On the face of it, your Business Interruption cover is simple – if you can’t trade as a result of damage, your insurance policy will protect you against the loss of income or profit (subject, of course, to the conditions and exclusions of your insurer!). The policy will indemnify you until your business is back in the same position it was in before you stopped trading up to the limit of indemnity, but also up to the agreed time period.
Most policies offer this cover for 12 months as standard. As soon as you hit 12 months, the insurers stop paying, regardless of whether you hit your agreed limit of indemnity or not. What many people don’t consider when thinking about their indemnity period is the length of time it can take to rebuild the business before they can even start trading again.
One of the clearest examples of this is the machinery a business may be wholly dependent on in order to trade. There are all sorts of questions you need to ask yourself to make sure your indemnity period is adequate:
- How long will it take for the machine to be commissioned and built?
- Is your machine custom-built? If so, will it take longer than a ‘standard’ machine?
- How easy is it to get hold of spares?
- How long will it take for the machine parts to arrive?
- How long will it take for the machine to be tested and get up and running once it’s all in place?
All of this affects how long it will be before you can begin trading again. I’ve heard of lead times for heavy machinery of up to nine months, and I’m positive there are pieces of kit out there that might even take longer. This isn’t just for machines, either. This can apply to rebuilding your premises, modified vehicles, even getting new tenants for a rented property; anything you need before you can start earning again.
It’s not only the lead time on machinery or rebuilding that might cause you an issue – how long it takes to get your market share back also needs consideration. Customers need to carry on trading too, and are likely to find (and probably stick with) alternate suppliers while you get back on your feet – and many might not come back. It can take months to get the business back to where it was before the loss, and all the while you’re building the business back up, that indemnity period is ticking down.
This all adds up to suggest that that 12 month period of indemnity might not be enough to fully protect your business. Fortunately insurers are often more than happy to offer 18, 24 or even 36 month indemnity periods, and it may be worth your time considering whether that indemnity period truly is long enough.
If you would like to talk to us about your Business Interruption Cover or you would like to put a policy in place, please contact us on 01302 341344.
By Sam Harby