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    Contingent Business Interruption Insurance Explained

    Any form of business interruption, when it happens, can cripple any business big or small.

    Due to their unpredictability, it is extremely difficult to create a foolproof plan. This is why insurance companies offer business interruption and contingent business interruption (CBI) coverage, sometimes known as business income insurance.

    Aside from getting it as a standalone policy, insurance companies might offer it as a package deal with the other basic insurance needs. After all, business protection is something that any owner would want.

    The problem is, there remains to be a lot of confusion surrounding CBI policies. These might be a result of insurers being unclear about the coverage. In any case, it helps to be aware of the risks of, and fail-safes against, running a business.

    What is contingent business interruption insurance?

    At the start of the pandemic, when a lot of people didn't know what was going on, business interruptions cost US businesses as much as $419 million. It's not hard to imagine how that must have hurt business owners.

    Contingent business interruption coverage is, simply put, a form of insurance that insures a business' revenue in the case of service interruption due to disruption in the supply chain. In those cases, the business income would be covered by the insurer, which lets the business continue operations.

    For instance, if a fast-food joint had their supply chain interrupted, it would halt their services. As a result, the fast-food restaurant would not be able to pay its employees, rent, and utilities.

    If the said restaurant has contingent business interruption services, their operational costs would then be safe. That's because this coverage will come into play, allowing the business owner to maintain operations while revenue is kept at a stop.

    Certain industries will gain extra benefit from these types of coverage, particularly those in the hospitality industry as well as the food and beverage industry, as seen in our example above.

    What does business interruption insurance pay for?

    As we've mentioned, CBI insurance is meant to keep businesses in operation in case of service interruption. Among the fees and payments that this coverage will help you with are taxes and loans, two vital aspects of running a business.

    While the earlier example focused on the interruption of the supply chain, those aren't the only kinds of interruptions that result in a loss. Fortunately, CBI insurance also covers interruptions caused by a third party, with reasons ranging from supply disruption to property damage.

    Another way to look at it would be to imagine owning a store beside a restaurant. In this example, the restaurant suffers an accident in the kitchen starting a fire that affects your establishment. In these cases, the resulting property damage would mean your services would be disrupted.

    Again, CBI will play the hero by allowing the business to undergo repairs while still paying for their employees' wages. The repairs would be paid by commercial property insurance while the stalled revenue would be paid for by the CBI insurance.

    Considering that 20% of small businesses don't make it past a year, it is then safe to say that insurance CBI insurance could provide some sort of peace of mind.

    What does business interruption insurance not cover?

    While CBI insurance seems like the perfect policy, it only covers financial costs. This does not include material costs which include property damage among others.

    Similarly, undeclared revenues and extra expenses are not to be included in the CBI. The reason for this is that these are normally covered by different insurance policies that aim to provide a different service.

    In our previous restaurant example, we mentioned that commercial property tax would cover the property damage caused by the neighbor's fire incident. This incident reflects the kind of confusion that surrounds CBI insurance.

    In the case of last year's pandemic, COVID-19 provided exempt cases with this scenario due to the nature of the communicable disease. Although, this did require businesses to provide documentation or proof of some type to justify their business' closure.

    Frequently Asked Questions

    Is business interruption coverage expensive?

    Small businesses located in areas unlikely to be struck by a natural disaster may only pay $750 for their insurance. However, the national average is $1,200 per year.

    What is an example of a contingency?

    Contingency is something that could happen or come up depending on other occurrences. This could be a business experiencing a natural calamity that damages their storefront or having a data breach that halts business operations.

    What is contingent income?

    A contingent commission is a type of commission that can be paid to an intermediary by the insurance or reinsurance company. The amount of this payment will depend on certain events happening with your policy, such as how profitable you are for them and if they need additional coverage in case something happens while their current policies are still valid.

    What are probably the most common cause of a business interruption?

    While there are many different causes of business interruption, the two most common are fire and flood. Both can have a major impact on an organization's bottom line if not handled correctly; they should be considered in advance to minimize potential losses.

    How long do business interruption policies last?

    BII coverage lasts until the end of the business interruption period, as determined by your individual policy. According to an Insurance Information Institute report, a standard 30-day plan may be extended with additional time through endorsement options.

    Keeping your business secure is mostly about staying up-to-date on what's happening in the industry. It's all in the details, after all. You can read up on more news, articles, and learn more at AssuredStandard.com and stay ahead of the game.

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