In simplest terms the business interruption policy is designed to put the business back in the same financial position it would have enjoyed but for the loss. It has a carefully thought out formula, that is well tested to achieve this stated aim.
The cover starts from the date of the loss and extends to when the business’s turnover and profit levels are back to where they would have been but for the loss. There is a cap set on this known as the Indemnity Period, which is chosen by the Insured when the cover is taken out and is recorded in months on the Policy Schedule.
The trigger for a claim is damage to insured property caused by an insured peril. Cover however can be extended to cover disruption from a number of sources upon which the business is dependent such as public utilities, customer’s and supplier’s premises, prevention of access, closure by public authority, murder and suicide, and the like. Note covers do vary greatly and you need to ensure that the coverage your clients have met their needs.
The past performance of the business is measured for levels of turnover and insured gross profit and these are adjusted as part of the estimation process to determine what level of turnover and insurable gross profit would have been generated but for the loss. The adjustments made are to take into account the trend of the business and any special circumstances that would have affected the business had the loss not occurred. From this estimate of the turnover that would have been earned but for the loss, is deducted any turnover that was actually generated. This determines the shortfall in turnover.
Additions and subtractions are made to the shortfall in turnover to take account of any savings in expenses the business has made and any additional costs that have been incurred in running the business during the period of disruption that would not normally have been incured.
Extra covers are available for claims preparation to have someone help you with this process. It is strongly recommended to take this cover and to use the services of a Loss Assessor should a loss occur.
Another useful cover is additional increased cost of working which allows additional expenditure to get your business back up and running as fast as possible so that your customers are retained. The difference between additional increased cost of working and standard increased cost of working is that there is no economic test for additional increased cost of working. Normally it is necessary to show that the loss of gross profit avoided by incurring the increased cost is at least as much as the amount of the increased cost. With additional increased cost of working cover there is no economic test although the increased costs still have to be necessary and reasonable. It is important that the maximum indemnity period for additional increased cost of working cover is in line with the maximum indemnity period for the loss of gross profit cover itself.
This is but a short overview of the cover afforded by most business interruption policies. Please continue to explore this site, to learn more about vital of insurance covers.