Do You Need Business Interruption Insurance?
As the summer storm season approaches, there is one more thing to add to your to-do list: Decide whether you need a business interruption insurance, sometimes called income loss insurance, added to your property/casualty insurance coverage.
As the name implies, the insurance policies or riders will compensate you for lost income, operating expenses you are unable to cover and other expenses as a result of storm damage to your business.
Two dairy farms in Minnesota, less than 100 miles apart, are glad they had coverage after recent storms shook their dairies.
On June 11, 2017, straight line winds tore through Carlson Dairy’s 1,800-cow dairy near Pennock, Minn. It ripped the roofs off of freestall housing, structurally damaged and blew the windows out of their parlor and destroyed a heifer barn that was not yet six months old. Luckily, contractors were able to get the parlor functioning within seven hours.
But damage to one freestall barn for their high group was bad enough that they decided to move 300 cows to another facility. They also relocated 500 heifers to other sites while the heifer facility was rebuilt. There was also lost production from cows that remained on-site from the turmoil of the storm, disruption of rebuilding and lack of heat abatement.
The good news is that Carlsons were well insured, with full replacement insurance on the facilities and additional riders for $1.4 million for income loss, $250,000 for debris removal and $250,000 for extra expenses. Admittedly, says Kindra Carlson, they are still working through some of the claims, but they are glad they had the insurance.
The Carlsons hold quarterly management team meetings with their lender, nutritionist and veterinarian. “Our insurance agent is always a part of that team, and looking back, what a good thing that has been,” says Kindra. “He always keeps us up-to-date on any changes that need to be made.”
About two hours north of Carlsons, Dave and Sara Jane Brutscher milk about 600 cows with their son, Jesse, near Little Falls, Minn. On February 20 of this year, about a third of their 440’ freestall barn roof came crashing down due to snow load.
Contractors had debris cleared off the freestalls within a day, and only a few cattle were lost. But on the heels of the snowstorm, temperatures plummeted to -18°F, freezing manure and waterers in the exposed-to-the-sky building.
Milk production still hasn’t fully recovered 90 days later. At its worst, Dave figures they were losing $1,000 per day in lost milk revenue. The Brutschers’ total claim is likely to approach $50,000.
Business interruption, or income loss riders, come in a variety of forms. But typically they will cover profits you would have earned, normal operating expenses that are on-going, and expenses if you have to relocate some or all of your operation while your facility is being repaired.
But be sure you understand what you’re buying. Some policies have waiting periods before they provide coverage and proof of losses might require three years of prior business performance.
“Business interruption insurance can bridge the gap when they have a month or two of lost income,” says Greg Steele, a senior lending specialist with Compeer Financial. “Compeer has had dairy clients that have had business interruption insurance that experienced a catastrophic loss. Needless to say, it was a great bridge for them to rebuild and get back on their feet.”
To date, however, Compeer has not made it a condition of lending. “But it is a conversation we are having with clients; it’s up to the client in how they handle it,” he says.
Because dairies are typically single-site operations, business interruption insurance can be expensive. Whether a farmer needs business interruption insurance depends on the farm’s liquidity, level of debt and ability to tolerate risk. “It’s like life insurance. We lay out the options for clients, and it’s up to them whether they purchase the insurance,” Steele says.
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