get proper coverage in place.
Business interruptions from a fire or other covered peril could cause the following:
a. We would be shut down for ____weeks ____months?
b. We would lose $_______________ per week or month of revenue (profit)?
c. We would still have $_______________ in continuing expenses?
d. We would incur the following extra expenses in order to resume operations as rapidly as possible. $_____________?
e. If a fire or other covered peril affected a vendor on whom we rely for lease/rent, supplies, to attract our customers, or to sell our product, the following loss could happen? (i.e., What would the loss be . . . what would it cost?)
My son told me that because he had the BII, he won’t lose revenue from the two companies leasing the space. His monthly income from that building will remain the same for the next 12 months, plenty of time for him to get the building rebuilt and re-leased.
This is one of those things you don’t think about when you purchase a warehouse or an office building. Usually you just throw the ball to your broker or agent, tell him/her to get you the coverage you need, and on you go. Obviously it requires more thought than that.
Our thanks to Don Bury, President of Insurance Cost Reduction Services for his help with this info. Don led a webinar for us in November and we hope to have him back for another one soon. If you want to talk with Don about your insurance, his number is: 1-707-665-9414 – be sure to tell him you read this post.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.