Businesses should fill out that values at risk worksheet keeping in mind projected revenues for the coming year. Seems simple, right? But I assure you that I have seen many problems related to this one simple issue. When an insured is purchasing insurance, they are purchasing it for the coming policy year. Therefore, revenue and expense projections should be used based upon the projected values for the coming policy year.
Often, I see values at risk worksheets where the insured simply used last year’s figures to estimate their insurance needs for the coming year. If a business generates the same amount of revenue year after year, then this method may be fine, but what happens when the business is in a growth cycle?
By purchasing coverage based upon last year’s income, the business may be under insured if a major disaster occurs. This can be especially true if the business interruption policy has a coinsurance provision. For example, I once worked on a case for a rapidly growing business that had used the same values at risk estimate for more than four straight years. Their policy contained a coinsurance provision. The end result was that the insured recovered approximately 26¢ for every dollar of actual loss.
With the economy now picking up steam, many businesses could realize increased revenues, which could lead to the serious issue of the business being under insured in the coming year. Therefore, we encourage brokers to work carefully with clients to determine projected revenue, keeping in mind the changing economy. We advise businesses to insure for what is going to happen during the coming policy year, not what happened last year or several years ago.