Revealed: The Leading Causes of Underinsurance and How to Fix It

No matter how bright the future looks for your business, you never know when disaster will strike. Whether it be a flood or destructive building fire, it is vital to have proper insurance policies to protect your business from any interruptions—especially if you are a SME with minimal financial flexibility. As a result, many businesses purchase business interruption (BI) policies for peace of mind in the event of unexpected disaster.

However, what happens when your BI policy fails to cover the entirety of your company’s financial loss? Unfortunately, this scenario is a common occurrence for businesses across the UK. The Chartered Institute of Loss Adjusters (CILA) found in recent research that 43 per cent of BI policies are underinsured by an average of 53 per cent. The following list contains the leading causes for BI underinsurance, as well as tips to remedy the problem:

  • Insufficient indemnity periods—Approximately 75 per cent of BI policies have an indemnity period of 12 months, according to industry research. However, one year is usually an unrealistic expectation for a business to have fully recovered after a disaster. To combat this issue, be sure to calculate and set a realistic indemnity period that gives your business an appropriate time span to reach financial stability. This period typically falls between 18 and 24 months.
  • Inadequate sums insured for BI policies—Often, inadequate insurance sums for BI policies stem from outdated, roughly estimated or altogether incorrect valuations on commercial properties. It is important that you think about rebuild costs when calculating your BI policy. In addition, complete an annual review of your policy with your broker to ensure the accuracy of your valuation as your business (and your property) develops and changes throughout the years.
  • Failure to include wages in the gross profit calculation—In the CILA survey, 2 out of 5 respondents listed inconsistent definitions of gross profit as the primary cause of BI underinsurance. The average definition tends to exclude staff wages and utility costs, while for insurance purposes, those are crucial to calculating an appropriate gross profit. Make sure your gross profit calculation is accurate by including staff and utility costs.

Contact Direct Insurance Corporate Risks at 01277 844 360 (Head Office), 01905 675 780 (Midlands Office) & 01260 547 030 (Northern Office) today to request your technical review and to make sure that your business can survive an interruption.

visit: www.dicr.co.uk

Business Interruption Insurance, do you have enough cover?

If a fire causes your facility to be temporarily unusable, what would you do next? Would your business be able to pay utilities, wages or any other standing charges without any income? It could take months before the damaged property is rebuilt and the stock, machinery and equipment are repaired or replaced. Ideally, you would move to a temporary location while your permanent place of business is being repaired. Yet, traditional Property Insurance does not cover this move or a loss of income when a business must temporarily close. With Business Interruption Insurance, this setback can be minimised by simply adding this cover to your Property Insurance policy.

What can be included in a Business Interruption Policy?

  • Compensation for lost income if has to vacate its premises as a result of disaster-related damage covered under a Property Insurance policy.
  • Compensation for the gross profits that would have been earned based on previous financial records, had the major loss/peril not occurred.
  • Covers operating expenses, such as utilities, that must be paid even though business temporarily ceased.
  • Covers the increased cost of working, including expenses of operating in a temporary location while repairs to the permanent location are completed.

Considerations for Business Interruption Insurance

  • Business interruption insurance cannot be purchased on its own—it must be added to an existing insurance policy, such as property or office insurance.
  • Purchasers must also determine that the policy’s maximum indemnity period is sufficient to cover the amount of time it will take for the business to recover following a major loss. This includes considering the worst damage or disaster that the business could incur, estimating how long it will take to repair or replace buildings, machinery and stock, and determining the length of time it will take to recover customers and market share. Typical maximum indemnity periods range from 12 months to 36 months, in 6 month increments.
  • Price of cover depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis.

Insurance experts estimate that Business Interruption Insurance is one of the most, if not the most, valuable cover available. Yet, it is often overlooked by business owners. Since Property Insurance only covers the cost of physical loss or damage and contents of a business in the event of a disaster, Business Interruption cover is invaluable in covering the loss of income while the permanent business location is being repaired. Contact Direct Insurance Corporate Risks at 01277 844 360 (Head Office), 01905 675 780 (Midlands Office) & 01260 547 030 (Northern Office) today to learn about our business continuity resources and to make sure that your business can survive an interruption.

website: www.dicr.co.uk

What is Business Interruption Insurance?

If a fire causes the facility to be temporarily unusable, what would you do next? Would your business be able to pay utilities, wages or any other standing charges without any income? It could take months before the damaged property is rebuilt and the stock, machinery and equipment are repaired or replaced. Ideally, you would move to a temporary location while your permanent place of business is being repaired. Yet, traditional Property Insurance does not cover this move or a loss of income when a business must temporarily close. With Business Interruption Insurance, this setback can be minimised by simply adding this cover to your Property Insurance policy.

What can be included in a Business Interruption Policy?
• Compensation for lost income if you have to vacate the premises as a result of disaster-related damage covered under a Property Insurance policy.
• Compensation for the gross profits that would have been earned based on previous financial records, had the major loss/peril not occurred.
• Covers operating expenses, such as utilities, that must be paid even though business temporarily ceased.
• Covers the increased cost of working, including expenses of operating in a temporary location while repairs to the permanent location are completed.

Considerations for Business Interruption Insurance
• Business interruption insurance cannot be purchased on its own—it must be added to an existing insurance policy, such as property or office insurance.
• Purchasers must also determine that the policy’s maximum indemnity period is sufficient to cover the amount of time it will take for the business to recover following a major loss. This includes considering the worst damage or disaster that the business could incur, estimating how long it will take to repair or replace buildings, machinery and stock, and determining the length of time it will take to recover customers and market share. Typical maximum indemnity periods range from 12 months to 36 months, in 6 month increments.
• Price of cover depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis.

Insurance experts estimate that Business Interruption Insurance is one of the most, if not the most, valuable cover available. Yet, it is often overlooked by business owners. Since Property Insurance only covers the cost of physical loss or damage and contents of a business in the event of a disaster, Business Interruption cover is invaluable in covering the loss of income while the permanent business location is being repaired.

Contact Direct Insurance Group at 01277 844 360 today to learn about our business continuity resources and to make sure that your business can survive an interruption.