Minimising The Financial Impact of Business Interruption
Effective business insurance can consist of a range of elements that protect against a variety of losses. One such loss is financial loss caused by an interruption to your business through property damage. Buildings and Contents Insurance is there to cover the bricks and mortar, but it is not going to help you out with the financial losses your business will inevitably experience should your business premises be damaged by fire or flood. For that you will need Business interruption Insurance.
Business Interruption Explained
Business Interruption used to be known as loss of profits because it refers to the money lost as a result of material loss such as a fire or a flood when a business has been destroyed. It exists to cover the income that a business would have had had the incident not occurred, and in many cases means the difference between staying in business, and not.
Who needs Business Interruption Insurance?
Business Interruption Insurance is for businesses that would experience an inability to trade for a sustained period of time in the event that substantial damage is inflicted on the business’ property or physical assets.
It is businesses that hold a lot of stock or equipment that experience the biggest disruption if the property is damaged, or business where the premises are the business such as a hotel, restaurant or nightclub.
By contrast, a sole trader who works in the digital sector who loses his premises may only require a new laptop and somewhere else to work. Although losing any information or equipment would be inconvenient, it is not likely to have the same financial impact as losing a warehouse full of stock, and potentially losing your existing customers and contracts too.
Ask yourself – if you lost your business premises, would you lose the ability to trade?
What could it cost? *
In the first half of this decade, the impact of Business Interruption has been the top risk that companies have had to face. During this time non-natural hazard events accounted for 88% of losses, with fire and explosions being the biggest cause.
Top causes of business interruption loss by total value – these top 10 causes account for over 90% of Business Interruption losses.
1 Fire and explosion
3 Machinery breakdown
4 Faulty design/material/manufacturing
6 Cast loss (entertainment)
9 Human error/operating error
10 Power interruption
According to AGCS, the average large BI property insurance claim is now in excess of €2m, but this figure depends on the sector. Energy companies for example show an average BI claim cost of almost €4m, whereas the average entertainment BI claim costs are €264,000 – unless top performers are involved in which case this can run into millions!
What you can do to minimise the impact on your business in the event of such disruption
You need to keep on top of your paperwork! The key point is making sure all your business records are in order and up-to-date as it is very tricky being able to prove how much you “should have lost in revenues” if your business is not in order and you can’t provide the required information.
Business interruption claims can be a complex process, even with the help of a loss assessor. For them to negotiate a fair settlement they will need to be able to calculate tangible and intangible losses based on your business forecasts as well as on the previous business year.
If you would like more information about ensuring that your business has the right insurance in place, get in touch with us on 01245 500433.
* Information from data collected by Allianz