Business ... Interrupted

Business Interruption insurance is one of the most misunderstood insurance policies, and often overlooked by business owners, who claim they don’t need it because:

“We aren’t making a profit.”
“Our turnover doesn’t warrant it.”
“It’s too hard to calculate.”

So, what is Business Interruption insurance and what does it cover?

Business Interruption insurance protects your businesses profit (“the bottom line”) from interruptions that could be caused by a number of events, such as damage to your business premises, damage to your business assets, a power failure, damage to roads or railways or even damage to your largest supplier.

A well placed Business Interruption policy will provide cover to your business for a specified period of time referred to as “the Indemnity Period”, and will cover you for the two ways a loss might impact your bottom line;

  • an increase in costs, or

  • a decrease in income.

Provided you get the indemnity period and the sum insured right, your cover will ensure your bottom line is safe and sound.

 

What do I need to insure?

For the vast majority of business needs, a combination of Gross Profit, Additional Costs and Claim Preparation Costs will provide the best cover. The most often overlooked aspect to the cover, however, is the Indemnity Period.

The Indemnity Period
The Indemnity Period is the length of time you are covered to get your business back up and running. When choosing this period, you need to be realistic, as while selecting a shorter period may save on premium, losses after the end of the Indemnity Period cannot be claimed, and the premium saving may not pay off in the long run. Things to think about when selecting an Indemnity Period include;

  • How long it could take to inspect the damaged premises after a fire (i.e. how long before any actual work can begin)?

  • How long will it take to plan, design, obtain consents for and obtain a contractor to build a replacement building?

  • How long will it take to actually repair or replace the building?

  • Once the building is replaced, how long it will take to get customers back and reach the level of sales as though there had been no damage?

Gross Profit
Gross Profit will provide cover to continue paying bills such as utilities, payroll, insurance and rates. These are generally very regular expenses which will continue whether you are generating income or not. Variable expenses on the other hand, like outward freight, consumables or credit card commission are not usually insurable, since they will generally reduce when income reduces.

Additional Costs
Additional Costs are expenses over and above your normal expenses and are incurred to minimise the impact on your business.  For example, to continue trading, you may have to move premises and need new signage; and you may also need to advertise to let your customers know your new business location.

Claim Preparation Costs
It’s true: Business Interruption claims are complicated.  Thankfully, all Business Interruption policies have a section for claim preparation costs, which allows for a suitably qualified person to work through your loss and calculate your claim.  This will leave you free to focus on getting your business back on its feet. 

How Aon can help

Aon’s team of highly regarded specialists are experienced in designing Business Interruption solutions for businesses. We investigate your options and discuss what you might do in a claim situation. This is used to design a solution best suited to you and your business.

Aon have successfully managed many Business Interruption claims over the years; we understand the policy; have built strong relationships with insurers; and most importantly we take the time to understand your business and how it works.

Don’t leave it until it’s too late to find out you should have paid more attention when calculating your sums insured, or that your indemnity period is not long enough.

If you would like to discuss Business Interruption further, please contact:

Woodrow Bould│ Aon New Zealand, Risk Accounting │ woody.bould@aon.com

This website contains general information only and does not take into account your individual needs or financial situation. It is important to note that limits, excesses, terms and conditions and exclusions apply to the products and services outlined on this website. Please refer to the relevant policy documents for details of cover, the provision of which is subject to the insurer’s underwriting criteria that apply at the time. Please contact us if you have any questions.