How Business Interruption Insurance Protects Your Organisation
Whatever type of organisation you run, insurance should form an integral part of your Plan B. Maintaining the organisation's income and offsetting additional costs incurred by a physical loss is paramount — and that’s where Business Interruption insurance comes in.
What is Business Interruption Insurance?
Business Interruption insurance is often packaged together with Property Insurance. If you have shop or office insurance, you almost certainly have some form of Business Interruption cover.
This insurance provides your organisation with a promise from the insurer to:
Maintain your income following damage to property, or
Cover additional costs incurred as a result of dealing with the loss.
Types of Business Interruption Cover
Business Interruption insurance can cover various aspects of income or costs, including:
Loss of Income
Gross Profit
Loss of Revenue
Loss of Rent
Rent Payable
Business Interruption is always insured on an indemnity basis, meaning the insurer will pay you an amount equivalent to the revenue, profit, or rent you would usually have received.
Example:
If your shop is burnt to the ground, the insurer will reinstate the property, fixtures, and fittings, and provide funds to restock. If your shop usually generates £250,000 a year, Business Interruption cover will pay an equivalent amount of income for the insured period (usually 12 or 24 months).
Avoiding Underinsurance
Sometimes Business Interruption claims aren’t settled simply or fully. A common reason is underinsurance. To avoid this:
Forecast your income for more than the next 12 months.
Assess likely turnover based on previous years’ performance, anticipated growth or contraction, and economic factors.
Overestimating is safer than underestimating.
Choosing the Right Indemnity Period
The Indemnity Period is the length of time your insurer will provide an indemnity.
Example: If it would take more than 12 months to reinstate your business property and recover income, consider insuring for 24 or 36 months.
For charities, revenue may not be affected, so it may be more appropriate to insure for increased costs of working, such as relocating or setting up staff to work from home.
Information Needed to Set Up Cover
As your broker, we will need to know:
Your 12/24/36 month financial forecast
How long it would take to get back to pre-loss trading levels
Additional costs you would incur to relocate or enable remote working
Sources of income and how a loss would affect them
Whether you have a Business Continuity Plan
Need Help or Advice?
Do you currently hold Business Interruption insurance? Or are you thinking about putting this type of cover in place?
If this blog has raised any questions, get in touch with us here.
We specialise in helping organisations arrange commercial (link) and charity (link) insurance policies.
For more information about buying insurance, you can also download our buyers’ guide.
