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Are You Properly Insured for Business Interruption?

26th May 2017


The life blood of any business is what it produces and sells, after all this is how income is derived.  Therefore, it can only be logical to consider insurance protection for assets, goods and products.

Irrespective of whether or not the business is making a profit without the benefit of the anticipated income from the products or goods being sold, the business could be at a severe financial risk.

If an expected level of income is not reached, the continuing overheads and expenses will place an ever increasing burden on the financial capacity of the business which an overdraft or any savings are incapable of meeting.

Most businesses will insure their physical assets, such as buildings, livestock and machinery as well as Employers and Public Liability insurance but do not fully consider the financial impact on their business following an insured loss like a fire.  Business Interruption insurance provides cover for the lost income during periods when the enterprise cannot operate as normal, following an unexpected insured incident.  In essence Business Interruption covers your trading position and revenue.

If, for example a milking parlour was destroyed by a fire, the Insurers would finance the reinstatement of the building and dairy equipment. However with no business interruption cover in force, the income derived from the use of the building and its’ dairy operation will not covered. Clearly this would have a significant impact on the businesses’ trading position.

It is important therefore to carefully consider the financial impact on the businesses’ balance sheet of an event causing damage to the physical assets of the business.  If the claim for the material assets is significant enough, it could well impact both the current and future years trading. It is thus vital to select an appropriate period where Business Interruption needs to operate, known as the ‘indemnity period’.  Typically this would be 12 or 24 months.

‘It’s all about getting the business back on its feet as soon as possible and ensuring that the it returns back to the trading position it enjoyed immediately prior to the insured loss’ says Ryan Roberts, Associate Director, H&H Insurance Brokers Ltd.

When reviewing your insurance cover be sure to see if you currently have Business Interruption cover and if you do check the sum insured and the indemnity period.  Think about ‘what if’ and consider the impact of a large claim at your premises and take into account the following:

  • Profits that would have been earned
  • Fixed costs, such as operating expenses that would still be incurred by the business
  • Temporary re-location to cover the extra expenses for moving or operating from another location
  • Commissioning and training for the operators of the machinery replaced
  • Reasonable expenses (beyond the fixed costs) that allow the business to continue to operate
  • Possible delays due to lengthy planning applications to reinstate working buildings, the availability of replacement equipment etc.

It is important to review your cover at least once a year and ensure that you are sufficiently protected.  According to research undertaken on behalf of the British Insurance Brokers Association (BIBA)* 40% of businesses do not have sufficient business interruption cover to get them back on their feet.  That is a disturbingly high figure and something to bear in mind when reviewing your current policy.

If you would like a review of your current policy or would just appreciate some advice, please give us a call on 01228 406290 or email Ryan with your enquiry.

*source –BIBA – Building Cost Information Service 2012