Please take a long hard look at this picture. This is the game you will be playing with your business in the event that you have no Business Interruption Insurance or more likely a poorly arranged policy. Owners of a business can hold directors and officers accountable for failing to provide adequate protection of a company’s assets. BI Insurance is one of if not the most misunderstood – and therefore often overlooked – business insurance policies. Quite simply this is because the vast majority of insurance brokers have minimal business and accounts training.
Unlike material damage insurance the policyholder has to be asked relevant questions to establish the correct type of BI policy and the adequacy of it. Also a BI policy is unique in that it has a formula for the arrangement of the indemnity in size and length of operation. This formula is used in calculating losses and ergo the policy proceeds.
BI insurance is a contract of indemnity and therefore is intended to put you back in the same position after the loss as you were before it.
However with the right construction an escalator clause needs to be added to allow the indemnity to meet the needs of where the bususiness would have been had the interruption not occurred. This means that a policy needs to be sufficient for the indemnity period to operate up to full strength from the last days of the insurance period.
Does your business need to insure for:
- A whole of revenue or gross profit or [extra] increases in cost of working.
Is your business sensitively dependent on:
- Utility supplies
- A handful of major suppliers
- A small number of customers
- Time constraints and penalties with customers
- Limited access to your premises
- Key machinery
- Key personnel
- A tenancy agreement
These are the main and common factors that should be identified and addressed in the consideration of the type of policy, its value and payment period. Simply put, a BI policy should step in to protect cash flow, expenditure, and profits for as long as the business feels the affect of the interruption and not just when the assets have been reinstated.