insuring continuity

April 12-14, 2010Sheraton New Orleans

Insuring Continuity

Integrating the BC Program with Traditional Insurance


Session Objectives

• Discuss types of insurance relevant to BCM programs

• Demonstrate how BCM can benefit from insurance programs

• Demonstrate how insurance programs can benefit from the BCM program


Insurance Overlap with BCM

• Business Interruption

• Property

• Directors’ and Officers’

• Workers’ Compensation/General Liability

• Professional Liability


Business Interruption Defined: Thesaurus Legend: Noun 1. business

interruption insurance - insurance that provides protection for the loss of profits and continuing fixed expenses resulting from a break in commercial activities due to the occurrence of a peril

Business Interruption Purpose: To protect the earnings of the insured and do what the insured would do for itself had no loss occurred.

Business Interruption: “Net Profits Plus Continuing Expenses” or “Gross Earnings less non-continuing expenses”

Business Interruption Insurance


Services OverviewSection 1: BI Program Design

Direct Exposures: Indirect Exposures:

All Risk/Other Extended Period of Indemnity Extra Expense Ordinary Payroll

Contingent Business Interruption Contingent Extra Expense Civil Authority Ingress/Egress Professional Fees Service Interruption Dependent property

Business Interruption Coverages


Services OverviewSection 1: BI Program Design

Types of policy forms ISO Filed Forms Manuscript/Broker Tailored Form Propriety/Insurance Company form

Basis of coverage: Gross Earnings: “Gross Earnings less non-continuing expenses” or Net Profits: “Net Profit plus continuing expenses” or “Reduction in Turnover less change in standing charges.”

Conditions: Covered cause of loss Covered location During period of indemnity Mitigation Actual loss sustained

Business Interruption Basics


Services OverviewSection 1: BI Program Design Most Recent Accounting

Period Values

Estimated Values for next

12 months

A.

B.1.

2.

3.

4.

$0 $0C. $0 $0D.

$0 $0

A.

B.

$0 $0

$0 $0

A. Total consecutive # of days insuring ordinary payroll (30-day increments)B. Total number of calendar days in payroll year (i.e. 360) 360 360C. Ratio of Days insuring versus Total Days (A / B) 0% 0%

$0 $0

$0 $0

LIMITED ORDINARY PAYROLL ( 2A + 2B) x (3C)

LOSS OF INCOME, INCLUDING LIMITED PAYROLL ( 2 + 3 )

LOSS OF INCOME, EXCLUDING ORDINARY PAYROLL ( 1 - 2 )

ITEM 3. ORDINARY PAYROLL (Only if limited number of days)

Ordinary Payroll - DO NOT deduct wages of officers or anyone under contract, guaranteed compensation or who would otherwise be retained during a period of interruption.

Compensation Insurance Premiums, Social Security, Unemployment Insurance, and Other charges directly allocated to Ordinary Payroll.

TOTAL ORDINARY PAYROLL ( A + B )

( A minus B )

Add - all other earnings derived from operations of the business.

LOSS OF INCOME VALUE, IF COVERING ORDINARY PAYROLL ( C + D )

ITEM 2. ORDINARY PAYROLL (Only when Excluded or Limited)

ITEM 1. Income less Expenses other than Ordinary PayrollNet sales value of plant (for mfg. locations) and net sales for (non-mfg. locations). Calculated at gross sales price less discounts and allowances for bad debts, returns, sales taxes and prepaid freight, if included in sales prices. Deductions:

For manufacturing, the cost of all materials, supplies and services. For non-manufacturing, the cost of merchandise sold and supplies consumed. For service providers, the cost and expense of services sold.

Royalties in excess of contract minimum.

Light, heat, and power (in excess of requirements for non-operating conditions).

