If a disaster such as a fire or a flood struck your business leaving it temporarily out of action, do you know what would happen? Could your business continue as normal? Would you have sufficient income to continue paying wages and bills?
Business Interruption (BI) cover gives you and your business reassurance that you are covered if an insured event impacts your organisation. BI cover aims to maintain a business’s income even if it is unable to trade for a period of time. It also helps a business to return to the same place it enjoyed prior to the incident.
BI cover can;
- Fund an alternative location while repairs are made to the original location
- Provide compensation for lost income
- Provide compensation for the future gross profits that your business would have earned
- Ensure all normal business expenses are paid (wages, bills, other costs)
This enables the process of rebuilding your business.
It is important to make sure you have an adequate sum insured and suitable indemnity period. If cover is arranged correctly, it will pay out until you are in the position your business would have been, had a loss not occurred.
How BI helped a business recover for the better
A shop fitting contractor experienced a fire in the loading area of the factory. Products awaiting dispatch were damaged as was some factory machinery. As a result, bespoke fittings had to be remade and the business lost a contract they had not yet started on site. The fire damage meant that the client was unable to meet contracted deadlines.
BI cover ensured increased costs resulting from overtime and extended contract periods could be recovered. It also covered lost profit as a result of losing the new contract. Fortunately due to BI cover, the contractor suffered no long term effects.
So what should you do?
Contractors may feel that as they work away from their premises, business would carry on as normal if an incident occurred and therefore do not need business interruption cover. However, in the event of an incident such as a fire, it is likely that there would be significant disruption to the business and unplanned costs in order to recover.
To help support a claim should the worst happen, it is advised that you keep adequate financial records and most importantly ensure you have suitable cover in place. To set a realistic sum insured, you should consider:
- The period of time it would take to recover from a “worst-case” scenario. Factors to consider include the time it would take to reinstate your premises and recover potential lost customers.
- Your estimated “Gross Profit” or “Gross Revenue” for the length of time your business could be interrupted for. Your broker can provide support to ensure cover is appropriate. Future growth also needs to be taken in account.
If the sum insured is miscalculated, your business could be underinsured. This means that in the event of a disaster to your business, you may have to bear a proportion of the claim yourself. For example, if you are underinsured by 5% you will only be paid 95% of your loss. Though 5% may not seem a large sum, if the claim is only for £100,000, you would need to contribute the remaining £5000. This is a small example, imagine the cost if your business is worth hundreds of thousands, or millions. The cost of underinsurance quickly escalates to an amount which could be impossible to pay.
The cost of BI insurance is not high when considering the level of protection it can bring in the event of a disruption. Business continuity is crucial to the recovery of a business and BI cover can greatly support this.