Business Interruption Insurance
Read on for More Information on our Business Interruption and Business Income Insurance Services
If a business suffers some damage to its property it will inevitably lead to a break in the earning power of that business. No income or reduced income will usually mean that the insured company is unable to meet its overheads and this may lead to a failure of the business.
Insurance cover can be arranged to protect the income against any of the perils insured under the Material Damage policy covering the physical assets of the business such as buildings and machinery. It is important to remember that there is a condition in a Business Interruption policy that requires a claim to be admitted on the policy covering the assets before Insurers will consider a claim under this cover.
The policy needs to be set up on the correct basis and this should tie in with the way in which the insured’s accountant prepares their “Year End” figures - the most common of these being Gross Profit, Gross Revenue or Gross Fees.
The sums insured for Gross Revenue and Gross Fees will be the same as the income for the business. The sum insured for Gross Profit is calculated by taking the Turnover less Purchases and less any variable expenses. These expenses would include such things as Carriage and Packing and Bad Debts. It will be apparent that the production wages are not deducted as even though the business may temporarily have no income it may not wish to lose staff with special skills and would therefore want to be able to recover any wages paid to these employees from Insurers.
The BI policy also provides cover for Additional Cost of Working which is there to ensure that any costs incurred by the business to minimise any reduction in turnover will be paid for. Examples of this are hiring temporary premises or machinery additional advertising to let customers know you are still in business or even sub-contracting manufacturing processes.
It is important to remember that these payments are limited to the amount of turnover, revenue or fees saved by incurring this expenditure. However it is possible to arrange cover without this cap and our technical team will be happy to discuss this.
Some businesses may only need cover for Additional Cost of Working – these will normally be those who earn their revenue away from the business premises. A good example of this is a Building Contractor whose income would only be minimally affected by damage at their office location.
Extensions are available to cover any loss of profit which you incur as a result of:
Damage at neighbouring premises which results in your staff or customers not being able to gain access to your premises.
Failure of the Public Utilities to the premises
Damage at Suppliers or Customers premises
When setting up a BI policy it is important to ensure that the Indemnity Period is arranged for a period which is long enough not only to repair any damaged assets but also to recover any lost customers and trade. The Indemnity Period is the length of time after the loss that the Insurers will reimburse the business for any lost income. The normal period is twelve months but in many circumstance this will not be sufficient – we will be happy to advise you.
In addition to the standard cover for Fire and Perils, BI policies can also be arranged to provide protection for losses arising from accidental machinery breakdown.
A more unusual cover is where protection is arranged to cover Advanced or Anticipated Profit. This would be done where say a new production unit was being constructed and damage to this unit would affect the future profits of the business. Quintosys team will be happy to answer any questions.