If you're running your business from commercial premises, or if hiring out your building is how you derive your income, hopefully your insurance provider has recommended Business Interruption cover (BI) to protect you from certain costs and losses that are outside of your control.
While the building and its contents may be adequately covered for replacement or repair, BI offers a robust layer of protection to your finances for a very specific purpose that is often overlooked.
So, what is BI Cover?
Business Interruption cover protects your organisation against loss of income following material damage to your premises Ė whether you own them or not. It also provides a reserve fund for some additional costs which you may incur if you're unable to operate for a time.
How does it work in practice?
The first thing to say is that each businessís requirements will be different so itís important to seek professional advice at the outset. However, for these next two examples letís assume youíre in either manufacturing or retail...
EXAMPLE 1 Ė a Manufacturing company
Imagine you suffer a fire or flood at your premises that results in damage to your building, some machinery and an amount of stock. The repair or replacement of those should be covered within your existing insurance provision under the relevant sections. However, what wonít be covered is the period of downtime during which you canít operate.
You may need to find a temporary alternative location from which to manufacture as soon as possible (with or without an increase in rent) and youíd want to publicise the relocation to customers and suppliers. You could lose new orders and struggle to fulfil existing contracts for a while. Would the businessís funds be able to withstand these unexpected costs and losses?
If so, for how long?
Your BI policy would reimburse you for your lost revenue during this time. It would also cover the cost of renting alternative premises and notifying customers - even contracting orders out temporarily to a third party if you needed to.
Of course the benefits are easy to see on the cases where the potential losses are huge but BI isn't just for major catastrophes - it also covers smaller-scale incidents.
EXAMPLE 2 – a High Street retailer
Perhaps a gas leak in a neighbouring property results in a denial of access to your shop for a day as surrounding properties are evacuated for safety reasons. How would you recoup the income lost even during this short period of time?
In smaller businesses it's highly likely that staff would be diverted away from income-generating activities to focus on reinstatement (getting you back up and running) and thatís where there could be a potential further claim for loss of revenue as an indirect result of the damage.
Extra benefits of taking cover
Business Interruption cover doesnít stop there. You might not have any revenue coming in but you would want to continue paying staff wages so they're not tempted to leave in search of other work during a prolonged period of enforced closure. BI cover steps in to help here too.
If all, or part of, your revenue comes as a result of fulfilling a contract or tender or any other paid-for services youíd be wise to assess how a period of inactivity would affect the contract Ė both now and at its renewal. Having BI cover could be the difference between success or failure and give contract awarders the confidence to choose you over another provider who doesnít have such a contingency in place.
At the end of the day it's for you to decide on the value of having the protection but at least now you're aware that it exists and how it could help you through an otherwise stressful time.
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