Business Interruption cover provides protection for the loss of income and increased costs of running your business caused by certain events (such as property damage from storms or fire). To get business interruption you will need to also insure something tangible in the buildings or contents section.
Most small business owners like to prepare for unexpected events by insuring their premises, contents or stock. But have you thought about what would happen if you had to shut your doors for a few days, weeks or even months due to an insurable event, like fire, storm or flood? Ask yourself the following questions to determine if you need Business Interruption:
Your insurance policy will have its own specific list of insured events and exclusions, so it is best to check with your insurer or the policy wording to confirm the details of your Business Interruption insurance policy. Business Interruption insurance requires either Buildings or Contents cover before it can be taken.
Some commonly covered and not covered items include:
There are a few ways to be covered for business interruption:
Loss of profits: This is a business’s expected gross profit for the next 12 months. Loss of profits is the most commonly used form of cover, but does require a formula to be calculated.
Revenue: The expected amount of revenue for the next 12 months.
Businesses generally select a period of time for which they want to be covered. For example, if you expect that it will take your business six months to be operational after your building burns down, you should select six months of cover.
Bi-me offers 3, 6, 9 and 12 months for Business Interruption cover.
Fire
Natural disasters
Insurers will ask you to enter your revenue, gross profit or gross rentals for the next 12 months. To make it easy we will use Matt’s Motors as an example. Matt’s Motors selects business interruption based on gross profit.
Based on past financial information and expected profit over the next 12 months, Matt’s Motors is expected to have R100 000 of profit for the next 12 months.
Assuming Matt enters R50 000 as his expected profit for the next 12 months:
If a claim was made for a loss he would only be able to recover an amount based on the ratio of the actual expected profit to the value he entered. Meaning, if there was a loss of R40 000, the amount that could be recovered would be calculated using the following formula for Average:
R50 000 (the amount insured) / R100 000 (true replacement value) x R40 000 (claimed amount) = R20 000
Therefore, he would only receive R20 000 from the insurer to cover a loss of R40,000.
Under-insuring isn’t worth it in the long run!
Let’s say that Matt wants to play it safe and enters R120 000 as his expected profit:
Matt will pay higher premiums because he has a higher level of cover, but if his business was out of action for a year he would only be able to claim for R100 000 because that is the real value.
Most people like Matt enter the most accurate value (in this case R100 000) and update their forecasts if business conditions change. Bi-me clients can change their business information in their customer portals at any time of the day or night.
Generally, the higher the level of risk that your business is exposed to, the higher the cost of the premium.
There could be many incidents, such as a fire, which causes the building that is being rented out to be uninhabitable. This will cause a financial loss, the tenants are unable to live in the building and this leads to loss of rent, on top of this there is still the case of ensuring the building is repaired back to what was prior to the loss. If there is cover for Business Interruption taken, depending on the amount of cover, this could assist as there would be cover for the loss of rent while the repairs are being done.
We do not offer professional indemnity on the Bi-me website for now, but we will be offering it very soon. Contact us if you want to get covered manually.
The obvious factors are your selected sections and amount of cover – more protection means higher premiums. Other major factors include occupation, address and claims history. If other businesses in your occupation or area have had lots of losses in the past, premiums will generally be higher. If your business has had lots of losses in the past, your premiums will usually be higher. It is very important to be honest when disclosing all of your information – if an insurer finds that you were dishonest, you may not be covered when you have a claim.
