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The need for mobile business interruption coverage is often particularly significant when the property at rick of loss is highly customized or difficult to replace.

ISO Products Perspective

Finding a home for mobile BI risks

The business interruption exposures of vehicles and mobile equipment

By Jason Suppo

When you think of a business closing due to a natural catastrophe or man-made accident, what is the first image that comes to mind? Mom-and-pop store? Industrial complex? Actually, while fixed, premises-based locations may be the anchor, many business activities occur at sites off the main premises or on the road. In fact, some businesses are entirely mobile in nature, without any activity at a fixed location.

Historically, many businesses rely on vehicles and mobile equipment—for instance, delivery vehicles for a furniture store—to support their business operations. Some businesses traditionally depend on vehicles and mobile equipment as a primary source of income and others may take to the road to provide greater convenience for their customers. Mobile businesses may perform a wide range of activities—from mobile medical diagnostics and well drilling to food trucks and pet grooming—but they tend to share some common features. In many cases, those businesses make use of customized equipment that may be difficult to replace quickly in the event of a loss. And whether they bring dental care to remote corners of Appalachia or perform on-site document shredding, these mobile businesses frequently need their insurance coverage to follow them wherever their work may take them. Yet there's one key area of insurance coverage that typically does not follow the insured's business operations away from the premises-based location: business interruption coverage.

Business interruption coverage is usually available under property or inland marine insurance. In general, traditional business interruption coverage is designed to pay for the insured's loss of business income and extra expenses incurred because of physical damage to property located on the policyholder's premises—the brick-and-mortar location. As such, once the insured's property leaves the premises, any business interruption resulting from damage to that property is generally not addressed.

The need for mobile business interruption coverage is often particularly significant when the property at risk of loss is highly customized or difficult to replace, which potentially may translate into a long period of business interruption. So, while mobile business interruption coverage might not be needed for a typical delivery truck, where replacement rentals may be readily available, it might be critical for a geophysical exploration unit. Similarly, a construction company, for example, probably does not need such coverage for a standard backhoe but might require it for a specially built, oversized excavator.

Agents have the opportunity to educate policyholders about appropriate coverage options that might be available, and insurers can help make those options available. A policyholder can frequently mitigate the extra expense of renting a replacement vehicle following its disablement with rental reimbursement coverage, but rental of certain types of specialized vehicles and equipment may not always be an option. For these types of exposures, coverage addressing off-premises loss of business income tends to be far less prevalent. That said, some insurers appear to have taken the first tentative steps toward offering such off-premises coverage, albeit in a limited fashion.

For instance, some commercial auto carriers offer "downtime coverage," generally designed to pay for a trucker's loss of income due to damage to a truck. That option tends to be subject to a low limit of insurance. A few commercial property insurers offer an off-premises business interruption coverage extension though, again, often subject to a low sub-limit. When coverage is available at higher limits, it might be oriented to specific niche businesses, such as mobile veterinarians or fuel-oil delivery trucks. While those offerings may be a good start, there is a need not only for higher limits but also for greater flexibility in addressing the various types of equipment and mobile business operations.

Why hasn't mobile business interruption coverage been more widely addressed in the insurance marketplace? Are there obstacles to providing more fully developed business interruption coverage options? The devil is in the details. One challenge is finding a home for mobile business interruption coverage. For example, a contractor might carry inland marine coverage for specialized mobile equipment and auto coverage for the conveyance used to transport that equipment. A baker with a manufacturing location and retail outlets might carry property and business interruption coverage for the premises as well as auto insurance for physical damage and liability coverage on the delivery vans. In those limited examples, the different types of coverage might not be issued by the same carrier.

In general, two main approaches may be taken in finding a home for mobile business interruption coverage: The coverage might be offered as an extension to a policy that already provides brick-and-mortar business interruption coverage, or it might be added to the policy that covers the property damage exposures of vehicles and/or mobile equipment. There is no single approach inherently "right" for all risks and all carriers. Each approach has its own merits and disadvantages.

Today, the same insurer that provides premises-based business interruption coverage typically also offers property damage coverage for the insured's premises. That allows one insurer to evaluate both the property damage exposure and the business interruption exposure arising from that property. Of course, such analysis can become complicated. For example, a baker with manufacturing outlets, retail outlets, and delivery trucks has a business interruption exposure that is location-based as well as auto related. One carrier might conclude that the mobile business interruption exposure should be covered by auto insurance, given that collision is a major peril and that the auto insurance also offers physical damage coverage on the vehicle; another carrier might be willing to extend the on-premises business interruption insurance to the off-premises delivery activity, so that the policyholder's related income stream is insured under one policy.

Even if a business has only mobile exposures and no on-premises activity, the selection of a home for mobile business interruption coverage can be complex. For instance, if a contractor insures mobile equipment for property damage under an inland marine policy and trucks under an auto policy, where might the contractor place business interruption coverage? Would the contractor have to obtain the coverage under two separate policies? If the vehicles and mobile equipment work together, it may be unduly complicated to have separate business interruption policies addressing similar income streams.

A carrier's familiarity with the exposures at risk could become a factor in determining where to place mobile business interruption coverage. In general, property underwriters are familiar with business interruption coverage but typically from the perspective of the exposures encountered on premises. Collision, a major exposure for vehicles and equipment on the road, might not be in the property underwriter's lexicon. In general, auto insurers are familiar with on-the-road exposures.

In the end, there is no "perfect" solution for addressing mobile business interruption exposures. What works best will depend on the risk appetite and underwriting philosophy of each insurer choosing to provide the coverage along with the characteristics and preferences of the insured seeking the coverage. With this in mind, ISO is introducing mobile business coverage options under several of its commercial lines of business (including auto, property, inland marine, and businessowners) to provide greater flexibility for participating insurers. In general, the option under each ISO program is designed so there would be no need to provide the coverage under more than one line of business for a given insured.

The new options are designed to address the mobile business interruption exposures of a wide variety of vehicles, equipment, and business operations. Limits of insurance, covered perils, and other coverage features can be tailored to the needs of each insured. Those coverage options, in addition to related ISO advisory rules and loss costs, will provide insurers and agents with powerful tools to address mobile business interruption coverage.

That's good news, especially for any business that prefers to be on the go.

The author

Jason Suppo, CPCU, AINS, AIS, is a consultant, Research & Development, at ISO, a member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK).

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