Business Interruption Insurance in the Current Climate

Business Interruption Insurance is designed to cover the shortfall in your revenue in the event of your business needing to close down unexpectedly. Most policies cover situations in which a business may make a claim such as damage to premises from fires or flooding as well as the breakdown of key equipment that you need to operate. 

It’s important to understand that a Business Interruption policy is not a cover all for all instances in which your business may not be able to operate. While fire and flood is generally available on most policies it’s essential to understand what cover does and does not account for. 

A prime example of this is the disruption caused by the Pandemic, which has caused ripples in the insurance sector. While the FCA did recently rule against insurers in the case there is little doubt that events such as COVID-19 will be factored into future business interruption policies and policy holders will need to take even greater care to understand the limits of coverage.

Insurance premiums naturally adapt to trends in the market, generally speaking, the more claims being made will lead to an increase in premiums. While the effects of a global event, such as COVID-19, are still far from certain, it’s not a stretch to suggest the result will be a more volatile market for insured parties. This isn’t necessarily a negative, as those looking for cover will be more incentivised to shop around for cover.

The effects of the FCA ruling will likely trickle down to the end consumer eventually. With more insurers having to payout on backdated claims it would be naive to think there would not be an equal reaction from insurers to account for such costs when offering new policies. One likely effect is a greater range of flexibility being afforded in terms of cover. The fantasy of a BII policy that covers all eventualities will certainly be put to bed. Obviously, this type of coverall policy didn’t exist pre-COVID but insurers will now likely take even more steps to make the limits of protection clearer.

Where does this leave consumers? As a business owner looking for Business Interruption Insurance, in its most basic form there will be two key areas to satisfy. Firstly premium costs, which will likely rise in cost this year. This will certainly cause policy owners to review the market more and consider providers that may have previously not been examined as an option.

Secondly the depth of cover and the limits on potential payouts. Striking a balancing act between a policy’s inherent cost and its value in the event of a payout is tricky. It’s extremely likely in these cases the business owners will consider a brokered solution to BII.

Having a traditional office and contents insurance policy is only one part of the puzzle to keep businesses adequately protected from risks. In the event of a claim, many stakeholders mistakenly believe that the cover provided by Business Interruption Insurance is already inclusive within their policy. Keeping coverage in one policy is not uncommon, so housing multiple levels of protection in one premium is recommended to keep management and excess costs simplified in the event of a claim. However, those taking out policies must fully understand what is and isn’t provided as standard, adding on BII will incur an additional premium cost but in some situations, this type of cover can be the difference between a business staying open and folding.

When taking out cover it’s also important to consider the Business Interruption Indemnity Period you wish to choose. This is the maximum time period that a BII policy would cover for your lost revenue, most commonly 12, 24 or 36 months. In order to decide which is best for you consider: 

– How long would your premises take to be rebuilt if completely destroyed?

– How long could your business survive without any income? 

– How long would you be able to pay your staff and suppliers in the event of your business having to cease operations?

– What lead time would you need to replace your stock and specialist equipment?

If you’re unsure of what sufficient BII coverage looks like for your business then a brokered solution may be for you. This type of protection is not mandatory, and as such without knowledge of the intricacies of the insurance industry, anyone taking out cover without assistance may find themselves with less than stellar protection.

Utilising the skills of a broker you have another person on your side to advise you not only on the best option for your needs but also to help guide you towards the level of coverage you need.