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CPCU 551 Chapter 7

Chaper 7 Notes

QuestionAnswer
Define Business Income Insurance? Insurance covering reduction in income due to operations being interrupted by damage to property caused by a covered peril.
List the two types of business interruption expenses? Continuing and non continuing
Define Extra Expenses? Expenses in addition to ordinary expenses that are incurred to mitigate the effects of business interruption (ie renting a new building).
What considerations should be given when doing a pre-loss analysis of business income? 1) Events that can cause a loss 2) Damage to property away from the organizations premises 3) Time Factors Involved 4) Potential for a small loss causing a big income loss
List some factors that can apply relative to damage to property away from an organizations own premises? Property in transit (off premise), interruption of utility service, damage to adjoining property forcing inability to use your own facilities, Adverse Weather (ie roads being washed out).
Detail some of the time factors that can come into play relative to business interruption? Time required to replace property, zoning or rebuilding issues, construction delays, replacing specialized equipment, time required to restore normal operation even after rebuilt (ie customer or contracts lost).
How is estimated maximum loss calculated? EML Considers shutdown at the worst possible time, with the longest possible rebuild time forseen. A business income worksheet based on passed income is useful in projecting future exposure.
What is the business income worksheet used to calculate? The co-insurance basis.
Why is the business income for 12 months portion of the business income worksheet not a reasonable approximation of EML? The max interruption period is rarely 12 months, some expenses may continue, extra expenses may not be considered.
What considerations should be considered when making adjustments to the coninsurance basis to equate to the EML? Deducting non continuing expenses, adjusting the timeframe necessary to rebuild, adjusting for peak periods (worst case scenario of loss timing), calculating extended loss of business income even after rebuilt, extra expense, allow for a buffer for errors
What are the components of a Business Income Coverage Form? Business Income Coverage, Extra Expense Coverage, Additional Coverages, a Coverage Extension and Conditions.
List the three options for business income coverage? Business Income including Rental Value, Business Income Only, Rental Value Only.
What are the components of a Business Income Coverage Form? Business Income Coverage, Extra Expense Coverage, Additional Coverages, a Coverage Extension and Conditions.
List the three options for business income coverage? Business Income including Rental Value, Business Income Only, Rental Value Only.
List the 4 additional coverages in the Business Income Coverage Form? Civil Authority, Alterations and New Buildings, Extended Business Income, Interruption of Computer Operations.
Describe Civil Authority? This applies to damage to a building other then property at described premises which causes closure of described premises due to closure by civil authority. (ie chemical leak) Must be less then 1 mile away
Describe Alterations and New Buildings? Covers for business income losses if lost due to damage during construction of new building or alteration.
Describe Interruption of Computer Operations? Coverage only for $2500.00 per policy year.
List the three conditions included in the business income coverage form? Duties in Event of Loss, Loss Determination, CoInsurance
List the factors that will be taken into account in determining a business income loss? 1) Net Income before loss 2) likely net income if loss had not occurred 3) Operating expenses 4) Other relevant sources of information
List the three optional coverages that can be included in the declarations of the business income coverage form to eliminate co-insurance? Maximum Period of Indemnity, Monthly Limit of Indemnity, Agreed Value
Define Maximum Period of Indemnity Provision if opted? Insurer promises to pay business income loss for up to 120 days following loss. Good option if you don't ever expect to be out more then 4 months.
Define Monthly Limit of Indemnity Provision if opted? Agreement made to pay for each period of 30 consecutive days of loss not to exceed the limit of insurance x whatever fraction is chosen.
Define Agreed Value Provision if opted? Limits agreed upon in advance of loss.
Define the Extra Expense Coverage Form? Designed to cover insureds whose primary concern is not loss of income but instead extra expenses incurre to avoid losing income following a loss.
Define the Business Income (and Extra Expense) Coverage Form? Focuses on Extra Expense coverage but also provides limited business income loss coverage.
Describe Blanket Business Income Insurance? Blanket coverage with one limit of insurance applying for different locations. Computed on weighted average.
Define the three ways ordinary payroll can be covered as defined in the Ordinary Payroll Limitation or Exclusion? 1) In Full (but only the the extent necessary to resume operations) 2) Excluded 3) Limited (by # of days of coverage)
What is the Business Income Premium Adjustment Endorsement? It is used to address problems with determining the proper amount of insurance needed to satisfy a coinsurance requirement.
What is the purpose of the Endorsement for Dependent Property Exposure? It covers potential income loss due to damage occurring at a premises not owned by the insured (ie: a main supplier).
List the four types of Dependent Properties? 1) Contributing Locations (these deliver materials or services) 2) Recipient Locations (receive the customer product) 3) Manufacturing Locations 4) Leader Locations (attract customers to the insureds business)
Created by: GARYSCHILD
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