Other non-continuing expenses (see instructions)

Total Deductions (1+2+3+4):


Insurance can help BCM

• Cash to implement strategies– At time of disaster or execution portions of

staged strategies– Contingent coverage

• Current risk information – Basis for MFL/PML– Exposures revealed in BIV analysis


Insurance can help BCM

• Backstop for losses/failed responses

Strategy Funding

Self Insurance

Excess/Reinsurance

Deductible


BCM can help insurance

What doesn’t work:

Putting insurance salesmen in your mass notification

system


Services Overview

Section 1: BI Program Design Earnings loss scenarios which may not be covered by business

interruption insurance (sample):

1. Obvious exclusions (strikes, war, flood, etc.)2. Obscure exclusions (loss of market, no physical damage,

consequential losses, etc.)

Examples: 9/11 losses with no physical damage Katrina losses – effects on population vs. damage (market) Northeast power blackout of 2003 Offshore property exclusion Pandemic Human impact, Loss of Life

BCM can cover BI “Gotchas”


Services Overview

Section 1: BI Program Design Earnings loss components which may not be covered by business

interruption insurance (sample):

1. Obvious exclusions (BI loss stemming from - mold, flood)2. Obscure exclusions (loss of market, retraining employees,

consequential loss, etc.)

Examples: Pre-loss excess labor to expedite goods production in advance of loss Mitigation expenses incurred but not utilized Excess fuel costs stemming from Katrina Disaster bonuses, employee tips Broader market impact Excess bad debts stemming from Katrina

BCM can cover BI “Gotchas”


Actual Example of BCM helping InsuranceLocation Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Total

Ref Schedule

Loc 1 $ 23,216

$ 1,497

$ 11,184

$ 7,492

$ 17,180

$ 38,269 $ 137,057 $ 235,894

Loc 2 $ 29,961

$ 17,816

$ 4,698

$ 23,733

$ 3,312

$ 3,124

$ 7,678

$ 90,321

Loc 3 $ (3,554)

$ 2,303

$ -

$ 397

$ -

$ -

$ 3,791

$ 2,937

Loc 4 $ 34,464

$ 14,181

$ 88,369

$ 36,849

$ 14,949

$ 11,732

$ 37,098 $ 237,641

Loc 5 $

1,475 $ -

$ -

$ -

$ -

$ -

$ -

$ 1,475

Loc 6 $

- $ 13,602

$ -

$ -

$ -

$ -

$ -

$ 13,602

Loc 7 $ 22,147

$ 5,657

$ (328)

$ 580

$ -

$ 342

$ 3,392

$ 31,791

Loc 8 $

- $ -

$ 27,383

$ -

$ -

$ -

$ -

$ 27,383

Loc 9 $

173 $ 1,570

$ 5,908

$ 1,467

$ -

$ 468

$ 3,333

$ 12,918

Loc 10 $

- $ -

$ -

$ -

$ -

$ -

$ (128)

$ (128)

Loc 11 $

- $ -

$ (2,774)

$ -

$ -

$ -

$ -

$ (2,774)

Group $

5,634 $ -

$ (3,160)

$ -

$ -

$ -

$ -

$ 2,474

All Other $

(6) $ (24)

$ (2,144)

$ 2

$ 1,308

$ (1)

$ (1)

$ (866)

Adjusted $ 34,464

$ 17,816

$ 88,369

$ 36,849

$ 17,180

$ 38,269 $ 137,057 $ 370,004

Prior $ 113,510 $ 56,602 $ 129,136

$ 70,520

$ 36,749

$ 53,933 $ 192,220 $ 652,669


You know you might need a professional BIV if…

• What to include as a deduction for purpose of getting to gross earnings– (avg. daily value deductible or co-insurance

reporting)

• The policy has location based limits based on the BIV worksheet

• Extended interruption is a possibility for some locations


QUESTIONS?

Contact me at:

Michael Keating, CBCP

[email protected]

404-575-3843

LinkedIn: http://www.linkedin.com/in/michaelkeating

insuring continuity

Documents

business income values

net profits

expense values

estimated net profit

impending policy period

prior policy period

operations net profit

gross earnings