Prepare for the unexpected with business interruption insurance

All businesses are vulnerable to unexpected loss or damage from fire, storms and accidents – or

other incidents inside and outside the workplace.

Such events can have tragic consequences and seriously affect viability, unless proprietors have

adequate business interruption insurance.

Business interruption insurance, also known as “business income insurance” or “consequential

loss insurance”, safeguards against the loss of income a business suffers after an insured peril or

event.

This type of insurance protects a business while operations are shut down or restricted due to the

disaster or while facilities are being repaired and rebuilt and very importantly until trading

returns to pre-loss levels.

Property insurance generally covers physical damage to premises and stock but not the losses

incurred while the business is unable to trade for days, weeks or even months.

Business owners are left painfully exposed with no money coming in, while many fixed

expenses continue piling up, including rent, staff wages and ongoing supplier commitments.

There may also be significant loss or damage to plant and equipment and, even more tragically,

injury or loss of skilled staff.

Some of the most common problems experienced as a result of an interruption include:

loss of profit on destroyed stock;

disruption of general business activities;

inability to fulfil standing orders;

breaking of contracts;

loss of customers to competitors;

continuing expenses including rent, payroll and interest;

additional expenditure such as rent for temporary premises or employing additional

shifts;

waiting for replacement or parts for damaged plant and machinery;

inability of the business to attract customers during this period; and

Reduction in net profit – or, possibly, a net loss.

All of these factors affect trading profit by reducing the business income but not necessarily its

costs. Depending on how long trade is affected, it may be impossible for the business to recover.

In addition to protecting the profits that would have been earned during the downtime, business

owners can also be covered for extras such as the rent on temporary premises or the cost of

employing more staff to help clean-up.

The following things are typically covered under a business interruption insurance policy:

gross profits – that would have been earned (based on previous financial statements);

fixed costs – operating expenses and other costs still being incurred (based on historical

costs);

temporary re-location – some policies cover the extra expense of moving to, and

operating from, a temporary site;

extra expenses – reimbursement for reasonable expenses (beyond fixed costs) that allow

the business to continue operating while the property is being repaired; and

Civil authority ingress/egress – government-mandated closure of business premises that

directly causes loss of revenue (examples include forced business shutdown because of

government-issued curfews or road closures).

Insurance cover usually starts from the date of a disaster or event, and continues until the

damaged premises are physically repaired and operations have returned to pre-disaster standards

(known as the indemnity period and is pre-selected by you).

Most policies on the market are not stand-alone but are offered as an add-on and usually

conditional upon a business property insurance product loss or damage claim responding.

While it is impossible to protect yourself from all life’s unknowns, business interruption

insurance provides peace-of-mind.

To find out more about Business interruption insurance, contact us.

The above advice is general advice and has not taken into account your personal circumstances,

be sure to read the appropriate Product Disclosure Statement to ensure the policy meets your

individual circumstances.