Understanding business interruption insurance…

Following a recent local event, in this instance a major fire, we have seen a dramatic increase in SME businesses enquiring about the availability and review of “business interruption” insurance.
Most of these enquiries came from businesses not currently insured by us, or at all, in some instances and the common theme was a lack of understanding and cover for business interruption.
The policy provides cover for business interruption following damage to property, at the premises, for the purpose of the business.
Damage is the trigger, and an insured event must be the cause of the damage. Damage must occur to or at a location and to property that is insured.
The damage must be the cause of the loss and only the amount of the loss suffered will be paid (so savings will always be considered)
To assess and suggest the sum insured required to cover any business interruption claim we need to know.
• Turnover, revenue, or sales
• Opening and closing stock (including work in progress)
• Breakdown of the cost of sales
• Breakdown of operating costs
Insurers always referred to fixed and variable costs and there is a need to identify those costs that will vary in direct proportion to turnover, these are classed as uninsured costs.
List all your business costs and then give so thought to those costs that will “vary” if trading is interrupted.
Gross profit is turnover less variables and be aware that you should ignore VAT.
The main types of cover are.
• Gross rentals
• Gross revenue
• Increased cost of working
• Additional increased costs of working
We recommend that you consider possible extensions to cover; amending the definition of premises / property to include that of suppliers or clients, goods in transit, prevention of access or utilities.
As well as amending the definition of damage to include failure to supply, non-damage denial of access, loss of attraction, human (notifiable) disease or loss of license.
Finally give some though to the indemnity period, a minimum should be 12-months, however we would always recommend 24-months