Summary
Helping an insured calculate its maximum possible business interruption (BI) loss exposure is one of the thorniest problems an insurance adviser faces, likely to occur because insureds underestimate their BI exposures. One basic method assumes that sales and expenses occur evenly throughout the year. Thus, if an insured estimates 6 months are needed to restore operations, then the insured's BI loss exposure is one-half of its annual net profit plus continuing expenses. The proportion-of-sales method uses a percentage of annual net profit equal to the percentage of sales expected during the peak period. This assumes that operating expenses vary directly with sales. It's better to calculate the loss exposure on a month-by-month basis rather than for the entire period of restoration. An improved method involves estimating the maximum period that will be needed to restore operations and projecting monthly financial figures.
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Helping an insured calculate its maximum possible business interruption (BI) loss exposure is one of the thorniest problems an insurance adviser faces, likely to occur because insureds underestimate their Bl exposures. It also involves arithmetic and accounting, two topics guaranteed to produce MEGO (my eyes glaze over) syndrome. To complicate the problem, many of the suggested methods of calculating BI exposure are defective.
One basic method ass...See the full content of this document
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