Business Interruption Insurance Primer
Diesel Day Dreams, based in Northglenn, Colorado, was teetering on the edge late in 2018. An arsonist left a path of destruction at the shop and at a handful of other businesses in the area.
“I thought that was it for Diesel Day Dreams. That’s a scary proposition when you’ve worked so hard your whole life and everything you have is invested in the business,” said owner Wade Boyd (pictured above). “If I didn’t have the insurance coverage for business interruption and income loss protection, I wouldn’t be in business today.”
The insurance closed the gap and ensured Diesel Day Dreams’ bills were being paid, including payroll.
“When it came to paying our bills I was scared; I’ve heard that insurance payments can take six months to a year,” Boyd said. “With Alliant Insurance, it wasn’t a battle like you hear about with other insurance companies. Instead, we were able to keep going and get up and running in the new building in a couple of months. The whole process with them was awesome.”
The night of the fire at Diesel Day Dreams’ shop, which was destroyed by an arsonist in Northglenn, Colorado.
Now located across the street from the burned-out shop in a new facility, Diesel Day Dreams is back on track doing what it does best: improving the performance for all kinds of diesel trucks, from racing to towing. “We get a kick out of this,” Boyd said. “I love hearing from a customer who says he’s able to pass other trucks going over Vail pass, and how we were able to improve that truck’s performance so he could do it.”
Boyd’s passion for diesel was built on his days at the track, pushing the limits of the Duramax engine in his truck, which he was originally using just to tow his race car to the track. When he saw what could be done with a diesel engine, he was hooked and has been racing diesel trucks ever since. That led him to working on other people’s trucks and the opening of Diesel Day Dreams in 2008.
The rest, as they say, is history. Fortunately, thanks to the shop’s business property insurance policy-specifically the business interruption coverage-diesel aficionados far and wide will continue to realize the boost Diesel Day Dreams provides their rides for a long time to come.
Business Interruption Insurance Review
When business owners decide to secure insurance there are many motivating factors driving those decisions. For some, it’s liability requirements and for others it’s the potential costs of litigation. When it comes to property insurance, many are motivated by a lender to secure coverage for a building or leased equipment.
However, securing property insurance for tangible items threatened by fire or theft is only a small part of protecting asset vulnerability. One must take into account replacement of those items, and most importantly, consider the cost associated with rebuilding a business back to where it was prior to the loss.
Business interruption insurance-commonly known as business income coverage-is a sub-component to a property policy and is triggered by the same perils covered in the policy. What many business owners don’t realize is the myriad issues that need to be considered when establishing the limit or amount of coverage needed that will assist in stabilizing the business by mitigating further losses. One must take into account the potential for market share losses that can come from lost net profit over an extended period of time.
We have seen time and time again business owners carefully establishing a limit on the tangible property that supports the repair, or replacement of damaged buildings or contents, but going without business income protection in its entirety. The pitfall is never thinking about the amount of money needed to pay for critical expenses or lost profit that occurs after a loss that many businesses never recover from.
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Alliant Insurance Services Inc., is the endorsed broker to the Specialty Equipment Market Association (SEMA) and founding managers of both RevPro and Installers Edge programs, which deliver property and casualty products and services to automotive parts manufacturers, distributors, retailers and garage operators across the country on a retail and wholesale basis.
Let’s briefly review some of the critical areas that should be contemplated when establishing the limit or monies needed as follows:
- Extra expense reimbursement for reasonable expenses beyond the fixed costs normally incurred by the business prior to the loss that allows a business to continue operations during the recovery process. These expenses can be as small as hiring a contractor to board up a hole in the building to temporary equipment and can add up quickly. This, in addition to considering expediting expenses like the cost of freight to obtain a critical part or tool
- Temporary location or equipment may be needed to support the recovery process. Money to pay for non-recurring expenses to stay in business is critical
- Fixed costs, also known as ongoing operating expenses, and other historical expenses that still exist after a loss regardless if revenue isn’t normalized. It is true that expenses are reduced when a business isn’t running, such as lower energy demands and labor costs, but continuing expenses like key management and personnel salaries, including overtime pay or lease payments that must be maintained need to be accounted for
- Profits that would have been earned based on prior months’ performance can make the difference between a business thriving during and after a claim versus merely just surviving. What many don’t realize is market and reputational erosions can occur, which factor into the length of time for recovery, slowing the net profit and returning to the place it was prior to the loss. If a business isn’t open for six months customers will go elsewhere, and this creates a potential added risk of them not returning once the establishment is reopened
There is much to know about business income coverage, which is often referred to as the lifeblood of an enterprise. Yet the coverage is commonly overlooked when property insurance is being secured. Here are five things every business owner should do immediately upon negotiating their next property renewal:
- Work with an agent that understands risk assessment on the topic
- Complete a business income worksheet that supports outlining items to consider when establishing the limit
- Work the most catastrophic claim for your company in reverse and discern the true timeline of recovery
- Establish a disaster recovery plan which could require third-party relationships to be formed
- Work with a carrier willing to separate the cost from the property pricing
In the end, buy more than you truly feel you need, as it is never enough if recovery takes longer than expected due to environmental, regulatory or civil restrictions.
If you would like Alliant to review your property policy and discuss ways to enhance your business income protection call 800-390-9099 or visit seiainsurance.com/start.
Thanks to Diesel Day Dreams’ business property insurance policy, diesel aficionados far and wide will continue to realize the boost Diesel Day Dreams provides their rides at the track.
