So, how do you allow a business not to fail after it suffers a loss?
One of the key elements is extra expense insurance, which enables you to spend money to do whatever you can to help your business operate. Unlike Business Income Insurance (BII), which can take months to calculate and negotiate a settlement, the insurance company can often reimburse the extra expenses as they are incurred. This can be a huge advantage to the cash flow of a business that has just suffered a catastrophic loss.
Note that the following comments relate to the most popular insurance policies. Your policy may be different.
Many people mistakenly believe that you have to reduce the business income loss to recover extra expense. This is not necessarily true; it is only the case when you use the money to repair or replace property.
Another misconception is that you can’t have an extra expense claim without a loss of income claim. Not true. In fact, the best situation is when you have a significant extra expense claim and can thereby avoid a loss of business income.
Here are a few examples of business losses we have adjusted:
• A large computer service bureau set up a temporary computer site that was abandoned after a permanent location was established.
• A manufacturer paid extra to expedite shipments of products and parts from alternative suppliers and other plants.
• A small business advertised in local media to inform the public that the company was still operating.
• A manufacturer moved undamaged equipment to another plant to meet production requirements.
• A manufacturer expanded operations at another plant to replace lost capacity.
• A company’s administrative staff was overloaded after a major loss. The company hired a temporary expeditor to help handle the increased workload.
A little-known benefit of extra expense insurance is that it can be used to make repairs or replace equipment if it reduces the business income loss. Here are some examples:
• A company used extra expense insurance to make emergency repairs on an elevator after the building insurance had been exhausted. Otherwise, the business would have had to shut down.
• An apartment building owner suffered a flood in October that destroyed the oil burner. It was a specially-engineered unit and would have taken three months to replace. So, the insurance paid a premium to acquire a replacement unit from a contractor in San Francisco and air freight it to Boston. It kept the tenants in the building and prevented a loss of rents.
It’s important to note that in each of these cases we worked closely with the insurance company’s adjuster to ensure that our client would be paid before the expense was incurred. Sometimes, as the old adage goes, “it is better to ask permission than forgiveness.”
On a side note, the 2012 FPCC keynote speaker was Bonnie Schneider, noted television meteorologist and author of the book, Extreme Weather. Ms. Schneider talked about the science behind damaging weather disasters and offered her predictions for upcoming weather trends. Coincidentally, our upcoming newsletter, PLA Advocate, will feature an article titled, “Extreme Storms on the Rise,” which details a recently-released report on the rise of severe and damaging weather events.
—Len Theran, SPPA
Leonard Theran, SPPA, principal of Professional Loss Adjusters, Inc. of Newton, Massachusetts, earned a BS degree in Mechanical Engineering from the Massachusetts Institute of Technology and an MBA from Stanford University. He has more than 35 years adjusting claims. He is past-president of the Massachusetts Association of Public Insurance Adjusters and has served on the Board of Directors of the National Association of Public Insurance Adjusters and CAI-New Hampshire. He has also qualified as an Expert Witness and has been a featured speaker before several organizations including the Risk and Insurance Management Society, the Institute of Real Estate Management and Lorman Education Services.