Managing Inventory with the Peak Season Endorsement

During the course of a year, businesses in various industries may see their inventories rise or a firm may see greater demand for their products at certain times of the year. For example, many people take vacations during the summer; as such, companies providing products for the vacation sector will see a higher demand for their goods in the months leading up to summer. This can impact how a firm values their business personal property and lead to a spike in business personal property values during a certain time of year. One way to address this is using what is known as a peak season endorsement.

As discussed, some companies can see a rise in demand for their goods during a certain point of the year. For example, a company that manufactures and sells summer clothing may see more demand for their products in the months leading up to and during the summer. This can mean an increase in inventory values in order to meet this demand; it also means a firm’s property values are not correctly contemplating these exposures at a specific point of the year. To properly manage this change in inventory values, businesses can use a peak season endorsement. In brief, the Peak Seasons Limit of Insurance endorsement “provides differing amounts of insurance for selected periods during the policy term, as indicated by specific dates shown in the endorsement.”[i] Using our summer clothing manufacturer example, a firm that makes summer clothing may have $5,000,000 in their Business Personal Property (BPP) during the year at the start of their policy period. However, this firm may see their inventory rise to $7,000,000 from March 1st through June 30th since this could be a high sales period for them. To address this, the firm can increase their Business Personal Property coverage with a peak season endorsement to $7,000,000 from March 1st through June 30th.

The benefit of the peak season endorsement is two-fold: It specifically addresses the increase in inventory values which means a firm is properly valuing an increase in inventory during a specific period of the year. And second, it eliminates the need for extra transactions during the policy period to handle fluctuating property values. Finally, “the Peak Season Limit of Insurance endorsement is attached when the policy is issued-although it may be added mid-term-and a pro rata increased premium is charged for the period during which the limit is increased.”[ii]

In closing, many businesses often have peak times of years when they see a rise in demand for their products. And this leads to a rise in inventory for these firms. This is where the peak season endorsement can help; the form properly addresses a firm’s increase in inventory during a specific period of the year. For this reason, companies that see an increase in sales and inventory during certain months of the year should consider purchasing the Peak Seasons Limit of Insurance endorsement.

Resources:

[i]   Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.9

[ii] Cook, Mary Ann “Commercial Property Risk Management and Insurance” The Institutes 1st Edition Page 4.9

Copyright © 2018 Central Mutual Insurance Company. All rights reserved.

One Comment on “Managing Inventory with the Peak Season Endorsement

  1. Pingback: Managing Inventory with the Peak Season Endorsement – Insurance

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