Watch out for shortcomings in your Business Interruption cover
Business Interruption remains the most undersold but vital cover to include in a Business Pack or ISR policy (Section 2 Consequential Loss).
But problems exist even when an Insured has chosen the cover. Have they set it up correctly? Will it respond adequately after a material damage claim?
I just want to touch on a few areas that can cause shortcomings in the cover.
- Indemnity Period – most people have not factored in a long enough period. Remember this cover provides for the difference in the turnover normally generated from the continual operation of your business and the reduction suffered following a fire until you return to normal levels. Most insureds pick only twelve months when they should look at least two years. Why? Consider the following:
- After a fire – there is a period of investigation before allowing debris to be cleared
- New plans or designs incorporating the latest regulations an by-laws will take a number of weeks
- Plans then need to be submitted and approved by local councils which can take a number of months
- Then when approved. A builder needs to be found or possibly a Project Manager. These are not instantly available and depending on the state of the economy and building demand can take many months to arrange.
- Delays can be created through industrial action, weather related events, shortage of labour and building supplies
- Then it is time to move in and wait for your customers to return
- There is an additional cost of working to advertising that you are now back in business to the general public
- There is still a period while you are re-establishing the business back to normal earnings which can take a while allowing also on the time of year and seasonal nature of your particular business.
- Additional Increased Cost of working – touched on in the previous point, Is either ignored or not adequate enough. They are the extra costs needed on top of normal expenses needed to mitigate the loss and are vital to keep your business functioning. Examples are as follows:
- Advertising to customers your new location
- Finding and fitting out alternate premises if available
- Claims Preparation Costs – these are sometimes overlooked because the Insured considers it relatively easy to prove their loss to an insurer. It is not always. The onus is always on the Insured to prove their loss. This means that an Accountant or other specialist is needed to prepare the claim and continue to monitor the shortfall in turnover. If there remains a dispute, even more Fees and expenses can be incurred. Therefore a reasonable sum needs to be established and included on the policy.
So in conclusion, it is important to review these critical areas of your Business Interruption cover as sadly recent claims have shown them to be inadequate in many cases. We strongly recommend increasing an Indemnity Period to at least two years, making sure the Additional Increased cost of Working limit is set at least 20% of the Gross Profit Sum Insured and Claims Preparation Costs are at least 10% to 15% of the Gross Profit Sum Insured. It does not cost too much more for this extra Peace of Mind.