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  • The ins and outs of business interruption insurance

    bbusiness interruption insurance

    As a part of your commercial insurance, business interruption insurance is a key component of any business continuity plan. Whilst your standard commercial insurance will cover you for your premises and contents should disaster strike, business interruption insurance is there to cover your loss of income suffered during the period it takes to get you back up and running.

    Making sure your business is insured against the financial impact of interruption resulting from damage to property or even supplier’s premises is essential to ensure your business can re-open following disaster. As many as 40% of businesses are unable to re-open as a result of underinsurance and miscalculated business interruption insurance.

    Without the correct insurance in place an event that starts with business interruption will often lead to business termination so even when you have business interruption insurance in place, it’s important to calculate it correctly. In fact 40% of declarations are deemed too low, by as much as 45%!

    What events does business interruption insurance deal with?

    Business interruption claims can be triggered from natural disasters, such as floods, earthquakes, hurricanes, fires or manmade events such as terrorism, theft, and even breakdown of business reliant machinery or cyberattacks on computers that are critical to services.  

    Why you need business interruption insurance

    Business interruption insurance can often lead to the largest and most complex of insurance claims. In many cases a flood claim will actually involve a burst pipe or water tank, but will cause as much damage as a natural flood and won’t be anticipated.

    Business interruption as a result will cause lost revenue, and you may also lose irreplaceable staff and customers in the process. Even the most loyal of customers will look towards alternative suppliers when your services are unavailable and the resulting loss in revenue can be devastating to a business.

    Business interruption insurance explained

    In the event of some form of material damage or event that disrupts your business, business interruption insurance will cover your lost revenue for a set period of time, providing your contents and property are also insured against the same event. Business interruption insurance will help you to continue to survive as a business whilst you get back to a state where you can operate and begin trading once again.

    Contingent business interruption insurance

    Contingent business interruption insurance is an additional consideration that may be required depending on your business circumstances. It is needed for those businesses that may rely heavily on the premises of a supplier or customer, or where the loss of a facility such as utilities would cause business interruption.

    The property damage to these suppliers or receivers must be of a type that would be covered by the insured’s policy. Such industries likely to need to consider contingent business interruption insurance may include agriculture, mining, port operators, logistics and rail companies.

    Calculating your business interruption insurance

    When calculating your business interruption insurance it is important to get your gross profit calculation correct as well as the period of indemnity. Whilst doing this you should consider any anticipated growth or costs that may vary as well as time constraints such as demolition and site clearance of buildings, re-design, planning permission, reconstruction, equipment or machinery replacement, stock replacement and the restoration of your supplier and customer base.

    Making a business interruption claim

    Many insurers may exclude the first few days following a disaster from calculations, so you need to bare this in mind. It is important to consider keeping electronic copies of documents off-site to help with your business interruption claim. Proving your losses will be more difficult without these.

    Business interruption claims often involve many different parties including loss adjusters, accountants and lawyers, so it is important to have everything expertly project managed. Working with an experienced broker to make sure policy wording, extensions and limits are correct is key. Here at Bluedrop our experienced advisors can help by working with you to help get your business up and running as quickly as possible.

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