April 11, 2011
Many manufacturers in the United States are beginning to feel the pinch of supply shortages resulting from the Japanese earthquake, tsunami and nuclear crisis. Not surprising in our global economy, when a disaster happens half way round the world, there is a ripple effective that reaches all the way to Main Street. Could your business stay in business if a disaster interrupted the delivery of essential goods, parts and supplies? It would have a far better chance if you have contingent business insurance and contingent extra expense insurance.
Contingent business insurance (also called dependent properties insurance) is similar to business interruption insurance. But, where business interruption insurance compensates you for lost income or profit when a covered disaster forces you to cease operations, contingent business insurance limits your losses from disruption of a supplier's operations. It is a form of risk management intended to lessen the financial impact of things beyond your control.
Contingent extra expense insurance is companion coverage to both business interruption insurance and contingent business insurance. This coverage reimburses your company for costs you incur, beyond normal operating expenses, to avoid having to close your company until situations return to normal.
Whether or not you need contingent business insurance will depend on your particular circumstances.
- Does your business get its essential raw materials from one or a limited number of suppliers?
- Does your business rely on one or a limited few suppliers for the bulk of its merchandise?
- Does your business sell its products or services to one or a few customers?
Answering yes to any of those questions would make your business a good candidate for contingent business insurance and contingent extra expense insurance.
Contingent business insurance policies can be written to cover a named list of suppliers or written as a blanket policy covering any supplier shutdown, although some insurers will not write blanket policies for all countries. Note, too, that flood and earthquake coverage is typically excluded from CBI policies, but can be purchased as riders, often with their own specific limits and deductibles.
Contingent business insurance does not cover interruptions ordered by a government or military, interruptions caused by lack of entry or exit from the business in question, or losses resulting from changes in temperature caused by damaged heating or cooling equipment.
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