Adequacy of Sums Insured and Indemnity Periods

The focus of the Business Interruption section of our All Risk policy’s are to ensure that should you incur an interruption to your trading patterns caused by an insured peril that you can be suitably reimbursed for your lost income or profits until you are in the same trading position you enjoyed prior to the loss occurring.

One of the most common causes of underinsurance in respect of Business Interruption insurance is an inadequate Indemnity Period (The period beginning with the occurrence of the Damage/Loss and ending when the results of the Business Interruption shall cease to be affected by the Damage/Loss but not exceeding the Maximum Indemnity Period being the number of months stated in the Schedule).

Twelve Months is often considered by customers to be an acceptable period, within which time the business will be back to the same trading position it enjoyed prior to the loss/damage occurring. However this is not always the case and it should not be taken as adequate without serious consideration being given to all the factors that would affect the recovery period.
Whilst not exhaustive, the following should be considered when selecting the period that is adequate for your business, all of which may have an impact on the time recovery will take:-

  • Forensic investigations by insurers and local authorities.
  • Demolition of remaining existing structures/ buildings and site clearance.
  • Re-design, preparation of plans and time taken for approval by relevant authorities.
  • Tenders for rebuilding and awarding of contracts and the re-building itself.
  • Seasonal fluctuations in the business.
  • Re-capture of lost business.

A worst case scenario should always be considered when selecting the indemnity period.

In addition it is also important to ensure that the Gross Profit sums insured used by the underwriters to formulate your premium and cover are based on the calculations set out in the policy wording. This can vary between insurance company’s but is will invariably be Turnover – Fixed Cost &/or Specified Working Expenses and as such this may be somewhat higher than the standard Gross Profit figure calculated in your management accounts. The figure chosen should reflect future projections for the business and a loss occurring on the last day of the 12 months period of insurance.

Our leisure focused policy’s offer not only cover for a loss following damage to your property but can also be extended to include interruptions to your business caused by damage to your neighbours, suppliers, utility providers or sometimes simply because of the actions by the police in the interest of the greater public safety. Furthermore our policy can also include Increased Costs of Working cover to offer you assistance in making additional and immediate expenditure in the interests of re-establishing the business more swiftly and effectively – for example a new marketing campaign to coincide with the re-opening of your site.

At NDML we will be assisting our new and existing client’s to better tailor their insurance package cover to ensure it fits their specific needs. In the meantime however if you wish to discuss any aspect of your insurance cover then please do not hesitate to contact us.