Business interruption provides cover for the loss of profit or loss of revenue following damage or disruption to business premises. This can also include the supply chain that prevents a business from trading normally or prevents trading altogether.
Matt Price Broking Director at Ascend Broking Group explains why it is important to understand what an indemnity period is.
An indemnity period is the maximum period of time during which you think the profit/revenue of the business could be affected by any type of loss.
The usual minimum and most common period is 12 months, but the question is whether 12 months is ever enough to provide real protection? Don’t forget this isn’t just the length of time it might take to rebuild a burnt out factory. It includes the total time during which you think profit/revenue might take to get back to the same level being achieved before the loss.
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There are a number of factors that must be considered when taking out business interruption cover and assessing an appropriate indemnity period.
– A tried and tested business continuity plan is vital.
– Are you likely to still have to pay suppliers or honour other contractual commitments even though you are not generating income?
– Staff inclination and ability to work overtime or at a different site.
– Availability of replacement machinery and equipment.
– Planning restrictions.
– Is there spare room on site or will you need to relocate?
– Will options be restricted due to the nature of the business and locations available?
– If you own the buildings, there are factors to consider How is its construction going to impact on the indemnity period?
– Asbestos removal if present.
– Obsolete/old construction.
– Construction methods.
– Listed buildings.
– Access to site for plant and machinery.
– Local authority approved.
If you are a tenant you may have lack of control over building repairs. Presumption of landlord cooperation (the courts have allowed landlords long periods of time to decide what they are going to do). Impact of landlord underinsurance. Pre incident relationship with landlord.
– Plant and machinery » Is it the only one. » Lead time. » Ease of removal/access.
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Plan for worst-case scenarios
Don’t forget that if you double the indemnity period from 12 to 24 months you need to double the amount you wish to insure, taking into account of any trends. If you don’t, you will only be insured for half what you should be and average will apply. You must account for worst-case scenarios. This includes taking into account a vast range of circumstances that can add significant time to a customer’s recovery, for example
Thinking and decision time
Making planning enquiries and applications
Dealing with residents’ objections to planning applications and demolition and site debris removal delays
Meeting strict listed-building requirements
Delayed planning decisions, or additional requirements added
Long lead times for replacing plant, machinery and other essential property
Discovery of hazardous materials, such as asbestos
Potential Health and Safety Executive (HSE) inquiries or proceedings
Recruiting and retraining staff
Seasonality – a loss may cause a business to miss important trading periods
Difficulty in winning back lost customers and opportunities.
This is just a brief overview. Time and time again we come across incorrect policy coverage which would in some cases prove fatal for a business at a time of loss. We are providing all clients with a free business interruption risk assessment. Please contact us should you wish to discuss your requirements in more depth and find out how we can help you with this and other matters.
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Ascend Broking Group Ltd
Redwing House, Colchester Road, Chelmsford, Essex, CM2 5PB
Tel: 01245 449062 |