The purpose of Business Interruption insurance is to maintain the turnover of the business following an insured incident so that the firm can be in the same trading position after the interruption as they would have been in had the loss not occurred.
There has to be insured damage to the property for the Business Interruption cover to kick in. Although material damage to property has to be insured, this doesn’t necessarily have to be by you, the policyholder – you may occupy a leased premises, which would be insured by your landlord.
The insurance provided is limited by time, referred to as the Indemnity Period, as well as by a monetary amount (Sum Insured). The period begins on the day of the incident and ends when the business has made a full recovery or on the expiry of the Indemnity Period, whichever occurs first.
So, what can be covered/paid?
This covers the loss of gross profit following a reduction in your turnover and any increased costs of working.
It is best suited for businesses with a sizeable volume of uninsured working expenses (directly variable costs; whereby a high element of turnover comprises of expenses that vary in direct proportion to it). Manufacturing risks commonly choose this method of BI cover. If a manufacturer ceases to trade or has to reduce its output, the number of purchases used will vary in direct proportion.
At Aston Lark, we have a Business Interruption calculator available to assist in the calculation of your Gross Profit sum insured.
This form of BI insurance, covers the total turnover of the Business, without any deductions (except for any savings made as a result of the loss).
Most businesses within the service industry (accountants/solicitors/ office risks) are insured on this basis because the majority of their costs are staff and IT-related – there is little to specify by way of variable costs that are to be deducted. No deduction is to be made for staff layoffs as, more often than not, wages would continue to be paid in the event of a loss.
Thought must be given to the length of the Indemnity Period as some businesses will take longer to recover than others.
Standalone Increased Costs of Working
Increased Costs arising following a serious incident, which the policyholder will need to incur to mitigate the effects of the loss.
Examples of increased costs are:
- Overtime costs
- Rental of alternative accommodation
- Cost of advertising “Business as Normal”
- Additional travel, transport and expenses costs
This cover is automatically included and incorporated into either your Gross Profit or Gross Revenue limit of liability but you may wish to have this cover solely on its own without Gross Profit or Gross Revenue cover. This should only be purchased when the policyholder is certain a loss of profit or revenue from an interruption will not arise but when they do anticipate a degree of increased costs. Often this relates to vast office-type businesses with a good spread of operation across many locations or with staff who can easily set up from home in the event of a loss.
For further information on the options of Business Interruption cover, please contact your Aston Lark dedicated account handler or call 0207 543 2807.