Cash flow and profit is vital to business. If property such as buildings, contents or stock are destroyed a business may sustain a total or partial interruption to trade. This often results in a Reduction in Sales. It is from these sales the business pays wages, workcover, superannuation, rent, rates, taxes, advertising, etc. It is also from these sales the business earns its’ net profit and makes distributions to owners. If sales are reduced the company will be unable to fully fund ongoing costs and earn its normal level of net profit. A Business Interruption policy is designed to restore net profit and fund the ongoing charges as if the damage to property did not occur.
A Business Interruption policy may also respond as a result of damage to property which prevents access to the premises. For example many businesses in country Victoria did not sustain property damage as a result of the bushfires in February 2009 yet sales reduced because access to the business was hindered. Cover can also be taken out to respond to the Business Interruption which flows from damage at a customers or suppliers premises.
For a business to survive an insured event such as a fire, storm, water damage, etc it is important a loss minimisation strategy be implemented. This costs money. A Business Interruption policy responds to the extra costs incurred to minimise the loss e.g. costs to relocate to a temporary premises while the permanent premises are reinstated, additional rent, legal costs associated with setting up an additional lease, extra marketing and, the cost to hire temporary equipment and advertising costs to inform customers when business resumes, etc.
An insured event places considerable time pressures on an insured. Time is required to liaise with investigators, loss adjusters, insurers, builders, etc. Time is required to collate documentation and substantiate a claim. A Business Interruption policy allows a business to insure Claim Preparation Costs. This allows a business to appoint Claim Solutions to assist with the preparation of the claim and it covers the associated cost.
If a business does not insure the Business Interruption risk and a loss is sustained it may be unable to:-
• Meet ongoing fixed costs.
• Earn its expected Net Profit.
• Make expected distributions to owners.
• Fund loss minimisation measures.
• Fund the appointment of a specialist to assist.
The Business Interruption risk is an integral component of an insurance portfolio. If this risk is not insured the lack of cash flow may prevent a business from reinstating promptly. Customers may make alternate arrangements while the business is unable to supply. Without customers the business may become unviable.
The importance of Business Interruption Insurance cannot be overemphasised.
Author
Claim Solutions Pty Ltd
Insurance Policy
Country: - Various
Policy Description: - Industrial Special Risks, Business Interruption, Loss of Profit.
Insurer: - Various
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