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Do you need business interruption insurance?

Published by System Admin at 2/4/2020, 10:00:00 AM

FactoryBusiness interruption (BI) cover can be included in most property or commercial combined policies, but it remains an often-overlooked area of cover, until it is needed!

Imagine your business has a fire which destroys half of your stock. Your property insurance should pay the replacement cost of the stock, but what if the customer can't wait the additional lead time of the stock to arrive and you lose out on their business?

Or imagine a piece of machinery is damaged after an electrical surge or after being hit by a forklift truck. You may have excellent property cover that will pay for you to replace the damaged plant but what if it is not an "off-the-shelf" product and has to be manufactured specifically for you, or perhaps shipped from overseas? In the meantime, you may have to either outsource work to a competitor just to stop your customers going to them directly, or may have to run overtime for a few weeks after you are back up and running to catch up on orders.

BI cover insures your financial loss that has occurred as the result of property damage, for which you have property insurance. (In insurance terms this is often referred to as "consequential loss".) It can insure a loss in profit, increased costs of working, or both.No alt text provided for this image

It is often included as standard in commercial policies, so it is worth checking your existing cover to see if this is the case and to see if the cover is adequate.

Sometimes an insurer will only include "Increased Costs of Working" as standard, which as the name suggests covers additional costs incurred to keep the business running and prevent you from losing even more money.

If they provide insurance on a Gross Profit basis then not only should you check the figure provided, but make sure the Indemnity Period is sufficient. Often this will be 12 months by default, but make sure you consider if you had a devastating fire or flood claim would you realistically be completely back to ordinary trading 12 months on? A lot of the time 24 months or even 36 months can be more appropriate depending on the size and nature of your business.

Some insurers can also include extensions to cover which would not usually be covered such as your financial losses as a result of losses your suppliers or customers suffer, but these are not always included as standard and so it is something you should discuss when reviewing your cover.

If you would like further information regarding business interruption insurance and the options when selecting the right protection for you please get in touch.