First of all, I know its summer. I know we don’t want to be thinking of the doom and gloom of previous year’s storms and floods and definitely don’t want to be thinking what could be ahead once the winter months approach.
However, now is the time to be checking whether you have the right plan in place to protect your business premises if it was to flood or become damaged. Besides it doesn’t have to be winter for a pipe to burst and your business to be out of action.
As well as having a good continuity plan in place you should make sure your business interruption insurance is also up to date.
Business interruption: the basics
As I’m sure you know, business interruption (BI) insurance covers your business if an unexpected event happens. This could be anything from a cyber-attack to your premises being flooded. Either way, you need to be covered to avoid losing any business.
Business interruption insurance can:
- Fund an alternative location while repairs are made to the usual location
- Provide you with compensation for lost income
- Provide you with compensation for the future gross profits that would have been earned
- Ensure all normal business expenses are paid (wages, bills, other costs)
Calculating your BI insurance requirements
As with any insurance policy, you will need to calculate the Sum Insured to avoid underinsuring your premises. In order to do this you should consider:
- The number of years it would take to recover from a “worst-case” scenario loss such as a fire. There are many factors to consider including the time it would take to reinstate your premises and recover potential lost customers.
- Your estimated “Gross Profit” or “Gross Revenue” for that number of years. Your broker can provide support to ensure cover is on the correct basis. One factor to consider is that this amount needs to take in account future growth. It is possible a loss could occur at the end of your insurance period.
It is important to ensure your calculations are as true and honest as you can make them. If you are underinsured by 5% you will only be paid 95% of your loss. Whilst this may not seem like a lot, if your business suffers from a major incident such as a fire or flood, that 5% could make a huge difference.
The good news is BI insurance isn’t that costly when considering its worth. With the level of protection it provides, it’s strongly recommended.