Do you need Business Interruption Insurance?

Protect your profits and your people.

Reward and risk often come hand in hand, and this concept rings extremely true for business owners. Owning and running a successful company brings many benefits: income, flexibility, community, investment, and the chance to create something that reflects your values, skills, and passions. Any founder or owner of a business can tell you, however, that there are responsibilities and liabilities that come part and parcel with the positive aspects.  

Continuity is what Business Interruption insurance can offer you. It can mean the difference between keeping and letting go of staff after disaster hits, or even between surviving the event and shutting up shop. It allows you to retain customers, continue to meet your obligations, and recover for long-term success. 

What is business interruption insurance? 

Rather than covering a company for physical loss such as damage to premises, equipment, or people, business interruption insurance covers the insured entity for financial loss due to unforeseen events like natural disasters. It must be used in conjunction with material damage insurance, each one covering a different aspect of the losses following an event. The Business Interruption cover is “triggered” by a claim for material damage loss—i.e. damage to insured property or other assets—and the claimant must be able to demonstrate the financial loss that occurs.  

Who needs it? 

Because a Business Interruption policy is linked to and triggered by material damage, it is only applicable to certain types of businesses. It is ideal for the many companies that rely on their premises in order to carry out their work. These can include: 

  • Panel beaters, mechanics, and other auto trades. 
  • Retail stores. 
  • Hospitality and food service or production businesses. 
  • Manufacturing businesses. 
  • Estheticians and hairdressers. 

There are many other businesses that can and do use Business Interruption cover—that is not an exhaustive list! If you can foresee major financial losses being caused by a natural disaster or similar unforeseen event at your insured premises, you should consider a Business Interruption policy. The best way to know, of course, is to consult the experts! A qualified and experienced insurance broker will be able to assess your risks and tell you whether this cover is right for you.  

Business interruption insurance is also beneficial to property owners as it can cover loss of rent caused by damages. As an example: a company owns commercial premises and rents them out to various tenants, but after an earthquake they can no longer be used for a period of time. This is where the policy comes into play; they can recoup the loss of income. 

Features to note 

There are a few aspects of standard business interruption insurance which it pays to know about! First is the indemnity period, which will be specified in any individual policy. This is the length of time after the event during which cover will respond, and can range from a year to two years and even beyond that timeframe. Your policy needs to allow a sufficient amount of time should the worst occur, such as a building needing to be completely rebuilt following an earthquake, and that’s what the indemnity period allows. This can take longer than you might think by the time consents are issued and plans are drawn up, for example, and the claim will also take time to work through. A great insurance broker is invaluable here not only in helping you determine an appropriate indemnity period at the outset but also guiding you through the claims process.   

Business interruption insurance can also cover “Additional Increased Cost of Working” (AICOW), which are costs incurred in an effort to minimise loss. This might include rent for temporary premises, advertising and marketing costs, temporary stock relocation, and new signage. Another policy addition that you should include is cover for claims preparation costs, which are exactly what they sound like: costs incurred while substantiating, preparing, and validating a claim. Often, this includes hiring specialists to prove and estimate your loss: consultants, lawyers, investigators, accountants, and other professionals. 

Business interruption insurance is critical to many businesses, protecting them against the long-term effects of events that cannot be planned for or expected. It provides a huge amount of peace of mind to business owners—and also for financial partners or investors.  

The team of experienced insurance brokers at Runacres can guide businesses through the murky waters of various insurance policies. Finding the right combination of these to protect a company against risk while keeping premiums affordable is a refined skill. BI policies are not one-size-fits-all; navigating the ins and outs, the unique things offered by each provider, and the various additional covers is tricky. Having an expert in your corner is crucial to achieving the right balance. 

If you are interested in purchasing business interruption insurance or would like to review the policies you already have in place, get in touch with the Runacres team. We specialise in business insurance and love to help our clients assess their risk and attain the perfect mix of cover for their unique operations.