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Business Protection Bulletin


By December 1, 2010No Comments

Outsourcing resources out of the country is rapidly becoming an indispensable business practice for a number of industries trying to increase the speed of their production and reduce their overhead. However, if you have a supplier or several located thousands of miles from your business that shuts down and is incapable of delivering products or services on schedule, the results on your financial situation can be dramatic. To reduce the amount of uncertainty that is common with both domestic and overseas outsourcing, you should think about Contingent Business Interruption, or CBI insurance. This is also known as Dependent Properties insurance or Contingent Business Income, and this kind of coverage pays back your company for lost earnings that come from an interruption in your supply chain. You can either add this coverage to your standard Property policy, or purchase it as a stand-alone coverage.

CBI keeps your business protected from the interruption in functioning and additional expense losses that might come from damage due to an insured danger to property that it doesn’t operate, own, or control, but whose functioning is essential to its maintained operations. CBI does not offer protection against your business being interrupted from damage to operations and plants under your control.

CBI typically will cover any losses of revenue, losses of earnings, and damages that are liquidated. You can arrange policies to address third party strikes, pollution or contamination, political risks, denial of access, epidemics, disease, and terrorism. Depending on the circumstances, it might be possible to find coverage for other dangers.

Typically, there are four unique types of properties that are covered through CBI:

  1. Contributing properties are either single or multiple suppliers for resources and materials that the insured party relies on nearly completely to finish its products on schedule.
  2. A manufacturing property comes into existence when the insured party relies on either one or a few choice manufacturers for the majority of its merchandise.
  3. A recipient property can be defined as either one or a select few companies that buy the majority of the products of the insured party.
  4. A leader property is a company that is a close business neighbor of the insured party and which assists in driving customers to the insured party.

CBI policies typically advertise a defined “waiting period” that applies for losses in income suffered by businesses. The waiting period can vary from between eight hours to a full week or more. Since a large number of policy holders will suffer the greatest amount of earning loss and expense within the first several hours and days that follow a supply disaster, you should make as much effort as you can to have the waiting period either eliminated or substantially lowered with your policy. Alternatively, you can strive to obtain a “known dollar deductible” rather than a mandatory waiting period. On one hand, you will still have to deal with the loss of some potential earnings, but on the other hand, any amount of earnings you lose above the deductible will be covered fully by your policy. When you apply for a CBI policy, the underwriter of the insurance will ask for several reports and information about your business, much of which will be information related to the suppliers of your business. These requests may include contingency plans and loss prevention plans from your primary suppliers. The amount you spend on a CBI policy will depend on several factors, including the type of business you have, how much dependency you have on your suppliers, and how much loss control your suppliers practice. Providing full information to your underwriter will help you receive the most precise pricing. For a business to file a claim through its CBI policy, there only needs to be an insured loss that occurs at a particular location with the business of the insurer interrupted in the process.