How does business income insurance help in those instances when it takes some time for customers to return?
The standard coverage stops the moment the business is able to start producing again and opens its doors to the public. Unfortunately, especially in retail operations such as restaurants and clothing stores — businesses that are dependent upon generating a stream of customers — while the business was shut down, those people may have started to go to another organization to satisfy their needs.
So when your business opens its doors again, it may take time to get those people to come back to buying from you.
A business income policy or coverage can be extended to provide for that time period when you are back in business but not at the same level you were before the interruption.
Are there unique circumstances that can affect the amount of insurance you should purchase?
All too often, a business or organization will complete a worksheet to estimate what its annual loss is going to be and then underestimate other factors that leave it without the proper coverage.
There are several pitfalls people don’t consider when they answer the question, ‘How long will it take me to get back into operation?’ If they own their building, they often shortchange the amount of time it takes to reconstruct the premise. They forget about the planning stages and cleanup, and estimate that it would take six months to rebuild the building when, in actuality, it will take 10 months.
A second factor to consider is whether the business is seasonal. If there are wide fluctuations from season to season in the amount of revenue that is produced, a loss at the wrong time of year could result in having inadequate coverage in the event of a fire or other loss.
A third factor that could impact the restoration period is whether or not a company uses special equipment that would take a long time to replace. Often, people will focus on the length of time needed to replace the building but do not consider the length of time it might take to replace very specialized or customized equipment.
If your business process includes any kind of aging process in your production, a fire could result in a loss of revenue that continues for two or three years.
A professional risk management adviser will be able to identify the right type of coverage for you.
Gloria D. Forbes is executive vice president with ECBM Insurance Brokers and Consultants. Reach her at (610) 668-7100 or [email protected].