Maximum Foreseeable Loss (MFL)
Candlefocus EditorMFL is generally determined by risk assessment. A risk assessment will consider the type of business, the insurance carrier’s definition of a covered peril, and potential costs associated with each risk. After reviewing all of the potential threats and evaluating their probability, the MFL will be adjusted accordingly, based on the carrier and the evaluated risk.
However, the calculation of MFL can be complex and challenging. Since it’s meant to represent the largest possible financial hit a business could sustain, it must take into account the estimated value of property damage and calculate the loss of revenue a company could incur due to business interruption. This includes things like lost sales, ongoing costs, relocation expenses, and lowered shareholder confidence.
The MFL also addresses other aspects of the policy, such as deductibles or co-insurance. It also considers what constitutes a “catastrophic event” and how much money the policyholder is expected to pay before the insurance company pays out any funds. It’s important for businesses to understand this up-front, as the MFL is the basis by which all other terms in the policy are set.
For businesses, having an accurate MFL is critical to their financial security. By understanding their greatest possible risk and having a carrier that can offer flexible and reliable coverage, business owners can make informed decisions that keep their business safe and secure.