1. Forms
2. CP
3. CP-16-10

Form CP 16 10 - Business Income Report/Worksheet

1. What the form is

The CP 16 10, titled "Business Income Report/Worksheet," is a crucial tool for insureds in the Commercial Property line of business. Its primary purpose is to assist businesses in calculating the appropriate amount of Business Income coverage they need. This involves a detailed projection of future revenues and expenses. Furthermore, if the policy includes a reporting provision (such as an Agreed Value option), this form is used by the insured to report their actual Business Income values to the insurer. This helps ensure that the coverage limit aligns with the actual exposure, which is vital for both the insured to avoid underinsurance and for the insurer to accurately assess risk. The worksheet typically guides the user through detailing their financial information from the most recently completed 12-month fiscal period and estimating the same for the upcoming 12-month policy period. It acts as a foundational document in the business income underwriting process.

2. Classes of business it applies to

The CP 16 10 is broadly applicable across various industries, as most businesses generating income that could be interrupted by property damage can benefit from Business Income coverage. However, its detailed nature makes it particularly pertinent for:

• Manufacturing Operations: These businesses often have complex income streams tied to production value, and the worksheet helps identify continuing and non-continuing expenses specific to manufacturing. For example, a metal fabrication plant would use this form to project lost income if a fire damaged its specialized machinery, considering costs of raw materials, direct labor, and the sales value of unfinished goods.
• Retail Businesses: A local supermarket or a chain of clothing stores would use the worksheet to calculate potential lost sales and continuing expenses like rent, utilities, and key employee salaries if a covered peril forced a shutdown.
• Service Industries: Businesses like hotels, restaurants, and professional service firms (e.g., accounting or law firms) rely on this form to estimate income loss based on interrupted services. For instance, a restaurant would project lost revenue from diners and continuing costs like lease payments and manager salaries.
• Rental Properties: Owners of commercial or residential rental properties use this to determine potential loss of rental income if their properties become uninhabitable due to damage.
• Institutions: Entities like colleges, schools, and healthcare facilities also utilize business income worksheets to plan for income disruptions.

The form often has distinct sections or columns for manufacturing versus non-manufacturing or mercantile risks, acknowledging their different operational and accounting structures.

3. Special considerations

• Accuracy is Key, Especially for Coinsurance: The accuracy of the financial data provided on the CP 16 10 is paramount. Overestimating can lead to paying for more coverage than needed, while underestimating can result in a significant coinsurance penalty at the time of a loss. The projected figures for the upcoming 12 months are particularly critical as they form the basis for the coinsurance calculation.
• Use with Agreed Value Option: This form is often a requirement when the Business Income coverage is written with an "Agreed Value" option. This option suspends the coinsurance clause, provided the insured submits accurate and timely CP 16 10 forms, and insures for the values agreed upon. Failure to submit the worksheet annually can void the Agreed Value provision, reinstating the coinsurance clause.
• Defining "Business Income": It's crucial to understand the policy's definition of "Business Income" (typically Net Income before taxes plus continuing normal operating expenses, including payroll) when completing the worksheet. This definition is usually found in the main Business Income Coverage Form, such as the CP 00 30.
• Non-Continuing vs. Continuing Expenses: A significant part of the worksheet involves identifying expenses that would continue versus those that would cease during a business interruption. Misclassifying these can drastically affect the calculated coverage need. For example, while raw material purchases for a manufacturer might stop, property taxes and loan payments would likely continue.
• Extra Expense Consideration: While the CP 16 10 primarily focuses on Business Income, insureds should also consider their need for Extra Expense coverage (often part of the CP 00 30 form). This covers additional costs incurred to minimize the business shutdown or continue operations at a temporary location. While the worksheet itself might not calculate Extra Expense, the process of completing it can highlight potential extra expenses.
• Professional Assistance: Due to the complexity and financial implications, it's often recommended that insureds complete this worksheet with the assistance of their accountant or a financial professional to ensure accuracy.

4. Key information for agents and underwriters

• Underwriting and Pricing: For underwriters, the CP 16 10 provides a detailed financial snapshot of the insured's operations, essential for assessing the business interruption exposure and determining appropriate premium rates. It allows underwriters to understand the components of the insured's income and the potential financial impact of a shutdown.
• Coinsurance Compliance Check: Agents should stress the importance of this form in meeting coinsurance requirements. Using a simplified or incomplete worksheet can lead to inadequate coverage and potential E&O claims against the agent if a coinsurance penalty is applied. The ISO worksheet (like CP 16 10) is designed to capture the necessary detail.
• Identifying Coverage Gaps: Reviewing a completed CP 16 10 can help agents identify potential coverage gaps. For example, if projected income shows significant growth, the current limit might be insufficient. It can also highlight the need for endorsements like Ordinary Payroll limitation or exclusion if the insured doesn't intend to cover all payroll expenses.
• Client Education: Agents should use the CP 16 10 as an educational tool to help clients understand how Business Income coverage works and the financial impact a significant interruption could have on their business.
• Relationship to CP 00 30: The CP 16 10 directly supports the Business Income (and Extra Expense) Coverage Form (CP 00 30) or the Business Income Coverage Form (without Extra Expense) (CP 00 32). The values derived from the worksheet are used to establish the Limit of Insurance on these coverage forms.
• Documentation: Maintaining completed CP 16 10 forms in the client's file is good practice for both agents and underwriters, especially when Agreed Value is in place, as it documents the basis for the coverage amount.