To put it simply, Business Interruption insurance protects against loss of profit resulting from an interruption to your business activity. Interruption to your business activity has to be caused by an insurable event such as Fire, Storm, Accidental Damage, Machinery Breakdown or other events you are insured against as stated in your business policy.
Common problems suffered by businesses as a result of interruption include:
- loss of profit margin on stock destroyed;
- non-fulfilment of standing orders;
- breaking of contracts and / or loss of customers to competitors;
- certain continuing expenses, for example, rent, payroll, interest;
- additional expenditure in order to minimise loss of income, like rental of temporary operating premises, or working additional shifts;
- the availability of replacement plant and machinery or parts for damaged plant and machinery;
Every business is different and establishing the right of business interruption cover for your business can be tricky. It is recommended that you talk to an experienced business insurance broker to gain a more detailed understanding of how this cover works. In summary though, there are 2 key areas that need to be considered;
1. What you need covered – under a business interruption insurance policy you can cover:
- Profits – Profits that would have been earned (based on prior months’ financial statements);
Fixed Costs – Operating expenses and other costs still being incurred by the property;
Temporary Location- Some policies cover the extra expenses for moving to, and operating from, a temporary location; - Extra Expenses- Reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operation while the property is being repaired.
2. How long do you need cover for – Generally you can choose cover for 3, 6, 12 or 24 months. The timeframe should be a reflection of how long it will take your business back to its normal level of activity after a major loss.
I hope you have found this blog entry informative. We welcome any feedback or questions you may have. Please feel free to contact us if you would like help with your business insurance. All our insurance brokers have years of industry experience, are highly qualified and draw on a national resource pool.