How Long Should The Maximum Indemnity Period on a Business Interruption Policy Be?

Many years ago a fire ripped through an arcade in the centre of a country town in Victoria Australia destroying businesses operated by several retailers. The concentration of risk proved to be a problem. Nearby vacancies were immediately swamped by distraught tenants endeavouring to re-establish their businesses. It was a case of first in best dressed and many tenants could not find an alternative location to trade. They had no option but to wait until the arcade was rebuilt, a lengthy process. In many instances the maximum indemnity period selected on their Business Interruption Policy was too short.

This claims experience highlights the need for an adequate indemnity period. Policyholder’s need a longer rather than a shorter indemnity period if: -

• They are a tenant as they may have no control over building reinstatement.
• The building they occupy is classified or located in a heritage area.
• They are in a competitive industry as it may take some time before lost market share can be recouped.
• Plant is custom made or can only be replaced from overseas involving long lead times.
• Staff are highly skilled and mobile. They may leave and may be difficult to replace.

These are just some of the factors which need to be considered. It usually takes longer for sales to return to normal than expected.

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Published with permission of Claim Solutions Pty Ltd.

Insurance Policy

Policy Description: - Mark IV Industrial Special Risks (ISR) and many Fire policies.

Insurer: - Various.

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