When your business suffers an insured loss that physically damages your premises or equipment, your property insurance will cover those physical losses. But that insurance does not cover the loss of revenue or profits you lose, while your business is shut down or interrupted.
That's where business interruption insurance comes in - it covers the loss of profits or revenue you would have earned, during the period your business is unable to operate.
To help clients choose the right business interruption cover, there are some key aspects we guide them on:
The Indemnity Period
This is the period during which the policy will pay losses while business operations are interrupted. We advise clients to carefully project how long it may take to resume operations after a loss. This involves factoring in time for cleanup, repairs, relocation if necessary, reestablishing suppliers, marketing to bring back customers and ramp up to previous business levels. An indemnity period that is too short could leave them without enough cover and time to recover, right when they need their insurances the most.
The Sum Insured
This is the amount of lost gross profit or gross revenue the policy will cover over the indemnity period. We explain the difference between accounting gross profit and insurance gross profit to set realistic expectations and ensure the correct basis of cover is selected.
We guide clients to establish a sum insured that will truly cover their business. If the sum insured is not high enough, they could see large uninsured losses. Clients need to take into account business trends and inflation, to ensure they are setting the correct sum insured.
Increased Costs of Working
This covers extra expenses over and above normal operating expenses that allow the business to continue functioning while recovering from the insured loss event. For example, renting temporary premises, paying overtime etc. We guide clients on considering what additional reasonable costs they may incur, so we can set an adequate increased cost of working sum insured.
In addition to the above, there are many policy extensions which clients can consider purchasing, to cover beyond core business interruption cover at their premises:
- Supplier business interruption (e.g. fire at suppliers premises)
- Customers business interruption (e.g. storm damage to customers premises)
- Loss of utilities to the premises (e.g. loss of electricity between substation and premises)
- Denial of access (e.g. insured event which prevents you accessing your premises)
And many more!
The key is ensuring businesses understand exactly how business interruption insurance will cover lost revenue, profits and extra expenses, in the event disaster strikes. With the right insurance broker guiding them, business owners can have confidence their insurances are structured properly to withstand interruptions and continue serving their customers.