Claim Solutions
are involved daily in the preparation of claims under Business
Interruption / Consequential Loss / Time Element policies. We
see the problems arising from under insurance. Other assignments
include independent appraisal of disputes and review of Business
Interruption declared values.
Claim Preparation
Section 2
of the Industrial Special Risks Policy responds to Consequential
Loss. This may include: -
(a) Loss of
Gross Profit associated with a Reduction in Turnover.
(b) Loss of Gross Profit associated with a Loss of Payroll.
(c) Increase in Costs of Working.
(d) Savings.
(e) Additional Increase in Costs of Working.
(f) Claim Preparation Costs.
Every policy
has provision for endorsements and extensions. The Consequential
Loss section is no different.
The following
are common endorsements or extensions of Consequential Loss/Business
Interruption cover:
- Accumulated
stocks
- Turnover/Output
alternative
- Departmental
clause
- deferred
indemnity periods
- customers'
and suppliers' premises
- public
utilities
- prevention
of access.
Declared
Value Reviews
Why should
you know the workings of Business Interruption insurance?
If you are
a broker or an insurer you will want to ensure that
a) the cover
has been properly explained to the insured
b) uninsured working expenses have been identified
c) the maximum indemnity period is adequate
d) the schedule is fully completed and policy details correct
e) Other items have been considered such as payroll and other
areas of cover
Business Interruption
is by its nature, an insurance against a future loss and therefore
the Declared Values must be calculated with reference to inflation,
growth of the business, market trends and the length of the Indemnity
Period.
An adequate
Declared Value is the starting point for a well designed Business
Interruption policy.
Why do you insure a business against the possibility of Business
Interruption?
Irrespective
of whether or not the business has an adequate material damage
cover, problems with business interruption sums insured can
severely restrict a firms ability to survive a major loss.
Too many businesses that have suffered a loss for which they
are not insured are quite simply forced out of business. Recent
Insurance Council of Australia figures in this respect indicate
that 70% of businesses which sustain a major loss do not resume
trading.
The Insurance
Council of Australia latest report into underinsurance and
non insurance was issues in October 2002.
It found
that approximately 17% of all registered small businesses
have no insurance and a further 17% are underinsured. Of those
small businesses insured for Building or Contents, 42% do
not insure for Business Interruption. The
financial burden of maintaining fixed costs, incurring costs
in getting the business back up and running, forgoing profits
not earned whilst trading has ceased can be devastating, particularly
in a total loss situation.
A business
is required to meet ongoing cash outflows with no cash inflow.
This can place their ongoing viability in jeopardy.
Of those businesses
that insure for Business Interruption
- 42%
are less than 70% insured
- and
a further 15% are under 90% insured
- therefore
of the 58% of businesses that actually insure building or
contents 57% are underinsured (ICA Report)
It makes good
sense for businesses to have Business Interruption cover from
a risk management or business continuity planning perspective
and to get the cover right before a loss.
