Business Interruption | Business Insurance
Here we are highlighting the main points that you should be aware of when you are insuring Business Interruption.
This is one of the trickiest areas of insurance to understand, even for the professionals and whole (not very exciting it has to be said) books have been written on the subject. So it is well worth speaking to your broker about it. It is often included automatically or can be purchased relatively inexpensive. So, always remember to ask about Business Interruption.
What is Business Interruption?
If you have a loss covered under a Business Insurance Policy*, which causes your business to be interrupted and your income to stop, Business Interruption Insurance could be the best investment you ever make.
That is nearly all you need to know, this insurance pays for (some of) your income in the event of a physical material damage loss which prevents your business from operating. Where it gets tricky is explaining exactly what income is covered.
In general terms a Business Interruption Policy will pay for a Reduction in Turnover plus a figure for Increased Cost of Working. If it is relevant it can also include Rent Receivable (where you own the building and are renting out all or part of it).
Reduction in Turnover
This is the bit which is the most difficult and technical. In lay man’s terms the intention is to insure the expenses of running the business, not any profit it might generate. To quantify a claim, the Policy wording gives very precise definitions about how to calculate a loss. We are now stepping in to Accountancy territory.
Increased Cost of Working
The concept of increased cost of working is to try and reduce the time your business is out of operation. The increased cost might be for instance renting another similar office or factory, while yours is being rebuilt. Simple equation “you working = less reduction in turnover/not letting your competitors steal your market“
This is important when considering your Business Interruption sum insured. It represents the length of time it would take to get your business up and running again if it was totally wiped out. When you have decided how long your business might be affected (for instance 12 or 18 months) you can work out the reduction in turnover during that period. This will be used in calculating the sum insured.
This is by far the most technical topic we will cover under a Business Combined Policy so it should definitely be discussed with your broker.
*A Business Policy is any Policy which includes Property Damage and usually Employers and Public Liability. An example would be a Shop Policy.