Business Income/Interruption Insurance
Updated: Aug 25, 2020
I have been completing E&O audits, teaching coverages and E&O, and writing about these subjects for 25 years. During audits, I have just about given up asking producers if they ever have real discussions with clients regarding BI coverage.
The answer has always universally been, with no real changes over the years, "NO." When I ask "Why" they do not have meaningful conversations regarding this extremely important coverage? The answers vary between, "I can't even get past the worksheet" to "Clients won't give me time" to "I just put ALS on everything and that takes care of it." Perhaps the most honest answer I get is "I don't understand it so I don’t bring it up and I always hope the client does not bring it up either."
BI is an incredibly important coverage, often the most important coverage a commercial client can buy. Survey after survey indicates commercial clients worry most about BI exposures. Yet the vast majority of producers are inept at providing high quality advice. I feel like revoking the license of the next producer who says, "I just always set BI at ALS so I don’t have to be concerned with offering enough coverage."
ALS is not a cure all or a universally applicable best solution, not by any means. I do not know where that myth originated but it is firmly implanted. There's an old saying relative to history, "When the myth becomes fact, print the myth." I also do not know why the focus is almost exclusively on the worksheet to the exclusion of so many other factors. The dollars are important but only if the producer gets the time elements and contingency angles correct TOO. BI can only be written correctly if all three elements are designed and sold correctly. ALS often does not address time or contingency adequately.
The huge empty knowledge void surrounding BI is disconcerting. The E&O exposures are huge. The plaintiff bar has recognized this exposure and are now training hundreds, I counted hundreds because I took the class, of financial experts who are already trained in financial matters to assist plaintiff attorneys in identifying agencies' BI coverage mistakes/incompetencies and carriers' poor claim adjustment.
What troubles me more is the Luddite thought process of producers. I understand this is a harsh statement, and if it is inaccurate, correct me, but if it is correct and you are offended, your sensitivity does not matter to a client lacking adequate coverage at the time of a loss. Luddite is the applicable term and here is why.
I have developed a new kind of insurance education, Three Dimensional Training®. Unlike other kinds of training, participants are individually pushed to prove their knowledge. The one subject where producers, especially experienced producers, try to sabotage the classes is BI. I was not ready for this behavior, but over and over, consciously and/or subconsciously, they work hard to undermine the education. They do so for many reasons including embarrassment that they do not have the coverage knowledge and do not want anyone to know what they do not know. Some are just lazy. Once they realize their default solution, is not always the answer and that I will not accept the statement that, "[X Solution] is always the answer" or "X% co-insurance is always the answer," they dig in their heels. They DON'T want to learn proper BI. They are either lazy or inadequately educated or maybe just not smart enough.
I imagine other reasons exist, but these are the two most common excuses I've experienced. BI is more like surety in that client financial statements are really important. Many producers do not understand financial statements but will not take a class or ask for help. They always prefer to recommend the same solution regardless of the client’s circumstances.
I have my own blind spot: I do not understand why anyone would purposely not sell the right coverage. If one does not know, study, get better at your profession. A true professional welcomes the opportunity to become better and understands why humility is important to growth. A person pretending to be a pro likes to bluster their way through and hope for the best. The thing is, bluster is not in the insurance contract. Insureds need real coverage. Real BI coverage demands real BI knowledge.
BI is incredibly complex because three, really four, coverages are involved. Knowing these coverages and your clients' exact needs provides an opportunity to craft the right solution in the most cost-effective manner. The result is a bespoke, perfect fit versus an ill-fitting BOP -- a BOP that is off the rack. The difference between an ill-fitting suit and an ill-fitting BOP is that when a BOP does not fit and that client has an uncovered claim, no one but plaintiff attorneys win. Bespoke insurance solutions are better solutions.
The basic coverages that constitute business income are straight business income, extra expense, contingency business income, and cyber business income. BOPs almost never provide all four coverages adequately. They are unique coverage issues requiring individual consideration. You can get the dollar amount correct, but if you do not get each of these coverages correct, the limits are moot points. The effective coverage limit is $0. In fact, my recommendation is to first figure out what your clients' exposures are, then figure out their worksheet per each exposure.
Specific to these four coverages, think of a matrix like this:
BI EE Contingent Cyber BI
Then, break down the amount of coverage needed into even more detail under each peril/time element under each column. This chart over-simplifies exposures but is better than what I usually see. It is a start.
BI is such a crucial coverage with so many moving parts that simple solutions are inevitably inadequate. Be a professional and if you can articulate incumbent shortcomings constructively, sales will increase.
If you are interested in learning about business income in a proactive, interactive environment, contact me today to learn more about Burand Insurance Education's world class business income program at: firstname.lastname@example.org.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.