The indemnity period is the period which the insurance policy will provide cover for disruption to your business. It not only covers the period which it takes to rebuild a damaged building or replace stock etcetera it is the period which you expect the business will take to be back exactly were it was at the time of the loss. This means getting back or replacing any lost customers and/or protection for any ongoing increased costs of working to the business. A good example of this is that under many lease agreements the tenant is bound by the lease to maintain the lease if repairs are started within three months and completed within a time period sometimes 6 other times 9, 12, 18 or even 24 months. There is no use having a short indemnity period if a) you have to incur the costs of moving back into the finished building after the indemnity period has expired or b) you have to pay the lease out.Other things to think about are:
ACCEPTANCE OF THE PROPERTY CLAIM
How long will it take the insurance company to accept your claim in respect of the loss of assets. In respect of a fire claim, this entails a through investigation into cause and in a major loss this process typically takes between 6 and 13 weeks.
Let us assume you cannot occupy the building you usually do. There has been a fire, or perhaps an outbreak of disease. What alternatively premises are available to you? We find in many areas, such as shopping centres, retail shopping strips, country towns that there is a shortage of alternative accommodation available. This is particularly relevant in cases where your business has particular needs. Health department approval for food handling, particular requirements for electricity, gas, lifting, delivery, and storage facilities are just a few examples.
THE CONNECTION OF SERVICES
The connection or reconnection of electricity, gas, telecommunications can be a problem for the original premises or to the premises to which you may relocate, temporarily or permanently, particularly to newer areas.
REMOVAL OF DEBRIS
How long will it take, allowing for the environmental protection authority and work safe rules and regulations to clear the damaged property ready for replacement?
The time frame to obtain council permission to rebuild to current standards sometimes requiring a new planning permit can take several months. This is why most commercial leases now allow the landlord a minimum of three months before they have to start repairs otherwise the lease is at an end. Please check your own lease as part of your planning process.
There is the tender phase of obtaining quotations for the reinstatement of the building, machinery and plant etcetera. It takes time to prepare an adequate scope of works and then evaluate the tenders that are received.
LEAD TIMES ON REPLACEMENT EQUIPMENT
If your business relies on product or machinery that is imported from overseas or is otherwise not immediately available then you need to factor this into your calculations. The more complex the machinery typically the longer the lead time.
FIT OUT, TESTING AND COMMISSIONING
It is one thing to rebuild a building but then it has to be fitted out. Partitions may have to be built, telephone cables laid, computer networks installed etcetera. For some risks this can be many weeks of work.
Similarly, any new equipment needs to be installed, tested and commissioned. What reasonable time is required here.
THE TIME TO RELOCATE BACK INTO YOUR PREMISES
If your business has temporarily relocated after say a fire, you will need to return to your original premises. This can be a time consuming and disruptive period.
WINNING BACK NEW CUSTOMERS
This is the major point that most or many people overlook. Even when all your property is reinstated you are entitled in many jurisdictions, United Kingdom, Australia, New Zealand and the like to continue to claim under an interruption policy until your turnover has returned to normal as has your expense rate. In the United States the policy typically limits this to a nominated period, independent of your indemnity period.
Regardless of the type of insurance, the time taken to win back your customers should be carefully considered when determining what level of indemnity period is required.
It is important that a 3 month cover, i.e. a 3 month indemnity period is not 25% the cost of 12 months. The reason for this is the frequency of short disruptions compared to longer ones. You will find that the cost difference is so small it is better for you to insure for at least 12 months as a minimum.
We strongly suggest you take a longer indemnity period if you feel that 12 months is even the slightest bit “skinny”.