In the aftermath of a disaster, many executives fail to think about how they would manage if a fire or natural disaster damaged their premises so that they were temporary unusable. According to the Insurance Information Institute, more than 25 percent of all businesses that close down following a disaster never open their doors again. There are no separate numbers for non profits but it is reasonable to assume it is the same.
From my experience, this is the most misunderstood type of insurance out there. Most insureds and even agents and brokers really do not have the proper grasp of it.
But even if you have business interruption insurance in place there is a good possibility that it may not respond properly. Doing a quick scan of the Insurance Services Office website there are:
5 Coverage Forms and Declarations to choose from
19 Cause of Loss Forms
23 Time Element Endorsements
11 Leasehold Interest Factor Tables
That is a total of 58 different forms and endorsements that have to be reviewed and put together to provide the best combination. Some add coverage and some take it away. On top of this is the actual chore of picking the correct amount. Because each non profit organization is different there is no easy way to determine the best way to pick a limit.
Some of the things to take into consideration are:
Performance Contracts – They may end if you cannot perform
Restricted Donor Commitments – Same as above
Member Dues – We have seen members leave an organization, such as a country club, if there is extensive damage to the facilities
Reputational Injury – As you have seen in the MasterCard commercials, this can be priceless. Very hard to put a dollar amount on this risk
Most agents and brokers start by sending their clients the standard business income worksheet to fill out.
As you can see, it is not really designed for a non profits’ financial structure. Each organization is different and some serious discussion needs to take place and a hard look at all funding sources and performance contracts to see how an interruption would affect cash flow.
In future posts I will cover the following topics:
How does business interruption actually work and what does it pay for
What steps should be taken to determine the correct limit
What is the best form of coverage for your organization
What if you have multiple income sources and actually have a product you manufacturer and sell
What if you have strategic alliances, such as either a large supplier of contract work or you provide contract work for someone else and that partner has a loss and it effects your cash flow
How a disaster plan fits into the picture, and how business income insurance will or will not fund your plan
Please take a minute to comment or ask a question on this particularly important insurance coverage
After 6 months of blogging, I have decided to rebrand my blog with a new look and a new name. http://www.nonprofitguard.com/
During this first 6 months I was not sure if I could keep the commitment and come up with enough topics to talk about. But with the help of my colleagues, clients and strategic partners I have been able to do both. My goal is one post a week and I am close to that number and will do better in the future.
I have had great support from my clients and other non profit organizations that seem to be getting value from the content.
In the near future I am going to add a tool that will allow anyone the opportunity to take a sample run of our Rollins 360™ Risk Index. This tool is used exclusively for our clients to begin the process of building a risk management plan. It is a very useful tool and has been met with great enthusiasm. We are also going to develop some E books to help you with specific projects.
I am also going to do a few interviews with leaders of non profits that really get risk management and how the use of a plan and clear goals helps them reduce their total cost of risk.
Please take a minute to click some of the links below to some of my most popular posts and stay tuned for more posts.
9 Directors and Officers Claim Examples Against Non Profits
12 Hallmarks of a Risk-Aware Nonprofit
6 Steps in Creating a CEO Evaluation
5 Benefits Associated With Using Social Media to Promote Your Organization
9 Reasons to Buy Directors and Officers Liability Insurance
6 Risk Management Techniques for Special Events
Next week I am going to post: 58 Reasons You Should Be Concerned About Your Business Interruption Insurance. It is one of the areas that I am most passionate about and I believe the most misunderstood areas of insurance.
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