It can take a long time for a business to recover following a major incident at one of their premises. Learn about, why your insurance policies indemnity period is one of the most important elements to take into consideration.
What is an Indemnity Period (IP) or a maximum indemnity period (MIP) ?
An indemnity period is the time duration in which a claim can be made under a business interruption, business insurance policy following a loss. An IP can come in various durations, such as 12, 24, 36, 48 months and once this period has ended, all claims payment end, regardless of whether or not the business is back to the financial position it was in before the loss or whether the limit has been exhausted.
How does an Indemnity Period impact the outcome of a claim?
as mentioned here https://www.evolutionriskgroup.com/business-insurance/business-interruption-insuance/ a business interruption policy is designed to help a business return to the same financial position or level of profitability it was at before it suffered a loss. It is not simply about reinstating the property and getting the business back up and running. This in mind, understanding the maximum time it may take for the pre loss profitability to return is critical in making sure that the cover is set up in the most effective way and to ensure that the sums insured is at the correct level to help the business recover.
The maximum indemnity period is the vehicle which ensures that the correct monetary limit is selected along with providing adequate time for recovery.
What needs to be taken into consideration when selecting the correct indemnity period?
MIPs should take into account the absolute worst case scenario that could happen to a business. An experienced broker can help you understand these eventualities and advise you on the period to select. Some examples:
- Availabiity of decision makers and decision making time
- Planning permiision and applications (including debris removal, objections from neigbouring premises)
- Finding alternative premises
- Sourcing replacement equipment
- Lead times for replacement plant and equipment
- Re recruiting and training
- Seasonal loss’s or losing existing contracts
Whilst many business owners believe they can rely on key supplier relationships or even competitors helping out, this rarely helps and can distract away from the focus and attention needed to give the business the best chance t recover.
The most effective way to prepare for this is when setting up the cover, not at the start of a claim. Developing a robust and tested Business Continuity plan which includes disaster recovery can help a business make the most of the MIP.
Contact us on the form below or call us to discuss the best business interruption insurance and indemnity period for your business.