Question

Hurricane Iniki in 1992 caused extensive damage to one of the Hawaiian Islands. A significant loss in tourist activity resulted. Assume the Kooey Hotel experienced $500,000 in damage to its property. Furthermore, assume Kooey typically brought in $100,000 of revenue per month, on which it incurred $80,000 of fixed and variable expenses. For two months following Iniki, the Kooey Hotel was shut down, but still incurred expenses of $50,000. The hotel spent $15,000 more than usual on advertising before reopening. Based on this information, what would be the insurable consequential losses of the Kooey Hotel from Hurricane Iniki? What can be done to reduce those losses?

Answer 1

Answer :

To reduce the losses caused by Hurricane lniki,

Which caused a loss of : $500000 in damage property,

2 months of fixed expenses even on closure : $100000

Extra advertising cost $15000

Total cost incurred $615000

In the above situation, extra $15000 spent on advertising are charges that are unavoidable. However other losses that could be insurable are :

$500000 for damage to property and $100000 for fixed expenses incurred as a part of shutting down.

The way to protect the company from these losses is business income coverage insurance and property insurance

Business income coverage covers both extra expense losses and interruption losses.