Business Interruption Insurance is like personal accident cover for your business. After a major loss, not only does it cover your net profit and business drawings, it will help you meet ongoing business expenses, such as ensuring everyone’s salaries are paid and business loan repayments are met. It also covers additional expenses incurred to maintain turnover which could include providing funds for the cost of alternative premises or even paying for advertising to announce the recommencement of your business. As a relatively inexpensive form of insurance, Business Interruption Insurance is a must for businesses to consider if it is needed in the event of a loss. Without it, a business has less than a one in 10 chance of survival following a major loss.
Setting Indemnity Periods for Business Interruption Insurance
Business Interruption Insurance provides cover in the event of a fire, or other insured peril claim, and replaces the business’s gross profit and fixed expenses, it should also include additional covers for Increased & Additional Costs of Working and Claims Preparation Costs.
Getting the indemnity period right for business interruption insurance is extremely important. A company’s chances of survival following a major incident may be drastically reduced if the indemnity period falls short.
Potential delays should be factored in when setting an indemnity period. The process of returning a business to its pre-loss financial position can be long and sometimes 12 months is not enough.
Many intervening factors can emerge during the interruption period, including
- A requirement for further investigation into the incident’s cause, especially in larger fires.
- The presence of asbestos, which requires involvement from the relevant environmental authority and can hold-up the damage assessment until the site is deemed safe
- Involvement of the relevant Work Cover authority if employees have suffered a serious injury or died.
- Council re-zoning preventing the business from rebuilding on the damaged site.
- Building design needing to be updated in line with new regulations.
- Replacing damaged plant and equipment can be an issue if it is unique or needs to be imported from overseas.
- The right resources may not be available when the business is ready to resume operation.
- Reliance on key contractors or tenants to provide professional services from the property, many may have moved onto other facilities.
In the event of one or more such delays, 12 months may no longer seem like such a long time. Consider a business which has a large contract to supply Parts to a major hardware chain. The product has a designated amount of shelf space which is quickly filled by a competitor’s product during your rebuild phase forcing you to lose this contract. BI cover will continue to pay any shortfall in earnings until your business returns to the position it was in prior to the event. For the business owner woken in the middle of the night by the news that their livelihood has been reduced to ashes, knowing their insurance cover will provide enough funds to rebuild and pay for overheads will provide some measure of comfort during a traumatic time.
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