An Introduction to Business Interruption Insurance with Managing Director, Graham Brown
Business Interruption Insurance is a non-compulsory form of insurance that is intended to protect businesses against the financial loss suffered as the result of a claim.
It is designed to cover your business against a loss of income that is a result of being unable to trade due to an unexpected insured interruption, such as damage to your property.
Business interruption exists to cover the income a business would have received had the incident not happened.
For businesses affected by (amongst other events) fires, theft, storms or a flood, business interruption insurance can be a critical protection for your business.
Recent research by the Chartered Institute of Loss Adjusters (CILA) found that business interruption policies were underinsured by an average of 50%.
With this in mind, we spoke to Graham Brown, Managing Director, about the details of Business Interruption Insurance and what you need to know in order to benefit from it.
What would an example of an uninsured event be?
Lets say you had property in the open and your main property policy wasn’t extended to cover “property in the open”. If somebody stole the goods from the “open”, then even though it impacted on your loss of profits, it wouldn’t be covered as this would be an uninsured event.
Wear and tear would also be an example of an uninsured event. Similarly, if you had a building which you hadn’t insured but was critical to your business and it was damaged, your business Interruption policy wouldn’t cover this.
Is there a minimum amount of time for business interruption, i.e. if something happens and my business is interrupted for a month, can I still claim against the insurance versus it being catastrophic and me being out of business for 2 years?
No, there is no minimum.
You can claim if it’s as a result of an insurer peril or you can make the claim under the policy even if you have been disrupted for a day, two days or a week as a result of for example, a storm or a flood which resulted in the closure of the shop/factory.
If there is any unforseen interruption to the business, you can make a legitimate claim under the policy.
How do you factor in seasonality into Business Interruption Insurance ? For example, say I own a coffee shop and I do 80% of my business in the summer season. What happens if my business is interrupted during my peak season compared with November through to January?
That’s a very good question. Seasonality is important because your timing could mean that you could lose three seasons rather than two so you need to factor that into consideration as well. Christmas, for example, is a crucial period for retail and hotels, so that is an important consideration.
Do most businesses that you speak to have a continuity plan?
No, unfortunately not.
It doesn’t have to be War and Peace either! Frankly if you have got two to three pages of A4 with key contacts, who is doing what in the event of X, then that is a good start.
A continuity pan should be there for two reasons, firstly it drives the thought process on analysing the risks within the business and secondly, when something untoward has happens, it helps us know what do we do, who to phone and how to get things moving as quickly as possible.
In the event of a loss, our larger clients have got what they call ‘salvage lists’. These lists detail what's most valuable to the business and in the event of a disaster, if safe to do so, staff can recover key items from the building quickly.
Is Business Interruption taxable?
Business Interruption for a business is just like any other business insurance: you will get tax relief on it as part of your trading activities.
Does Business Interruption cover payroll and power outages?
It absolutely should cover payroll but unfortunately there is a misconception that you leave pay roll out of calculations.
Yet it must be included because whilst we insurers accept it is highly unlikely that, in the event of a major loss a business is goig to keep people there for two years doing nothing.
Insurers need this to form their basis of calculations. If you don’t then you are instantly going to run into a problem of average being applied because they will expect to see it, unless of course, you agree with the insurer for some particular industry or trade but it’s unlikely.
Business Interruption can also cover power outages.
You need an extension to the policy if, for example you are a manufacturer and you lose power, then your business is going to suffer.
What tends to happen is an insurer will exclude the first X number of hours per day or per incident, especially if there is a history as there are locations where power cuts just seem to be the norm. If that’s the case then insurers are not there to pick up the inevitable but the unforeseen, (but you can extend to have this covered).
What should a Pavey Group customer do next if they are concerned about Business Interruption?
If they have any concerns, then speak with your Account Manager or Account Handler who will happily take the time to sit down and talk it through.
The first step would be we would have a discussion over the phone or have a face to face meeting, whatever it takes to help the client get it right.
For more information, visit the following webpages:
If you have concerns about Business Interruption, please get in touch with us here.