BusinessReport.com

Read you policy. Read your policy. Read your policy.

No matter how many times it’s hammered home, a lot of people refuse to peruse. Knowing exactly how and to what extent your business is covered for property loss is something too many people often ignore until they wish they hadn’t. Business interruption insurance is a prime example. You may think it covers power outages, but it doesn’t.

Jeff Albright of Independent Insurance Agents and Brokers of Louisiana says Gustav proved again that a lot of business owners often don’t have a clear idea what their “business income coverage” actually covers.

There are two ways businesses get business interruption coverage. Small businesses usually get it as part of their wider policy package. This is called a “business owners policy,” or “BOP.”

“Most small- to medium-sized businesses are going to buy their coverage in a BOP policy,” Albright says. “It automatically comes with business income coverage that covers the actual loss. There’s no dollar limit.”

BOP covers property insurance on the building, contents and general liability coverage around the premises. It’s comprehensive by definition. BOP is geared toward the reality that most business owners “don’t have time to become insurance experts,” Albright says.

The other way businesses get business interruption insurance is on a “monoline” basis. This entails choosing each aspect of coverage individually, depends on the company’s needs. This is usually the route large companies take, though small businesses can get monoline if they want.

“When you buy a monoline policy, you need to be more careful about getting the right coverage and enough coverage,” Albright says.

Bill Bailey, special counsel with the Insurance Information Institute, in Baton Rouge immediately after Gustav to advise policyholders on insurance questions, says small-business owners with tight margins might forego business interruption insurance if they have the opportunity, though he advises against this.

“People are going to say, ‘I’m struggling as it is without adding this burden,’” Bailey says. “But if your business is on the Gulf, I think you’d want to be sure that you had the coverage.”

Robert Wooley, the former Louisiana insurance commissioner, compares it to flood insurance.

“When I was commissioner, I used to encourage people to just buy flood insurance during hurricane season,” he says. “It’s fairly cheap because it’s subsidized by the government. And then let it lapse after hurricane season. Still, it’s a couple hundred dollars. If you’re living paycheck to paycheck, it’s one of the first things you drop.

“You’ll see after a storm that people will have a tendency to go out and buy flood insurance, they’ll go out and buy a better business interruption policy because they had trouble with the one they were negotiating. But as time goes by and you get more removed from the storm, you start to drop the flood insurance, and you start to drop the better business interruption. It’s a natural human thing that everybody does.”

Even if you’ve got business interruption insurance, except in very specialized situations it does not cover loss of electrical power—a major inconvenience for thousands of businesses and residents throughout the region affected by Gustav. The lack of electricity for several days can do harm to a business, no doubt. Even so, business interruption insurance won’t help you. Shingles blown off the roof or trees down in the parking lot don’t count, either.

“If the wind blew a giant tree that flattened the building and the business can’t operate, now you have business income loss,” Albright says. “The main point is that power outages are not generally covered under business income policy. There is a lot of misunderstanding about that.”

As a result, the local business interruption insurance market won’t experience a major shock from a wave of expensive claims—at least not from the Capital Region. More such claims are coming from Lafourche and Terrebonne parishes, where some commercial buildings were demolished by the storm.

“Insurance companies are definitely going to pay some substantial amount of claims, but they’re not going to be extremely catastrophic because most of the claims are relatively low severity,” Albright says. “There’s relatively high frequency—there are a lot of them—but they’re not real severe.”

Most of the severe claims from Gustav will be from homes damaged by fallen trees or toppled structures, Albright says. He believes people’s frustration upon discovering what their policies don’t cover is symptomatic of Americans’ changing attitudes over the past 50 years toward insurance and hurricanes. What’s new is the expectation that either insurance, the state, the feds or somebody will pay for your losses.

It’s a misunderstanding that, coupled with policyholders’ frequent refusal to acquaint themselves with the terms of their policies, creates frustration on all sides.

“Insurance is designed to help people rebuild after a truly catastrophic loss,” Albright says. “That’s why you have deductibles on a policy. It’s not designed to cover every single thing that could happen to you. That’s where the frustration comes in: A lot of people buy insurance and assume they’re covered for everything. That’s not the way insurance has ever worked.”