Business Interruption Cover – More Important Than Ever

Many business owners fail to consider how they would manage if a fire, natural disaster or, sadly, an act of terrorism rendered their business premises temporarily unusable. According to the Insurance Information Institute, more than 25 per cent of all businesses that close down following a disaster never open again.

With advanced planning, there are measures you can take to protect your company’s bottom line. To safeguard your business, consider business interruption cover, an insurance cover that funds the restoration of your business operations after a loss.

Business Interruption cover can vary from policy to policy. You need to make sure that you select a policy that properly protects your business.

It is designed to replace income your business would have earned had no loss occurred. Business Interruption is generally defined as the loss of either gross profit or revenue, plus continuing normal operating expenses, including payroll. Your cover should be designed to ensure that both your sum insured and limit of indemnity are sufficient to cover you for long enough to bring your business back to the position it was in prior to the loss.

Specific Items to Consider:

It’s important to review your sum insured and limit of indemnity annually.

  • Review your projected timeframe for resuming business. After a major loss, getting up and running takes much longer than you may anticipate and can cost much more, too.
  • You may be back in business but your customers are still going to your competitor. An Extended Period of Indemnity extension may be necessary to give you more time to restore your business to pre-loss level.

Increased Cost of Working

This is designed to pay for necessary expenses incurred during the period of restoration of the property. Increased expenditures include those necessary to continue operating the business at its original location or at a temporary replacement location until the original location is repaired.

Specific Items to Consider:

Not all businesses would lose customers after a major loss. For example, a law firm would retain its clients, and there would still be a flow of revenue; however, the costs involved in renting new office space, moving, and hooking up new phones and computers is considerable. Transitions are more expensive than you think. Increased rent, employee overtime, and moving costs are examples of increased expenditures that service organisations should consider insuring.

Contingent Business Interruption

This is an extension of cover designed to cover loss of income your business incurs due to a property loss at a key supplier or customer location. For example, if a key supplier experiences a fire at its plant and is unable to deliver parts or goods necessary for the continuation of your business, you may have a claim for a contingent business interruption loss.

Specific Items to Consider:

Contingent Business Interruption is the most overlooked area of exposure to loss. Your interdependency on your supplier (under contract or not) or one large customer could put your business in jeopardy when that party suffers a major loss. Contingent Business Interruption cover can fill this gap.

Don’t forget that having a Disaster Recovery Plan is a key element in getting your business back to health quickly. You and your key staff knowing exactly what to do, where to go and who to contact in the event of a loss often contributes to a quicker restart of your business.

Finally, complete a Business Interruption Worksheet every year to review all your exposures. The Business Interruption Worksheet requires financial information for the current year as well as projection into the next year. The projection portion is often skipped, but trying to see into the future is important for setting proper overall limits.

We know that Business Insurance can be a challenge to understand. Let our team of experts help you uncover your exposures and develop a sensible plan today.