Why Business Interuption Insurance is an essential part of any business...

Business Interruption is also known as "Loss of Profits Insurance" or "Consequential Loss Insurance".

Whatever the title, business interuption insurance, is a valuable means of protecting your business.

In the event of physical loss or damage, apart from the loss or destruction of assets, a business can face another serious problem — resultant interruption of trading activities, accompanied by reduction in cash flow.

Other problems can include:

• loss of profit margin on stock destroyed
  
  
• dislocation of most general business activities
  
  
• non-fulfillment of outstanding orders
  
  
• breaking of contracts
  
  
• loss of customers to competitors
  
  
• certain expenses continue, for example, rent, payroll, interest
  
  
• additional expenditure in order to minimize loss of income and customers, like rental of temporary operating premises, or working additional shifts
  
  
• ongoing inability of the business to attract customers
  
  
• reduction in net profit — possibly net loss; Obviously, the longer the period of interruption to the business, the greater the strain on financial resources.
  
  
• claim preparation costs
  

What’s different about it?

Without Business Interruption insurance protection, even a small material loss could cause a significant disruption, resulting in the enforced winding up of a business.

A business therefore usually needs cover for both material damage and business interruption. These insurances provide different sorts of protection.

• loss of or damage to physical property represents
  
  
• loss of capital assets interrupted trading consequent upon loss or damage results in reduction in trading income
  
  
• material loss or damage is sustained on the date of the occurrence
  
  
• loss of income commences on the date of the material damage and continues for a period thereafter.

How Much Cover?

• Business Interruption Insurance is intended to compensate for the effects of the loss by placing your business back in the position it would have been in, if the damage had never occurred.
  
  
• This means that you need in consider not only for how much, but for how long an interruption you need to insure. To work this out, it may be necessary to refer to last year’s accounts plus current budget, then think of a "worst case" scenario.
  
  
• We can help with this, although it may also be desirable to discuss it with your accountant.

Extensions of Cover

• Generally speaking, the policy will cover "Insured Gross Profit", which is calculated by deducting those expenses that vary directly with turnover, from gross sales or revenue. In addition, it reimburses extra costs reasonably incurred in reducing the loss.
  
  
• The basic policy can be extended to cover professional fees incurred in preparing the claim (such as accountant’s fees), or interruption to the business caused by loss or damage at the premises of others (like Customers, Suppliers) or providers of essential supplies (like Gas, Electricity Water).

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