One of the biggest challenges facing the insurance industry is the disastrous effects of businesses not having adequate business interruption insurance and an up to date Business Continuity Plan.
Interruption Insurance, also known as BI is one of the most important classes of insurance any business can buy. The most common queries we get from clients in relation to BI are, what exactly is it; and in practice how does a claim get calculated and settled?
We call it “life insurance for your business” and provide a greater insight into a lesser understood area of insurance.
In practice, if a business or organisation suffers disruption caused by an insured event, that affects cash flow and/or profitability, BI steps in to protect the organisation by continuing to pay the net profit, plus all the on-going fixed expenses which can include but are not limited to the following:
- Financial costs such as lease payments, hire purchase and mortgage repayments
- Pay-Roll costs including on costs such as WorkCover, PAYE, payroll tax and superannuation contributions
- Rent and other fixed outgoings
- Insurance – keyman, income protection, life insurance and general insurance policies like this one
- Utilities such as gas, electricity, communications and water charges
- All other expenses of the business that will continue during the period of disruption
Fundamentally, the principle behind BI is to put the business back into the position (or as near as will allow) that would have been enjoyed had the loss or disruption not occurred. The policy responds by covering the cost of outgoing expenses to the business, plus any “increased costs” the business incurs as a direct result of the disruption.
At McKenzie Ross, we consider BI cover a vital class necessary to protect all businesses. The statistics for businesses who do not buy BI or who do not update their BI speak for themselves. A reported 80% enter administration within 12 months of a major loss.
McKenzie Ross can provide sound advice on how best to tailor Business Interruption to your business and your requirements. We are happy to provide advice and insights on the adequacy of indemnity periods, pay-roll covers, customer dependencies and increased costs to maintain revenue.