Every business that relies on their physical premises in order to work should have Business Interruption insurance to cover a potential loss of profit if their work premise or assets are damaged by an insurable event.
As any New Zealand business that has been through a disruption caused by floods or earthquakes in recent times knows, the repercussions of not having the right insurance cover can be devastating.
Regardless of whether you are a large retailer or a small hospitality business, making sure that your business can continue to meet its financial obligations to staff, shareholders, a bank or other stakeholders is critical when disaster strikes. Having Business Interruption insurance can be the difference between being able to continue to trade whilst repairs are made and stock replaced and having your business grind to a halt.
What is Business Interruption Insurance?
Business Interruption insurance provides financial cover in the event of an insurable event occurring, such as a flood, fire or earthquake that causes property damage to your building and/or your business’ plant or stock, and results in a loss of gross profit for your business. It must be connected to a Material Damage policy that provides cover for insurable property damage.
Who needs Business Interruption Insurance?
All businesses that rely on their premises to operate should have a Business Interruption policy. It provides critical business continuity cover for business and property owners that operate from their own premises or rent their business premises to tenants.
Business Interruption insurance can cover loss of gross profit for a business in addition to loss of rent for a property owner if the building is damaged and the tenants can no longer operate from the premise and pay their rent.
What does Business Interruption insurance cover?
A Business Interruption policy will have a specific indemnity period that is noted in the policy agreement and that states the length of time that cover will respond following an insurable event. This can range from 12-24 months or even longer depending on the specific requirements of the business.
It’s important to be aware that the policy will usually be triggered on the date that the damage occurs so that you know exactly how long your indemnity cover will last for and how that may affect the length of time you require to make repairs and get back up and running again.
An insurer may include a deferment period between when the damage occurred and when the policy indemnity period starts so it’s important to talk to a NZbrokers Member to understand what that may mean for you.
Other important features of a Business Interruption policy
In addition to covering a loss of gross profit and/or the loss of rent, your policy should also make provisions for other scenarios. For example, the additional increased costs of working (AICOW) that your business may incur following the loss or damage in order to reduce the amount of turnover/profit lost and to help keep your business operating. This could include advertising or signage costs to let customers know that you have moved to a new location and how to get in touch with you.
Your policy should also include an allowance for the costs that will be incurred in the process of substantiating, preparing and validating a claim that you make as a result of damage to your premises and the resulting loss of gross profit if you are unable to continue operating for a period of time; known as Claims Preparation Costs.
Seeking advice from a broker
Your local NZbrokers Member will be able to help you determine the right level of cover and advise whether there are other specific requirements that you should include in your policy. They will prove invaluable in helping you to understand the policy wording so there are no surprises in the event that you need to make a claim.
As insurance specialists with in-depth knowledge of Business Continuity policies, they can also provide expert assistance in the claims process and advocate on your behalf with the insurer if required.
To discuss how Business Interruption insurance can protect your business from a loss of profit, contact your local NZbrokers Member.