Third in a series of articles on completing the business income worksheet.
Part C of the business income (BI) worksheet is the culmination of the discussion and development of BI exposure. It is here where critical answers to questions relating to the business continuity plan are applied:
- How long will temporary quarters be needed?
Based on past experiences and construction timeframes, rebuilding generally is going to take about 15 months, but for a hospital or other specialized facility, it can be 3 years. Actual timelines will depend on your operations and circumstances.
- What is the period of restoration (until business is at the level it would have been, but for the loss), if no extra expense dollars are spent?
A law firm may believe it can return to pre-loss level within 3 months, but a life science manufacturer may feel it needs 2 years. Again, timing will vary based on the type of risk.
- What income will be retained during a loss?
Consider that a loss at one location may impact 25% of revenue. Also factor in seasonality; peak season may impact 75% of revenue. Lastly, remember that a temporary location may take 3 months to get up and running, or it might be a manual operation.
While there is no right answer, as a rule, all elements of your business must be considered when developing your BI exposure. Ask the tough questions and make sure you understand the specifics as to how your business will survive a loss.
Once completed, the worksheet should be reviewed with each significant change in operation as well as annually to ensure you have adequate insurance.
Nancy Verduin, CPCU, APA, is Vice President, Centralized Underwriting Services at Chubb. Her responsibilities include conducting business income valuations as well as continuing educational courses for both producers and underwriters. She also teaches in-house CPCU courses and supports Chubb’s business process.
Patti Mitrik is Senior Premium Auditor in Chubb’s National Premium Audit Center. Her responsibilities include conducting business income valuations as well as continuing educational courses for both producers and underwriters. She also performs premium audits in support of the National Premium Audit Center.