Business Interruption Insurance
What is Business interruption insurance?
Usually purchased as part of a Business Combined Insurance policy, Business Interruption, or BI, protects businesses for loss of revenue or profit following an incident such as a fire or theft at one of their locations.
Whilst many business purchase this cover, it’s very often not fit for purpose. How your business generates its income will depend on how Business Interruption should be structured
The concept of Business Interruption Insurance is to put your business back in the same trading position it was in before the event occurred.
Based on how you generate your revenue, there are various ways to structure a Business Interruption insurance policy. Your insurance broker can advise you on the best way for your business.
- Loss of Gross Profit or Revenue
- Increased Cost of Working (ICOW)
- Additional Increased Cost of Working (AICOW)
- Flexible limit of loss
- Suppliers and Customer Extensions
How will business interruption cover help my business?
Your business insurance broker would have structured your policy taking various elements into consideration.
Some of these variables are:
- How long will it take to replace machinery? (are they specialist, coming from different parts of the world etc)
- How long will it take to either find a new permanent or temporary premises or reinstate the existing one?
- Supply chain structure
- Economic climate
- Market position
- How much money would you need short term in order to prevent a larger loss in revenue later down the line
- Loss mitigation strategies
Is Business interruption insurance worth it?
There isn’t a one size fits all answer to this question but generally speaking, Business interruption insurance is a key part of any business insurance programme. Even if you do not opt for the full loss of gross profit cover, having a route to some cash in order to keep you trading is usually needed to ensure that your business doesn’t just survive but reaches the levels it was previously at.
Your Insurance broker can help you to understand the best structure for your business depending on whether your revenue is generated by products or a service as well as what would happen in the event of an incident and the cost structure of your business.
So what is an example of a business interruption claim?
It is common that you will need to have a property insurance claim for you or one of your customers or suppliers in order to be able to make a business interruption claim.
The two most common types of Business interruption claims are Fire and Flood but other common causes of claims can be for burst pipes, storm damage, theft etc.
Scenario 1: A business that manufactures component for various different industry sectors suffers a fire at their main manufacturing location in the middle of the night which destroys everything inside.
They have a property insurance policy in place that will cover them for the cost of reinstating any buildings, contents, fixtures and fittings, stock, machinery, plant etc but what happens from the day of the loss to when they manage to get up and running again? and how long until their revenue is restored to the levels that it was at prior to suffering the fire? Stands to reason that there would be significant loss of income during this period.
The business interruption policy had a 24 month indemnity period which means that even though the policy could lapse after 12 months, the business interruption cover will continue to ‘top up’ the revenue up to 24 months or whenever the pre loss revenue levels are reached, whichever came first.
Increased cost of working paid for overtime for staff, renting a new unit, buying new laptops for office staff, cost of outsourcing some production short term.
Its important to remember that the cover doesn’t stop when the business is back up and running. A well structured and thought out BI policy will cover you up until the pre loss revenue is restored.
Fill out the contact form or give us a call if you’d like some advice and to have a chat about your business and how we can partner with you.