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Getting The Most Out Of Business Interruption Insurance

  • integralmedia
  • December 16, 2024

Business interruption insurance is a critical safeguard for companies, protecting against financial losses when unforeseen events disrupt operations. This guide explores key strategies to maximise your business interruption coverage, ensuring your business can weather unexpected setbacks and maintain financial stability during challenging times.

Business Interruption Insurance

Following a major business interruption event, the time required to get a business back to pre-loss trading levels can vary significantly, from a few weeks to many months, even years. This means it’s essential to determine the maximum time your business would likely need to recover from business interruption losses in order to arrange the most appropriate level of Business Interruption Coverage.

Typically, a 12-month indemnity period is a good place to start for a Business Interruption Insurance policy. But it’s possible your business could need considerably more or less. Beyond the timeframe itself, there are several other critical things to consider when setting up your Business Interruption Cover to ensure it adequately covers operating expenses and provides protection against lost income.

7 Factors to Consider

When crafting your business interruption insurance policy, it’s crucial to consider these seven key factors that can significantly impact your coverage and ability to recover from a business interruption event:

  1. Payroll: How much of your payroll do you need to insure, and for how long? Business interruption insurance covers staff wages, which are often a significant part of ongoing expenses.
  2. Growth: What trends are you seeing in your business operations? Is it growing rapidly, or is it a mature business? This can affect your business interruption insurance cost and coverage needs.
  3. Economic Cycles: Are you susceptible to major seasonal fluctuations or economic cycles that could impact your business income?
  4. Suppliers & Customers: Are there specific customers or suppliers you rely on heavily? If they couldn’t operate, how would that impact your business and potentially lead to a business interruption claim?
  5. Supply Chain Disruption: Many building materials and machinery are imported. What used to take weeks now can take months for equipment to be ordered, shipped and installed. Will this impact your ability to continue operating after an insured event?
  6. Backlog of Repairs: Many business premises in North NSW and SEQ were damaged in recent storms, resulting in rebuilding times of up to 14 months in some areas. If you’re located in one of these areas, it would be best to extend your indemnity period to cover potential delays.
  7. Increased costs: What would your short-term costs be in the instance of a loss event? Most businesses find they incur additional costs (compared with their pre-loss trading) as they seek to minimise the impact on their business. Extra expense insurance can help cover these reasonable expenses.

Breaking Down The 12 Months Indemnity Insurance Process

When evaluating indemnity periods for clients who own their trading premises or need specialised facilities, it’s crucial to take into account several important factors:

  • Claims Processing: The length of time it takes for property damage insurance claims to be approved and processed.
  • Cleanup Efforts: The duration needed for debris removal and site cleanup.
  • Reconstruction Planning: The time required to create comprehensive reconstruction plans.
  • Council Approvals: The length of time needed for council planning approvals, can vary greatly.
  • Tendering Process: The time involved in tendering for building works and selecting contractors.
  • Contractor Availability: The difficulty of securing contractors who are available to carry out the work.
  • Construction Timeline: The overall time required to complete the building works.

By factoring in these considerations, clients can more accurately evaluate their indemnity periods to ensure they have sufficient coverage during potential disruptions.

Maintaining Financial Stability During Disruptions

Many businesses find that business interruption insurance is crucial for paying ongoing expenses such as loan repayments and fixed costs, even when operating at reduced capacity or from a temporary location. A comprehensive claim can help maintain cash flow and cover lost revenue, but the claims process often requires businesses to provide evidence of losses incurred and additional costs.

Navigating Policy Options and Claim Processes

Different insurers may offer various coverage options, so it’s important for business owners to carefully review policy wording and consider working with a broker to ensure they have the right business interruption cover. Remember that business interruption policies typically have a waiting period before coverage kicks in, and the definition of covered perils can vary.

Reach out to an Adroit Risk Adviser

Don’t leave the future of your business to chance. Contact an Adroit Risk Adviser today to maximise your protection against unexpected disruptions and financial setbacks. Every Business Interruption policy is different. Contact us today to discuss the best cover for you.

Like even more data?

You may be interested to read the Insurance Catastrophe Resilience Report 2023–24, compiled by the Insurance Council of Australia.