Whilst discussing different ‘covers’ with clients, we find that many always question what Business Interruption covers and whether they should take it out. The short answer to this query is “Yes!”
You should definitely obtain this cover. Business Interruption is one of the key covers that will allow a business to continue should they face a major loss. Most will have cover for their buildings and contents, which will be reinstated upon the event of a loss, however no cover will be given for any consequential financial loses which could occur over a long-term interruption in trading. For many businesses, an event that starts with a business interruption can often lead to a business failure.
Major scenarios that could impact on a business being able to trade could involve fire or flood. Without Business Interruption, a company would struggle to survive after a serious incident. Not only is a cash injection required to enable the business to trade, but there could also be a loss of turnover due to contracts that are unable to be fulfilled. On top of this, your customers may start to look elsewhere which in turn will lead to cashflow problems, followed by having to make staff redundant. Ultimately this would eventually lead to company failure.
It could be argued that not all companies require this type of cover. For example, a business that primarily operates from an office, such as a law firm for example, that suffers a fire could be up and running again in a few days from a serviced office and no interruption would be experienced. However, if a company carries a lot of stock or has substantial machinery to be able to operate, an injection of cash would be required to allow the company to continue to trade.
One final point to note is that all Business Interruption covers are subject to a material damage proviso. This means that cover will only respond if damage has occurred at the premises after an insured peril. For example, if a fire took place and the contents and buildings needed reinstating, the Business Interruption would respond to provide cover for the financial losses that are a direct consequence of the interruption, such as loss of revenue, loss of rental income and additional staff costs. Should an interruption occur but there has been no physical damage, some policies will not respond. Other policies can include non-damage extensions. A situation could arise where an incident occurs in the vicinity of the business premises, but no actual damage takes place, however the company still suffers an interruption loss. To get round this, a Denial of Access extension would be required. This is one of many such extensions that could be considered.
As you can see, Business Interruption can be difficult to navigate and understand and so the use of a broker is advised to ensure that the right cover is obtained.
If you have any queries about this, ProAktive can help to ensure the relevant protection is put in place for you.
By Peter Ryder ACII – Account Executive