Catastrophic Property Protection for Your Telecommunications Company

1. Because it has always been a matter of trust… Catastrophic Property Protection for Your Telecommunications Company Presented by: Marilyn Blake, AU/CRM COO/Corporate Secretary Business Income and Extra Expense Coverage

2. Because it has always been a matter of trust… • Goals of this Workshop • Cover the Basics: Concepts, Terms, and Examples • Review the Insurance Coverage and Options • Discuss Analysis and Risk Management Tools

3. Because it has always been a matter of trust… • Basic Concept: • What is Business Income Coverage? • Itprovides protection for the reduction of the insured’s revenues because of physical damage to covered property by a covered loss. • It provides protection for extra expenses incurred by the insured to avoid/minimize the loss of income following the loss. Sometimes we think of it as necessary when a catastrophe hits.

4. Because it has always been a matter of trust… Basic Concept Defining a Catastrophe 1. The final event of the dramatic action especially of a tragedy2. A momentous tragic event ranging from extreme misfortune to utter overthrow or ruin3. A violent and sudden change in a feature of the earth or a violent usually destructive natural event

5. Because it has always been a matter of trust… Basic Concept We can all agree a catastrophe can strike property and impact a business by destroying the physical assets it owns. This is defined as a direct loss.

6. Because it has always been a matter of trust… Basic Concept If your building or plant is destroyed in a catastrophe what happens to your revenue, customer base, and your ability to transact business? We need to define indirect loss, business interruption, and time element exposure.

7. Because it has always been a matter of trust… Basic Concept In an attempt to demystify Business Income coverage think of what disability insurance does for someone personally and relate that to what would happen to a business if they suffered damages/injuries that interrupted their flow of income. Purpose: To do for the business what the business would have done for itself had no loss occurred.

8. Because it has always been a matter of trust… Basic Concept Coverage pays for actual lost income and lost future revenues while the business is rebuilding or putting the pieces back together during the period of restoration. Fact: future income loss can be substantiated by use of sales forecasts with historical support, specifics on lost contracts, and expected sales.

9. Because it has always been a matter of trust… • Basic Concepts • Why Consider This Coverage? • It protects the income/profits of the business. • It replaces the lost sales/income of the business. • The business is able to keep its key employees. • The business will have the funds to operate temporarily while rebuilding. • The business will be able to retain valuable contracts/customers and keep competition at bay.

10. Because it has always been a matter of trust… Concepts- Claim Example of Fire A wildfire destroys a community and the telephone equipment located in it. Most of the telco property was equipment on loan to customers. The customers HO Policy would replace the damaged equipment. What about indirect loss? The policy had 2 potential coverage locations: Undescribed Premises and Dependent Properties which could apply. Total property in customer homes valued at $24K. The loss of income is valued at $85K.

11. Because it has always been a matter of trust… Concepts- Claim Example of Fire • Issues: • Direct Damage to Scheduled Insured Property • Period of Recovery if Homes are Not Rebuilt (Resort Area)

12. Because it has always been a matter of trust… Concepts- Claim Examples of Hurricanes Property located in a tier one coastal zone and had to be insured in a surplus property market. The policy contained a 5% wind deductible. This retention was greater than the direct loss amount but it triggered BI/EE. The BI loss was $325K ($295K Customer Credits and $31K Lost Revenue) and there was $120K in EE (Overtime, Generators and Fuel).

13. Because it has always been a matter of trust… • Concepts- Claim Example of Hurricanes • Issues: • Direct Damage or Payment Required to Trigger BI/EE • Customer Credits Voluntary to Mandatory • Confusing Extra Expense with Expediting Expense (Minimize Loss versus Reduce Loss)

14. Because it has always been a matter of trust… Concepts- Claim Example of Hurricanes Poles and lines damage from the hurricane. Policy limit was $100k for both direct and indirect exposure. The limit was exceeded. Since some of the equipment damaged was on leased space on poles of others, when the pole and line limit was exhausted the utility services indirect limit was available for the claim. The total claim amount was $137k.

15. Because it has always been a matter of trust… • Concepts- Claim Example of Hurricanes • Issues: • Sub-limits in a policy • Direct loss being covered but not indirect damage • No utility service coverage or scheduled location

16. Because it has always been a matter of trust… Concepts- Claim Example of an Ice Storm An ice storm knocked out electricity and the telco was unable to provide service to some of their customers despite the use of generators. They incurred a $35k loss ($20k EE and $15k BI for customer credits).

