Business Interruption Insurance – What is it and why do you need it?
Not all losses are physical. Of course we can imagine many which are, such as fire or flooding, but losses can have effects which are far more long-lasting than the original incident which caused it. For instance, if a fire causes damage to a business’ machinery, the initial loss is the cost of repairing or replacing the damaged equipment. But with no machinery, the business cannot produce goods to sell and will lose revenue as a result.
A loss of earnings, production capacity, or the ability to provide services, is not a physical loss, yet it still has the potential to cause serious problems for businesses. Even a small disruption to a business’ income can put it under enormous financial strain. This less definitive, less tangible side to a loss is not covered under property policies, which deal with physical losses. Instead, we must turn to Business Interruption insurance for protection.
What is Business Interruption Insurance?
Business interruption insurance exists to help keep your business afloat following a loss which impacts your income or your ability to produce goods and deliver services. It isn’t usually sold by itself, but as part of a larger combined package policy.
A typical business interruption policy will cover:
- Lost Revenue – The income which the business would have collected had the incident not occurred.
- Fixed Expenses – Costs which will not change such as rent or utilities.
- Temporary Relocation – If the business has to move to another location until the initial loss has been resolved, the costs of this can be covered.
- Employee Wages – the salaries that your employees would have been paid had the incident not occurred.
- Loan Payments – any loan payments that would have been made during the time your business is disrupted.
In addition to the standard Business Interruption cover given above, there is also:
- Contingent Business Interruption (CBI): this protects your business from losses caused by the disruption of one of your partners or suppliers.
- Extended Business Interruption (EBI): this extends the cover beyond the standard period, should that be necessary.
Because of the diverse aspects involved in this specific policy, a Business Interruption claim can often greatly outweigh the original cost of material losses. Therefore Business Interruption is an essential component of every commercial or corporate insurance policy.
When is Business Interruption Activated?
Cover comes into effect when an event covered by the policy occurs. Some policies may require the you to wait between 48-72 hours after the incident before making a claim. For most insurers, the period that will be covered is from the date of the initial incident to the date that the property is physically returned to the condition it was previously in. The maximum indemnity period will vary depending on each insurer but is usually 12, 24 or 36 months.
As soon as an incident occurs, we urge policyholders to contact their broker, that’s us, as soon as possible. We can then provide immediate guidance on next steps to keep your business best protected.
What is the claims process?
When making a claim on the Business Interruption policy, it is important to provide evidence of the damage that has occurred. It is best to provide proof of the loss, documentation of your expenses, and an estimated recovery time. By using these factors, the insurer can calculate the amount of money your business will receive.
How can Business Interruption benefit you?
Aside from the financial safeguard; the main benefit of Business Interruption is that it offers peace of mind. More specifically, it allows your business to maintain a stable income despite any damage to or loss of your property. With a stable income, businesses can retain their employees and ensure they can weather the storm until their income resumes.
How much does Business Interruption cost?
The specific amount of premium that Business Interruption costs will vary on several factors. This will include your occupation, where and how you complete your business, the number of staff, and your turnover. Specific insurers could potentially require other information. The indemnity period that has been selected will also affect the premium.
What is excluded?
Business Interruption comes with some exclusions. These exclusions are often better protected via a dedicated policy.
For example; Acts of Terrorism (not including bomb threats) are excluded and can be better covered by a dedicated Terrorism policy.
To better understand your policy and what exclusions may apply, contact Romero Insurance.
Arrange a confidential review
Contact us today to get started with Romero Insurance Brokers. With your permission, we will be able to perform a confidential review of your business and insurance terms, including your business interruption details. We are also able to go to insurers and determine a best offer which might be better than your current provider.
A confidential review will not affect your current relationship or arrangement with your broker or insurer.
