Insurance to alleviate financial headaches
Is your Business Interruption insurance sufficient for your business needs?
For many businesses, it can be difficult to predict the financial implications a major interruption would have on their balance sheet.
The potential consequences can be more devastating to a business than the loss of any physical assets.
When a business suffers damage, it is almost certain that two things will happen:
- The day-to-day running costs of the business increase
- The ability to earn revenue is diminished
This is where Business Interruption insurance steps in. It will alleviate the financial headaches whilst the business attempts to recover following the major incident.
What does it cover?
Business Interruption cover will indemnify your lost income and cover fixed costs to ensure you can continue to recover. Consideration should be given to your indemnity period (the agreed time period for which your insurance company will continue to indemnify you). If this is too short, your business may not be able to fully recover.
A Business Interruption policy can benefit from a variety of additional extensions. Careful consideration should be given to the extensions you may need. Click here to find out more.
Whether your business operates from a single site or you have operations across the globe, our team has the specialist knowledge and experience to ensure your Business Interruption policy is fit for purpose.
Without Howden’s involvement, I wouldn’t be in business today. When we tested our insurance policy, it proved to be the right one.
Linked Business Interruption Cover
You may need to arrange business interruption cover linked to other policies. We can assist with these areas.
Denial of Access
You can insure this exposure and cover can be arranged to include coverage when the denial is instructed by authorities.
A major incident for one of your customers or suppliers can adversely impact your own income.
Without utilities such as power, water or telecommunications, your business may suffer a loss of income.
Ready when you are
Frequently Asked Questions
Business Interruption insurance (BI) is required following a material damage loss affecting your business to assist you with regaining the predicted pre-loss trading position, had the loss not occurred. The cover aims to maintain the turnover of the business during the chosen indemnity period so that trading is not unduly affected.
Business Interruption insurance works by indemnifying the insured so that they are put in the same financial trading position that they would have been in, had the loss not occurred. Trends of the business will need to be taken into consideration in the calculation of the BI sums insured to ensure that any settlement is calculated accurately. It is important to remember that for BI cover to operate, there has to be an insured incident which has not been excluded from the property damage section of the material damage policy, that causes interruption and/or interference with your business. This incident must have occurred during the policy period.
You can either insure for your ‘Gross Profit’ (commonly used for manufacturers), your ‘Gross Revenue’ (typical for businesses such as accountants or solicitors) or you could insure for ‘Increased Costs of Working’ (often used if you do not believe that either your Gross Profit or Revenue will likely be affected by a loss). ‘Increased Costs of Working’ will be incorporated into both a ‘Gross Profit’ or ‘Gross Revenue’ sums insured.
An example such as this is exactly why Business Interruption insurance cover will be integral to the continuation of your business. You may well need additional funds to arrange the rental of another office or factory location and when calculating the BI sums insured, it is important that you allow for such an occurrence. How much additional funding would be required to relocate the business? Would you need to continue paying the rent at your current location and pay staff overtime costs too? These are examples of the factors that you will need to consider when assessing your business interruption requirements; Business Interruption insurance can indemnify you for such costs.
You will need to consider how long it will take following the first day of the loss for your business to fully get back up and running and return to the trading position it would have been in had the loss never occurred. All Business Interruption cover will cease at the point the business is fully recovered or on the expiry of the indemnity period, whichever happens first. If this period is too short, you will not be allowing for the business to fully recover and potentially the future of the business could be at risk.
We can provide you with different lengths of indemnity periods to consider the relevant premiums payable. Some of the factors you will need to consider are rebuilding time, planning consents and enquiries, regaining lost market share and customer base, retraining staff and lead time for replacement machinery/plant.
The calculation of your BI sums insured depends on the method of insurance (referenced above under ‘In what ways can I insure for Business Interruption?’) When insuring your Gross Revenue, this will be the sum of your total turnover of the business, without any deductions (except for any savings made) and for the length of the indemnity period. When calculating an appropriate Increased Costs of Working sum insured, a suitable figure will need to be chosen by you to allow for potential increased costs; please discuss this with your dedicated Aston Lark contact(s).
It is vital the sum insured you select is sufficient for the full length of the indemnity period. If you are underinsured, your insurance policy will not work as intended and the claim settlement will not be sufficient to support the business. If the underinsurance is severe, the future viability of the business could be at risk.
Yes. If you are a rapidly expanding business with a demonstrable growth potential, you may well receive a settlement based on a figure higher than the current turnover (on the basis that your BI sums insured have been calculated correctly).
Regardless of the size of your business, if a material damage loss occurs, it is highly likely that you will require additional support in ensuring that your turnover is maintained. This insurance is there to protect you from a situation whereby the business potentially suffers so badly that you are no longer able to trade or worse, you fall into liquidation.
A standard BI policy will only cover those losses that are as a result of insured damage at your own business premises but your revenue may be affected by a third party premises or other circumstances. The following extensions are the most common that can be applied to a BI policy:
- Losses resulting from damage at a supplier’s premises (Suppliers’ Extension)
- Losses resulting from damage at a named customer’s premises (Named Customers Extension)
- Losses resulting from when damage to property in the vicinity of your premises occurs, preventing or hindering your access to your own premises (Denial of Access Damage Extension)
- Losses resulting if there had been an incident within a certain radius of your premises (e.g. a bomb threat) but whereby there has been no damage to your own insured premises or a premises in the immediate vicinity (Non-Damage Denial of Access Extension)
- Losses resulting from damage at the premises of a public utility (Public Utilities Extension)