By: Jeff Esper | September 24, 2018

Depending on how it is described in your policy, the percentage deductible will likely depend on the accuracy of your reported annual business interruption values at each location. This can become a huge issue and will require a proper business interruption assessment at all impacted locations to establish the total insured value, TIV. 

The initial goal is to determine which locations will breach deductible - a factor of the number of days operations are down and the TIV at each location. The length of time the facility is closed that results in a direct business interruption loss may be a consequence several triggers such as evacuations, service interruption, “ingress to” and “egress from” the insured property along with physical damage to insured property. Once this information is understood from a high level stand point, then we need to confirm the appropriate percentage deductible with Risk Management. 

There is a short cut to help determine if the time element loss exceeds the percentage deductible. Take the percentage deductible and multiple by 365 days to determine the number of downtime days that need to be exceeded in order to breach the deductible. This method is only used as an initial step to help determine if there is a net recoverable loss. A formal calculation will still be required to substantiate your findings. 

Here is an example of a scenario we dealt with from Harvey and how we used the secret method. Our client had a manufacturing facility that was shut down for 14 days due to a covered peril and the applicable percentage deductible was 3%. Using this formula, the downtime would have to exceed 10.95 days to breach the deductible leaving the value of 3.05 days as the net recoverable loss. With this method, you can quickly determine which locations need further analysis. 

This shortcut is most useful for businesses that operate 365 days per year with a string demand for all products manufacturing or services performed. It does not consider any loss mitigation efforts that may shorten the net recoverable period and it should not be used for the time element loss estimate or claim submission. The time element estimate and claim should be calculated in accordance with the applicable business interruption loss and percentage deductible wording in the policy.


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