As a business have you heard of business interruption insurance or know what cover it provides? If not, you are not alone. It is thought that as many as 40% of businesses lack adequate business interruption cover.
Yet business interruption cover can be vital in helping your business survive the effects of a disaster, particularly in a time when finances can be stretched.
What is business interruption insurance?
Business interruption insurance is an insurance product designed to cover loss of income or revenue that a business may suffer if they have to shut for an extended period of time due to an insured disaster event.
The aim of business interruption insurance is to enable a business to return to the same trading position as before the disaster occurred.
What types of events can business interruption insurance provide cover for?
Business interruption insurance will typically provide cover for these types of disaster event:
- Flooding
- Fire
- Theft
As always, check your policy wording to be sure of the cover that you have or are purchasing.
Are there any limitations to business interruption cover?
All policies will vary with regard to the cover that they provide. But typically, business interruption insurance may exclude acts of terrorism.
Yet acts of terrorism can have a profound effect on businesses in the way of non-damage related business interruption. That is, despite no damage to business premises, businesses may be unable to trade due to their business being behind a police cordon for days, weeks or months, or a facing a reduction in attraction resulting in reduced footfall.
This is a significant area which small businesses mustn’t overlook and may mean you also need to think about investing in terrorism protection.
How to get the right amount of business interruption insurance
Getting the right amount of cover is very important when it comes to business interruption insurance. According to Zurich, one of our insurance partners, the two key factors to look at when calculating how much business interruption cover you need are:
Income levels – You must have a robust understanding of your business income levels. And how to calculate gross profit in terms of insurance (read this useful guide from Zurich). You must also adjust your income levels for future expected trends. For example, if you are investing in your business and expect to grow your income then you will need to factor this into your calculation.
Having a full understanding of these factors can enable you to correctly set your sum insured values on your policy.
The maximum indemnity period – Many business interruption policies require you to define how long you want the cover you are purchasing to pay out for. For example, you could set this at 24 months.
Yet many businesses underestimate how long it will take them to recover from a disaster event.
And there are many factors which can cause delays – delays in gaining planning permission if rebuilding is required, unavailability of machinery or parts, supply chain issues and getting back customers and suppliers can all take longer than expected and potentially cause issues.
In a case of underestimating how long it will take you to recover back to pre-disaster levels and therefore how long you need your lost income to be covered for, you may find that your policy ends before you are back up and running. Even if you have not used up your full sum insured.
Getting either your sum insured, or indemnity period wrong can mean you find yourself in a position of underinsurance. Read our blog on underinsurance and how to avoid it.
Is business Interruption insurance right for your business?
Of course, no one wants to think of the worst happening to their business. But it can and does happen. And being prepared is the best way to protect your business.
Business interruption insurance isn’t a legal obligation in the way that some other insurance covers are so it will be up to your business as to whether or not you take it out.
Yet loss of income due to business interruption can be devastating to businesses of all types and sizes. And it can affect not only your business but your employees and customers.
So, if you are business owner then it is likely that business interruption insurance should be on your radar – you never know when disaster will strike.
At Anthony Jones we work in partnership with Zurich to provide a business interruption calculation which is aimed at helping businesses to avoid underinsurance. The calculator can give a guide to the level of insurance that you may require by looking at business accounting and operational factors that need to be included in your business interruption insurance calculation. If you have any questions or would like to chat to us about business interruption insurance email us at bi@anthonyjones.com or call us on 020 290 9080.
