Business Interruption/Income insurance covers the expenses or lost income of a business if it is affected by damage due to natural calamities and accidents like cyclones, floods, fire, etc.
Business Interruption insurance was the most important form of insurance for businesses during the Covid Pandemic, yet it failed millions of businesses around the world. You can now learn the ins and outs of insurance for business interruption, and why it was the largest insurance failure in recent history.
In short, the coverage must be reworded and triggered by a risk expert independent of any insurance broker or company and these changes should be negotiated between the risk expert and the insurance broker. So instead of buying directly from a broker or insurer, whether or not it’s through an online platform, it is extremely important for you to have the fine print in the policy wording reviewed and changed by an independent risk expert (also known as a risk management consultant) so that the policy serves your business interests and not the interests of the insurance company and broker.
The coverage is active until the business is completely re-instated into its former position so that it can finally resume operation, up to the limit of insurance provided. This insurance covers various types of expenses like salaries, and other expenditures.
This insurance might sound similar to property insurance, but they are not the same. Property insurance covers the losses borne due to the physical damage of the business infrastructure, along with its machinery, goods, and/or products while the insurance for business interruption reimburses the business for running expenses or lost income that occur after such physical damage has taken place.
Although both property and business interruption coverages are different from each other, they can be offered together under a single policy.
What Expenses Are Covered?
The insurance covers the following expenses:
- Business Income Profit Margin
The net profit that a business would have generated during the restoration time frame is generally insured.
This value is calculated by taking into account the monthly financial performance of the business before the disaster. These factors need to be included and mentioned in the given policy of a certain company.
- Certain Fixed Expenses
An active business has several fixed expenses for day to day operations. These include operating and maintenance charges of several goods, machinery, and the overall infrastructure.
Example: Electricity bills, rents.
- Temporary Relocation
Some damages might be so extensive that repairing them is impossible. In such a case, re-building and replacing become the only option, and relocation to a temporary location becomes mandatory.
The insurance covers any relocation and operational expenses relating to any temporary migration of the business.
- Commission & Training Expense
In some cases, the heavy damage of machinery leads to swapping old and broken machines to brand new ones. New machines also require re-training personnel on using this new equipment. All such replacement expenses and training expenditures are also covered.
- Extra Expenditures
Extra expenditures related to the operation of the business are also taken care of, provided they are reasonable and adhere to the policy guidelines.
- Civil/Military Authority Interruption
A civil or military authorized curfew or specific prohibitions from accessing an area where the business is located might be imposed due to various reasons like political unrest, natural disaster, and many more.
It generally covers such situations and all the losses borne during such a period are taken care of.
- Employee Salaries
One of the most important coverages of this policy includes the payment of daily wages and monthly salaries of every person working in the business. This ensures that every employee’s salary is safe and secure even when the business is going through hard times.
No matter how bad the situation is, paying taxes is mandatory. This insurance coverage makes sure all taxes are paid on time, avoiding any penalties.
- Debt Installments
Paying monthly debt installments for a business that is badly hampered and is in the process of repairing and/or re-building is next to impossible. The insurance for business interruption covers such installments until the business is back on track and has become fully operational.
What Expenses Are Not Covered?
There can be a few things that are not covered depending on the policy wording. It is therefore best that the wording be reviewed and changed by an independent risk expert who would then negotiate the changes with the insurance broker.
How Does The Pandemic Affect The Business Interruption Policy?
The 2020 Coronavirus Pandemic has brought about various queries regarding this insurance policy. The COVID-19 virus outbreak has led to partial or sometimes complete lockdowns in various regions of the world.
Many businesses were forced to shut down and many companies have incurred massive amounts of losses. Unfortunately, the vast majority of insurance companies denied coverage on such financial tragedies, contrary to many business expectations. It is why there are hundreds of thousands of court cases against insurers, some courts have ruled in favour of businesses while many courts have ruled against them.
It is a reminder that any business insurance you buy must be reworded by risk experts independent of brokers and insurers. If you already have insurance that you bought from a broker or insurer, you can now audit your insurance using an online AI tool to ensure it serves your interests and not those of the insurer and broker.