17. Because it has always been a matter of trust… • Concepts- Claim Example of an Ice Storm • Issues: • Mandatory or voluntary customer credits • Utility services direct and indirect loss • Extra Expense versus Expediting Expense

18. Because it has always been a matter of trust… Coverage Business Income defined to be net profit or loss and continuing normal operating expenses. Determined by sales - cost of sales = lost revenue One expert states, for service based businesses, that 12%-15% of revenues if ordinary payroll is included, should be used for BI/EE limits.

19. Because it has always been a matter of trust… • Coverage Terms, Conditions, and Options • Common Pitfalls to Coverage Limit • Market changes for your products and service • Impact of the country’s economic condition • Newly introduced products or services

20. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Business Income Limits can be: Per Occurrence or capped as part of an Aggregate Agreed Amount or Specified Dollar Subject to Coinsurance or Actual Loss Sustained Have a Maximum Period of Indemnity 120 Days or a Monthly Period of Indemnity (1/3, 1/4, 1/6)

21. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Business Income Retention beyond coinsurance if not waived can be: a Dollar Deductible or the policy may have a Time Waiting Period Is the time deductible business hours only or does anytime meet the requirements of the deductible?

22. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Ordinary Payroll inclusion or exclusion creates confusion. It is defined in the policy as everyone below department manager status. When ordinary payroll is excluded and the operation is unable to operate no payroll reimbursement would be granted for anyone lower in the operation then a department manager. Either self-funding the income or firing all these employees can be a big problem.

23. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Law and Ordinance if not on the property direct loss form will not trigger indirect coverage. There have been cases where the required ordinance upgrade created a delay in recovery time and therefore lost income.

24. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Civil Authority protection should be checked because in the event that damages to an adjacent property occur some forms with this coverage grant will respond as if the location with the damage is scheduled on the policy. Examples- Hurricane evacuations or closing of Ronald Reagan Airport after 9/11 Attacks.

25. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Extended Period of Recovery protects a business after the damage is repaired for an agreed amount of time. This extension compensates the insured for lost customers that did not return when operation began again.

26. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Loss Settlement Fees: Do you have a limit for this? With all the financial analysis required to determine actual lost profit and especially lost future profits an expert in this area of coverage can be valuable and your policy may even pay for the cost!

27. Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Loss Payment Clause read this carefully or make sure your agent does. Many state that it will pay 30 days after a settlement is agreed upon and not 30 days after the claim is submitted. Your agent can also seek partial payments in the event that there is some level of agreement despite the fact that the amount is in dispute.

28. Because it has always been a matter of trust… Risk Management and Analysis Tools Only through preparation can the BI/EE exposure of a business be protected. The end goal of risk management is elimination of the risk of being put out of business because your BI/EE coverage was not properly valued or accurately protected with the right coverage.

29. Because it has always been a matter of trust… Risk Management and Analysis Tools Preparation starts with first having a business resumption plan/Continuity/Emergency. Just by having this you will reduce down-time and catastrophe exposure. Fact: the Department of Homeland Security has enlisted the Girl/Boy Scouts in times of natural or man-made disasters. They were chartered by Congress in 1950.

30. Because it has always been a matter of trust… Risk Management and Analysis Tools Business Resumption Plan Sample for Discussion

31. Because it has always been a matter of trust… Risk Management and Analysis Tools Business Resumption Plans are not all that needs to be explored because they will miss other business income and extra expense exposures that only a risk audit can catch. Examples: contracts, equipment, geographic location and network redundancy could all be factors that impact coverage and value requirements.

32. Because it has always been a matter of trust… • Risk Management and Analysis Tools • Once you have a resumption plan and your risk audit is complete, you can use a few tools to work on the valuation piece: • Financial Statements • Business Income Worksheets

33. Because it has always been a matter of trust… Risk Management and Analysis Tools Business Income/Extra Expense Worksheet Example:

34. Because it has always been a matter of trust… Risk Management and Analysis Tools Still the single best tool available to any management team when it comes to dealing with a catastrophe is-- preparedness! “Despair is often the off-spring of ill-preparedness.” Don Williams, Jr.

35. Because it has always been a matter of trust… Make sure your business would not become disabled, either permanently or temporarily, because you didn’t consider your Business Income exposures and ways to mitigate your potential losses…should one occur. Don’t forget all of your new “revenue streams”; think of all your “connections” and partnerships too.

36. Because it has always been a matter of trust… Thank you for attending this workshop! Please visit it with us again soon! Marilyn A. Blake: 800.222.4664 Chris Jones: 817-354-0212 www.telcominsgrp.com