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It can depend on the fine print

Business interruption insurance can save the day — or not

Biloxi hit the jackpot when two months before Katrina the city spent $92,000 to purchase $10 million worth of business interruption insurance to cover lost casino revenues. Some say that insurance “saved” Biloxi. Certainly, the $7.5 million the city has received thus far in insurance proceeds has gone a long way to help cover gaming revenue losses.

Biloxi Mayor A.J. Holloway started working on finding the coverage in January 2005 after hearing about a business interruption insurance policy for lodging taxes in place for Orange Beach, Ala. With Biloxi’s largest revenue tax stream coming from gaming revenues, accounting for 35% of the city’s budget, it was apparent the city was very vulnerable should a major hurricane put casinos out of commission.

“The whole thinking on business interruption insurance is if we were to get a major storm that would shut down casinos, they would be among the first to reopen and would be closed no more than six months,” said Vincent Creel, public affairs manager for Biloxi. “So, let’s get six months worth of business interruption insurance to protect the gaming revenue tax we receive, which amounted to $10 million. The city did a lot of research on it, and Stewart Sneed Hewes looked worldwide to find this policy for us.”

Biloxi is the first municipality in the state to purchase business interruption insurance. And it could be the last.

“It looks like business interruption insurance is going to become another victim of Katrina,” Creel said. “So far the best policy we can find would cost over $1 million for a $10-million policy. Among the stipulations is that it has to be a category five hurricane that strikes within 50 miles of Biloxi. Katrina wouldn’t have been covered under the current restrictions. It looks like the business interruption policy will go down as the deal of the century. Now it is impossible to get, or if you could get it, it would be at nowhere near that price.”

Creel said the city has thus far received $7.5 million, and is working to get the remaining $2.5 million. The city is also still struggling to get paid on other types of insurance.

“The City of Biloxi is in the same boat as everyone else on the Coast with the wind versus water debate delaying claims being paid,” Creel said.

Others who purchased business interruption insurance before Katrina have experienced other problems.

“There is a reason why insurance company policies are impossible to read,” said Wyatt Emmerich, president of Emmerich Newspapers, Jackson. “It’s easier to deny claims that way. To be precise, insurance policies have to do two contradictory things at one time. First, the policies must give the illusion of coverage so the agents can sell them.

Second, the policies must have language allowing the adjusters to deny claims when they are actually filed. No wonder the policies are hard to understand.”

Emmerich said his company had business interruption coverage, and he can’t imagine anything more interrupting than Hurricane Katrina.

“I naturally assumed we were covered,” Emmerich said. “Ah, but you have to read the fine print.”

In the end, he decided the policy he had paid for was “total gibberish.” He says the main problem with most business interruption insurance is the number of exclusions.

“Most people buy it thinking it covers any type of business interruption,” Emmerich said. “In fact, the policies are very vague and the exclusions are numerous. It can be a waste of money unless you’re willing to carefully scrutinize the policy language.”

Scrutinizing policies

Lee Harrell, deputy commissioner with the Mississippi Department of Insurance, says it is important to carefully scrutinize policies.

“Sit down with your agent and walk through what you want covered,” Harrell said. “What are you going to need to keep the business running if it shuts down for any time? Start shopping now even if it doesn’t come up for renewal for several months. Because of the hurricanes, insurance is a very tight market right now. It is not just a Gulf Coast issue. The same issue is being faced other places in the state, although it is more severe on the Gulf Coast than in Southaven. But people are having issues trying to get property insurance in other parts of the state.”

Insurance policies are a contract. Like any other contract you read, there are a lot of things in there that might be difficult to understand. Harrell advises walking through the policy or policies with your insurance agent.

“If something is not covered you want covered, tell your agent that and ask them to find you coverage for that,” Harrell said. “You can find it. It isn’t as easy as two years ago, but there are still markets out there. Shop around and shop around early. Don’t wait until the last moment. Especially after a hurricane enters the Gulf, no one will sell you a policy. An agent must know what your needs are, not just now, but on an annual basis. That is the most crucial thing.”

Large corporations have different types of insurance consultants they deal with nearly every day. Smaller firms may not have an insurance consultant, but that is what agents are for.

Should you have an attorney look at the policy? Harrell said that can be helpful if the attorney is familiar with the insurance industry.

“There are a lot of attorneys out there who deal with insurance issues,” he said. “The more brains who are looking at it, the more likely it is to get issues resolved. Some people go out and hire a consultant. One thing we are starting to see now is people putting in writing what they want covered. Usually agents will then respond about what the policy does and doesn’t cover.”

And the agent?

Loretta Worters, vice president of the Insurance Information Institute, says a good agent is not just in the business of selling insurance, but is there to help the consumer understand the often complicated language of insurance and financial services and guide them through the decision-making process.

“You want an agent who has been in business for a number of years, who has received professional designations,” Worters said. “A CPCU (Chartered Property and Casualty Underwriter) and CLU (Chartered Life Underwriter) are among the industry’s most rigorous and prestigious professional designations. Other training agents can undergo and have designations for is Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP) and Accredited Estate Planner (AEP) which indicate that an agent has training in financial services as well.”

Ultimately, when choosing an agent, Worters said you want someone you can trust who is professional, well-qualified, knowledgeable and reliable. The right agent will take time to listen to your needs, help you develop the best financial strategy for your particular situation, explain your insurance and/or investment options clearly, and follow up with you regularly to make sure the insurance and/or investments you have are appropriate for your stage of life.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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