February 8, 2019 by Jason Contant
One strong challenge to the broker channel, according to brokers, is consumer self-education about their insurance needs and options. Nowhere is this more evident than in the field of business interruption (BI) insurance, a very specialized coverage that is rife with opportunity for client misunderstandings.
Just over one-quarter of 802 brokers surveyed in Canadian Underwriter’s 2018 National Broker Survey agreed that “consumer self-education about their insurance needs/options” presented a strong challenge to the broker channel.
BI coverage is one area in which clients may benefit from value the advice, knowledge and experience of a broker. For example, clients may think that BI always covers all employees or that it covers loss of use of premises. But in reality, there are so many different types of BI cover; it’s all in the different wording on forms.
“You really need to consult with your broker and try and tailor your business interruption to the appropriate exposures you may have in order to mitigate your loss, should one occur,” said Greg Hull, vice president of sales at AA Munro Insurance in Antigonish, N.S. “I think the biggest misconception when it comes to business interruption is that if I have business interruption, it’ll take care of everything.”
One common client misconception is that BI covers all employees, when in fact it can be used to cover just key employees. For example, a restaurant with a key chef that is hard to replace may want to continue to pay the chef while the business is undergoing restorations to get itself back up in working order.
Another common misconception is that BI covers loss of use of premises. However, common to most (if not all) commercial policies is a civil authority insurance coverage extension, said Raymond Monteith, Hub International’s senior vice president, practice leader–organizational resilience risk control services leader in Canada. The civil authority extension covers loss of business income, value and extra expenses incurred because of denied access or forced evacuation.
BI can cover profits, meaning that if a company has actual loss sustained, the insurance will cover all the profits that would have been earned during that period minus things such as fixed expenses. “It’s based on previous incomes from previous years, but allows you to at least recoup your profits so it’s as if you’re still running a business,” Hull said.
Clients are sometimes confused about the coverage. One broker in Manitoba was recently caught up in discipline case regarding a BI coverage mix-up. The broker’s work colleague (for whom the broker was covering during the colleague’s vacation) initially explained to the client how BI worked, but the client declined the coverage thinking it was only for lost wages.
BI also overlaps with other forms of insurance, including property and cyber liability insurance. Monteith explained that BI starts where property insurance leaves off. “When the physical loss affects the operation of the business, it covers the loss of income you would have expected to receive had the loss not occurred. It’s also worth asking if your business would benefit from extra expense coverage as part of your business interruption coverage solution.”
Hull agreed, saying extra expense coverage will reimburse the business for reasonable expenses beyond the fixed cost that will allow a company to continue running their business while the property is being repaired. There is also “temporary location cover,” expenses associated with moving to or operating from a temporary location.
“So besides just covering employees or covering lost profit, there are various forms of business interruption and that’s where brokers would come in to allow you to pick the appropriate coverages that are relevant to your business,” Hull said.
Another consideration is cyber. Some cyber policies cover BI, and some do not, Monteith pointed out. “If your business is hacked and cannot operate normally, you’ll need to have business interruption coverage built into your cyber insurance policy to deal with lost profits.”
Hull recommends clients have some form of BI coverage. “If you have no form of business interruption at all on your policy, then it becomes very hard to indemnify you because you’re certainly going to suffer a monetary loss if you have any type of property loss or property exposure on your business,” Hull said. “So, some form of business interruption is key to mitigate those losses should an event occur inside a business.”