Insurer Wants Square Peg For A Round Hole – Bank Loss of Income Insurance

A property insurer asked the bank’s insurance agent to have the bank complete a loss of income worksheet. He reached out to me for help….

 

Matt,

 Nice to hear from you.

There is no way to fill out the “standard” business income worksheet for a bank. A bank’s finances just dont match up with such a form. It’s why I rail against coinsurance on a bank BII coverage.

The exposure is all extra expense.
A fire at a branch (or even at the main office) does not result in any loss of income.
Customers still pay their loans – interest is still due. What does get tagged are higher costs.
Walk through a claim:
A branch is destroyed by a tornado.
The other branches are still up and running. The bank will scramble for a few days – the people from the destroyed branch will go to work at other offices the next day.
Someone in town will lend the bank office space for a week or so. The leadership of the bank will move to lease office space for the expected time of reconstruction. Perhaps the bank will rent a mobile bank trailer – office space with a safe – that can be moved to the location. That will take about seven days.
In two weeks, the bank is running at normal speed. Construction of the new branch will start, and the property insurance will start paying the cleanup and the reconstruction costs.
The bank’s income will not be affected. It may even go up, as the news is loaded with stories of the bank persevering and overcoming adversity. Some community members will bring their business to the bank – out of a feeling of community pride.
The short term expenses for the bank are huge though. My rule-of-thumb is $250k of extra expense coverage for even the smallest branch and $500k for main offices. Minimum. I often need $1m or more coverage for an admin center or other key location.
Again, all extra expense – no loss of income.  (Well, some banks have a loss of rents exposure if they lease out space in their buildings – you get my point though.)
Does this help?

Scott

 

 

 

Scott Simmonds, CPCU, ARM

Fee-Only Insurance Assurance Consulting

Phone: 207-284-0085

Scott@ScottSimmonds.com

 

www.ScottSimmonds.com

18155 Canal Junction Dr

Gulfport, MS  39503-4558

 

New Southern Quarters – Same Phone and Email

 

 

Consulting On, But Never Selling, Insurance