What is Business Income Coverage?
Updated: Aug 25, 2020
Business Income (BI) coverage is not like other insurance coverages for many reasons. One of these reasons is producers do a poor job selling BI to clients, much less selling it correctly. I make this statement based upon my E&O audits and file reviews. Producers do not understand the coverage or how to deal with the worksheets, so they skip it out of fear of losing the entire account.
BI is different in that it provides coverage for intangibles -- it covers an income stream versus a building. Most producers can relate to buildings, to workers' compensation, to tangible factors. Income streams are for finance majors and valuation experts and private equity. Yet, an income stream is almost always more important to protect than a building.
BI is a forward coverage versus a backward coverage. In other words, BI pays for what would have been earned in the future rather than the past or even what the replacement cost was on the day of the loss. Not only is it intangible, but it is an estimate or a prediction of the future making the coverage even more difficult to quantify.
Writing BI well requires, honestly it does, some accounting knowledge. Most other coverages and insurance forms do not require knowledge of accounting. This is a problem for producers because the vast majority of producers have never taken an accounting class, much less a quality finance class. BI is an accounting and finance coverage.
Producers find BI difficult to grasp because it is so complex and intangible. I often argue that all insurance forms are complex when done well, but BI is especially complex. Furthermore, is hard for all involved to design the right coverage angles well.
There is no such thing as a "best BI form". One of the stupidest questions I have ever heard a producer ask is, "What is the best BI form?" Sure, all clients' needs and situations and claim events are always identical, right? Even if the entire world had only one BI form, how that form is applied to different clients would vary significantly because the best form and application of that form, is the one that fits a specific client's needs. The right form is really the equivalent of the right advice and the right advice will be based on any given client’s specific situation.
BI's complexity means producers must work to understand the different forms and the applications of those forms, along with understanding different types of businesses' exposures. To me, one of the most intriguing and interesting aspects of insurance is how different businesses have such distinct BI needs and exposures. I am fascinated by how income streams change in varying scenarios for different kinds of businesses. A good producer who works hard to understand these forms and applications could probably make a living just by focusing on BI.
BI coverage does not cover every BI exposure. A property policy more or less, excluding DIC situations, covers a building. A BI policy may exclude major BI exposures. This is especially true within the cyber liability context, but it is also true for many common kinds of claims. Yet, coverage is usually available for these exclusions if a producer will, again, work hard to find such coverage. Lloyds markets are usually good places to begin the search.
Never, ever, forget to find contingent BI coverage.
BI is quite a different coverage for an unusual reason. Insurance was initially invented to protect banks. Banks wanted their borrowers to buy insurance so if the building burned down, the insurance company would pay off the loan. In a sense, it was a way of cost shifting. Most property insurance still works that way to varying degrees, excluding government mandates for workers' compensation. BI is a form of insurance that it is designed to protect the business owner, not the bank.
BI is continuously ranked by CFO's and CEO's as one of the most important coverages their businesses need. Businesses want proper BI coverage. Yet, 90% of producers do a poor job designing BI coverages, and the coverage needs to be designed, for each specific client. If every producer does a poor job finding BI coverages, the clients don't have a choice but to choose between dumb and dumber. When that 10th producer calls and shows them what they truly want to see, quality BI, which is always one of their top three most desired coverages, accounts move.
What is a secret to sales success? Give the customer what they want.
If you want to learn BI, in depth, you may want to consider our incredibly in-depth BI education program: www.burandeducation.com/niche-program-business-income.
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.