Question

Lonnie Lehrer, CEO of Leros Point to Point, a New York City limousine service, thought he was prepared for anything. Then the first plane hit the World Trade Center on September 11, 2001, and all Lehrer’s plans went down with it. “Ninety percent of our business is tied to the airports,” says Lehrer, “We went from being a $7 million company to a $700,000 company overnight.” Business slowly returned and is now better than ever. Leros recently acquired two smaller companies and expanded operations, bringing annual revenues to nearly $9 million in 2002.

Source: Daniel Tynan, “In Case of Emergency,” Entrepreneur, April 2003, pp. 59–60.

What kind of insurance would have helped Lehrer cope with the loss resulting from 9/11? What must be considered when determining the amount and terms of coverage?

What other major type of liabilities are faced by a firm such as Leros Point to Point? What kind of insurance will cover these risks?

Question 2

A few years after successfully launching a new business, an entrepreneur found himself spending 16-hour days running from one appointment to another, negotiating with customers, drumming up new business, signing checks, and checking up as much as possible on his six employees. The founder realized that his own strength was in selling, but general managerial responsibilities were very time consuming and interfered with his sales efforts. He even slept in the office two nights a week.

Despite his hard work, however, he knew that employees weren’t organized and that many problems existed. He lacked the time to set personnel policies or to draw up job descriptions for his six employees. One employee even took advantage of the laxity in supervision to skip work sometimes. Invoices were sent to customers late, and delivery schedules were sometimes missed. Fortunately, the business was profitable in spite of the numerous problems.

Is this founder’s problem one of time management or general managerial ability? Why?

Would it be feasible to engage a management consultant to help solve the firm’s problems?

If this founder asked you to recommend some type of outside management assistance, would you recommend a SCORE counselor, a student consulting team, a CPA firm, a management consultant, or some other type of assistance? Why?

Answer 1

The insurance policy that could have saved Lehrer from the losses incurred as a result of 9/11 :

The Insurance policy of business interruption also known by the name of BUSINESS INCOME INSURANCE.
This insurance policy aims to provide compensation to those businesses whose operational activities or jobs of routine nature are hampered for a long period of time due to any unfavourable situation or a contingency. This policy is applicable to the "leros point to point" business of Lehrer whose business dealings , projects or long run and short run plans had suffered as result of a disaster of 9/11.
The policy thus wiuld have covered the income that is assumed to be gained by Lehrer in case the disaster would have not taken place , thus supporting the business in contuning providing flow of income that the business in actual has suffered.

It in other words Lehrer would have covered the loss of income that business could not earn due to disturbances or hampering of dealing and operations.
This loss would have occured to Lehrer either due to the restructuring of business plans and operations due to the failure of predetermined plans or due to closure of business altogether due to the disaster.

Thus as a result of this insurance support Lehrer would have been able to constantly receive income for meeting its project deadlines and expanding operations even though no business working. The downfall could have prevented by lehrer through incorlorating this insurance policy .

The factors to be considered when determinig about the amount and terms of coverage orivided by the business interruption insurance policy are explained below:

Profits or Earnings :
The insurance policy covered the profuts firgone as a resukt of interruption due to the occurence of disaster which hampered the smooth functioning of business dealings, projects and cases.

Amount : Lehrer would have been able to earn profits under policy based on the estimation of the financial statements of prior months earning.

Fixed Costs :
The compensation or a coverage being provided on the fixed costs that the business still has incurred on the physical resources or property it holds.

Amount : The cost is estimated based on the historical costs of these assets.

Temporary Location:
The lolicy also in some cases could have covered the charges or expenses paid by the business for moving to a different location for a time bei g for carryi g business until the old location renovates.

Amount : Based on location , other factors and infrastructure.

Costs relating to Commission and training :
Employees replaced by the company are also provided training under the insurance program.

Reimbursement against other major expenses that are not mentioned but are found reasonable that are essential for reviving business.

The other major types of liabilities that are faced by the firms or businesses are :

Apart from earnings , many firms suffer physical damage that are beyond repair which needs to be provided under coverage.

To put business in same financial position if the disaster would have never taken place so as to meet its commitment and continue operating in the same manner.

The insurance that could cover this risk can be the insurance policy providing coverage from damages or loss both short terms as well as long term by arranging necessary facilities to continue business activities. It needs to facilitate the needed infrastructure to carry on the operations as it used to do before the damage. The insurance pokicy could be customized as per the situation or condition of business meeting the terms of compensation and coverage of different nature.

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