Business Interruption insurance: Where it could go wrong

(In the previous article, we focused on the key elements of business interruption (BI) insurance, namely calculating your indemnity period and gross profit. Now in the 6th blog of this series, we take a look at some of the pitfalls.)

It’s easy to fall into the false sense of security that by simply having BI cover, your business will recover if an insured event should occur. But if the proper processes are not followed or you are not adequately covered, things could go wrong very quickly.

Let’s take a look at some of the pitfalls:

Previously in this series of articles, we looked at the importance of the following components of BI insurance:

• Period of indemnity.
• Calculating the correct GP sum insured.
• Average.
• The effects of VAT on the sum insured as a consequence of financial statements being exclusive of VAT.

The above aspects are extremely important and are usually the first elements of cover to go wrong.

These aspects of cover form the basis for BI insurance. However, the story only begins at this point. So far in this series, we have assumed that the insured event has occurred on your own premises. But what happens when the insured event occurs on someone else’s premises, and your business suffers a loss of income, for instance, at a customer’s, supplier’s or utility provider’s premises?

This is where BI insurance can go wrong and you may have overlooked this aspect of insurance protection.

The questions to be answered are:

• What is the impact on my business if my top customer stops purchasing my goods or services for an extended period?
• What is the impact on my business if I am unable to purchase goods or services from my top supplier for an extended period?
• What is the impact on my business should my supply of utilities (water, electricity, gas or telecommunications) be interrupted for an extended period of time?
• What is the likelihood that I would not be able to access my premises due to road/s being damaged?

If your business would be severely impacted by one or all of the above, seek urgent assistance from your brokers.

A word of caution: A BI insured event is hopefully a once-in-a-lifetime event, so be properly prepared and ensure the longevity and financial stability of your business.

By Peter Olyott, CEO of Indwe Risk Services. This article is the 6th in a series to unpack BI insurance.

(In the previous article, we focused on the key elements of business interruption (BI) insurance, namely calculating your indemnity period and gross profit. Now in the 6th blog of this series, we take a look at some of the pitfalls.)

It’s easy to fall into the false sense of security that by simply having BI cover, your business will recover if an insured event should occur. But if the proper processes are not followed or you are not adequately covered, things could go wrong very quickly.

Let’s take a look at some of the pitfalls:

Previously in this series of articles, we looked at the importance of the following components of BI insurance:

• Period of indemnity.
• Calculating the correct GP sum insured.
• Average.
• The effects of VAT on the sum insured as a consequence of financial statements being exclusive of VAT.

The above aspects are extremely important and are usually the first elements of cover to go wrong.

These aspects of cover form the basis for BI insurance. However, the story only begins at this point. So far in this series, we have assumed that the insured event has occurred on your own premises. But what happens when the insured event occurs on someone else’s premises, and your business suffers a loss of income, for instance, at a customer’s, supplier’s or utility provider’s premises?

This is where BI insurance can go wrong and you may have overlooked this aspect of insurance protection.

The questions to be answered are:

• What is the impact on my business if my top customer stops purchasing my goods or services for an extended period?
• What is the impact on my business if I am unable to purchase goods or services from my top supplier for an extended period?
• What is the impact on my business should my supply of utilities (water, electricity, gas or telecommunications) be interrupted for an extended period of time?
• What is the likelihood that I would not be able to access my premises due to road/s being damaged?

If your business would be severely impacted by one or all of the above, seek urgent assistance from your brokers.

A word of caution: A BI insured event is hopefully a once-in-a-lifetime event, so be properly prepared and ensure the longevity and financial stability of your business.

By Peter Olyott, CEO of Indwe Risk Services. This article is the 6th in a series to unpack BI insurance.