Business Interruption Cover

Whenever a business suffers material damage loss to property, there will be a resulting financial loss and disruption to business. If the business closes down completely while the premises are being repaired it may lose out to competitors. A quick resumption of business after a disaster is therefore very essential.

Business interruption insurance can be as vital to your survival as a business as property insurance.

What does Business Interruption Cover?
Business Interruption insurance covers for the financial loss resulting from the inability to trade following a material damage loss.

Business Interruption insurance covers for the financial loss resulting from the inability to trade following a material damage loss. The policy will typically cover the following:
This covers you for any damage you cause to others (Third parties) and their property while driving your car. It doesn’t cover repairs to your car or replace it if stolen

- Lost Income – The profits that would have been earned during the time that the business is out of action (based on previous months’ income).
- Fixed Costs – Covering the operating expenses and costs that continue to incur even though the business is not operating (based on historical costs) e.g. Salaries, electricity, water, telecommunications.
- Increased Cost of Working (ICW) – The reasonable additional expenditure incurred to avoid or diminish any further reduction in turnover following a loss.

What sort of events does business interruption cover help with?
While there are many different causes of business interruption, the two most common are fire and flood. No one ever expects these twin disasters to strike their business, and when they do, they often mistakenly expect other policies to cover all of their losses. A typical scenario for a flood claim won’t even involve heavy rain and a river that bursts its banks. Chances are that a pipe will burst or a rooftop water tank will collapse, and by the time you arrive in the morning your premises will be under three feet of water.

Well, stock can be replaced, eventually, as can computers. Yet a flooded building will often need at least two months to dry out, and in the case of a severe flood may take more than six months to be habitable again. Specialist machinery can sometimes take just as long to replace. If you cannot operate in the interim, you will lose revenue, possibly run out of money, and probably lose irreplaceable staff as well as valuable customers.

What you need to know?
Estimated Annual Gross Profit/Revenue
Cover is most often provided based on an Estimated Annual Gross Profit Sum Insured and this can be calculated using the above formula. Once the indemnity period has been chosen, the gross profit sum insured will need to be adjusted for that length of time. In doing this, account must be taken of future business trends. Cover can also be provided based on gross revenue basis, which gives cover for the whole of the company revenue without deduction. This basis tends to be used in the professional services and sectors where variable costs are limited.

Additional Increased Cost of Working

The reasonable additional expenditure incurred to avoid or diminish any further reduction in turnover following a loss even if the amount payable exceeds the saving made. Inevitably there may be extra expenses that will not necessarily pass the ‘economic test’ for additional expenses, but may be reasonable in terms of medium-long term interest of the business. These can include the following;
- Temporary Repair Costs.
- Contracting out work to fulfil supply demand from customers.

A number of cover extensions are also available for consideration, some of these are often provided as an automatic add on to standard BI policy cover (please note the following list is not exhaustive).
- Suppliers/Customers Extension
- Utilities
- Utilities
- Denial of Access

Indemnity Period
The period during which the business’ results are affected due to a loss or damage, beginning with the date of the loss or damage and ending not later than the maximum Indemnity Period. When considering an appropriate indemnity period, it is important to consider the following;
- Availability of Replacement Machinery & Equipment & Recommissioning time.
- Planning Consents/Enquiries – Modern methods/Asbestos/Listed buildings/Access to Site for Plant/Machinery etc.
- Availability of Alternative Accommodation.
- Seasonal Business

How do I start?
Hisbah Insurance will assess your needs and give you options. Give us a call or email us and one of our friendly staff will help you get the best cover at the right price.


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