The 101 to Business Interruption Insurance

How to insure for Business Interruption, and structure coverage, for national disaster and earthquake?  The best way, as always, is the simple approach.  

Start with forward planning and a discussion with your Insurance Broker about the various event scenarios you could possibly face, the mix of Risk Management solutions and type of insurances that fit your situation.

Insurance will form an integral part of Risk Management as you think about loss scenarios, impacts on the Business, people and operations.  Consider possible solutions that do not include insurance and then consider the types of insurance that will transfer risk.  But remember, insurance is not a “catch all”.  Insurance must be part of your management of risk exposure but it must be formulated to play its role as part of a carefully structured package.

The traditional approach by insurance companies has been to insure for full values at risk; all Gross Profit, Loss of Rent, Additional Increased Costs of Working, Claims Preparations Costs and insuring for the longest Indemnity period.  But as Brokers we work with you, as part of your Business, to analyse possible scenarios specific to your activity, rather than the one-size-fits-all approach.

For instance; if fire causes the loss, it may be a matter of showing a Loss of Gross Profit, Loss of Rent or associated cost limits attached to the asset by comparing last year’s turnover with market forces this year, and your claim begins to take on a common sense, pragmatic approach.  Longer Indemnity periods are not always the answer in such a case but they may well be the answer for a manufacturing operation.  Service and retail have a different set of needs.

We’ve talked before about the Hurricane Katrina and New Orleans Orient Express Hotel test case.  The bottom line was that there was no insurance claim because the Loss of Turnover was not as a result of the hotel damage, but caused by the visitor market disappearing.