Newsletter: B(Prepared!)

"Business Income Made Simple"
   By Robert M. Swift



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CONTINGENT BUSINESS INCOME (CBI)

The following questions and answers are for your information. The content is believed to be accurate, but it is not guaranteed.

What is Contingent Business Income (CBI)?
This is an insurance product that reimburses a company for loss of business income if one of their suppliers, subcontractors, or customers has a disaster and supplies cannot be shipped or there is no one to buy the product. It is made up of dependent, contributing, and/or recipient entities.

What are the categories of CBI?
They are: dependent (supplier), contributing (subcontractor), and recipient (customer).

Why do I need CBI?
In case you lose income because a disaster has occurred to a link in your supply chain.

How do I calculate CBI?
Calculate using the percentage of sales attributed to the other party, and then subtract the cost of sales and other discontinuing expenses. Finally, calculate how long it will take them to recover or for you to find a different source. Then use that percentage of a year against the lost income.

What if my supplier has multiple locations?
Just because the supplier has more than one location does not mean you are okay. Find out if they suffer a disaster, could they ship your supplies from one of their other locations? In other words, the supplier should have redundancy for your supplies at other locations.

How does a contingency plan affect my CBI exposure?
The contingency plan outlines what you will do if you have a contingent exposure that is interrupted. Most commonly it plans for a secondary supplier.

Is a subcontractor included?
Yes. If you ship your product to someone else for finishing and they suffer a disaster, you cannot get your product ready for market.

Should I consider my customers?
Yes. If they have a disaster, they will not be able to buy your products or services.

I am a retail store in a shopping center. Do I have CBI exposure?
Yes. Anchor stores draw a lot of walk-in traffic, so if they shut down you lose sales. Also, consider that the shopping center owner may shut down the whole building while repairs are made even though you have no damage.

What about freight forwarders or ports?
This is a big supply chain exposure, so you need to discuss with your agent or broker whether your insurance policy provides coverage for this.

Does a trucking company or railroad count as CBI?
This is another big supply chain exposure, so you need to discuss with your agent or broker whether your insurance policy provides coverage for this.

What if my neighbor has a hazardous activity?
This is not CBI, but rather a legal responsibility on their part to run a safe operation.

How do I calculate CBI for a trailer park?
It would be based upon rents and store sales, etc. There is usually no coverage for this, so discuss your exposure with your insurance professional.

What if my business is dependent upon a talented employee?
This is not CBI. You may want to consider key man life insurance.

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