What the Business Interruption policy insures The life blood of a successful business is a healthy cash flow. Products are produced and sold, or services provided; wages and other overheads and expenses paid; profits made. Impede or stop the process, even temporarily and like a plant denied water, or a heart of blood circulation, the business suffers. If the interruption is severe enough it may never recover if there is not sufficient capital to call on during the lack of cash flow.
Business interruption insurance is not a guarantee of prevention and cure of all the calamities that can beset a business, but
it is the means of ensuring that the policyholder will have the security of available money to pay ongoing business expenses, retain trained, experienced key employees, recover any additional expenditure on loss mitigation and to receive payment of the net profit which the business would have earned had the interruption not happened. Basically, the Business interruption insurance policy is a true example (or should be) of an indemnity policy.
Therefore, if insurance is not arranged on the basis of insuring ongoing expenses which are those that cannot be avoided (i.e. 'fixed' costs) as they have to be paid whether the business operates at 10% or 100% capacity, plus the future trading net profit the business would have earned during the interruption, then there will not be an appropriate indemnity. If the policy is not properly arranged to suit the needs of the business, it will prove to be inadequate and will not meet the expectation of the insured when it is required to deliver the product purchased.
Why SME's should take out Business Interruption (BI) Insurance * BI insurance is an essential and important part of any client's insurance program
* BI insurance is more critical to business survival than property or liability insurance protection. Assets insurance alone is inadequate by itself. Financial losses can exceed the value of Material Damage losses. Large financial loss can eventuate from a low value material damage item
* Research of fire losses in Australia shows that 43% of businesses suffering a major fire (not necessarily a total loss) never re-open for business. Despite some form of insurance, 28% fail within 3 years. Only 29% survive.
* Research by ICA revealed that SME's made up 17% of GDP, employed 2,500,000 people, yet 42% had no business interruption insurance. Surprisingly, 17% had no insurance - that is nearly 1 in 6 of SME businesses!
* It is estimated that of those insured, 40% are severely underinsured and 15% significantly underinsured.
* SME's have limited access to financial resources; are likely to be highly geared with directors having given personal guarantees to secure loans making SME's survival vulnerable if not insured adequately.
* Basic concept of BI insurance is simple but arranging cover appropriate to the exposure can be a complex undertaking
* The complexity leads to inadequacies in policy responding to claims
* Problem areas are revealed when a claim arises
Do you have Business Interruption Insurance? Contact us to find out more!!
