| Business Interruption Insurance is usually sold as part | | | | policy continues. It needs to be sufficient not only to |
| of a Commercial Insurance combined policy or | | | | restore the physical equipment and buildings but to |
| package and provides a layer of insurance against | | | | allow turnover to reach the 'would have been' level. |
| not being able to trade following a claim. | | | | The sum insured is the forecast amount (including a |
| In addition to the physical loss of the claim, the | | | | margin to avoid under-insurance) that might be at risk |
| financial loss to the business stemming therefrom | | | | for the 12 months from the end of the renewal |
| needs to be dealt with by an interruption policy. | | | | period of the policy. Where the maximum indemnity |
| Formerly called 'consequential loss', 'loss of profits' and | | | | period insured exceeds 12 months the figure is then |
| or 'profits insurance', which can be misleading terms, | | | | proportionately increased. The premium is adjusted |
| the protection granted is in accordance with a policy | | | | normally only to the extent of over-insurance. |
| formula, i.e. rate of gross profit applied to the | | | | For the small and medium-sized businesses, it is now |
| reduction in turnover of the business in consequence | | | | possible to buy Commercial Insurance on what is |
| of an insured peril, together with the increased costs | | | | termed a declaration basis. The cover may or may |
| to minimise an aggravated loss (but not exceeding | | | | not include a maximum sum as a limit, but there will |
| the loss so saved) arising within the maximum | | | | be no reduction applicable in the event of |
| indemnity period (as selected to be insured). | | | | under-insurance (or a high sum insured limit is applied |
| Provision is made for the accountancy definitions and | | | | to avoid this); the premium is adjustable on the |
| the business, the premises and the insured to be | | | | annual declaration,which must be received in a limited |
| defined. In any claim, adjustment can be made to the | | | | period from the end of the insured's financial year. |
| precious financial account figures so that the loss is in | | | | The cover automatically provides for the cost of |
| respect of the 'would have been' results that would | | | | auditors in preparing financial details from the |
| have applied if the damage had not occurred. | | | | accounts, but not for the preparation of the claim |
| The perils insured (for which there must normally be | | | | itself. |
| counter-part physical damage cover) can extend to | | | | It is often found that consequential losses will arise |
| include those normal to property insurances and such | | | | such as liquidated damages, above-economic |
| special perils as failure of public electricity or gas | | | | increases in cost of working, deterioration or |
| supply, loss from infectious disease for hotel and | | | | wastage of undamaged stock, etc. special items can |
| similar trades, or electrocution of cattle in farming | | | | be added to deal with these exposures. This section |
| risks. | | | | has indicated the need for individual review when |
| Machinery breakdown covers can usually be arranged | | | | arranging an interruption insurance and for the policy |
| on selected plant. Advance profits covers can be | | | | accountancy definitions to be suitable to the system |
| arranged for new ventures and these may include | | | | of accounting adopted. |
| marine transit risks. | | | | A further form of special cover called 'book debts |
| Provision can be made, with first-loss limitations | | | | insurance' provides for the loss flowing from the |
| applying, to extend interruption insurance to protect | | | | un-8urecovered monies from trading prior to the |
| the financial trading of the business following damage | | | | damage through the destruction of the account |
| to other people's premises (those of suppliers, | | | | records and the inability to collect the outstanding |
| subcontractors, customers, etc.) and in transit. | | | | debts. The essence of the insurance is the monthly |
| It is normal, in the current economic conditions, to | | | | declaration of outstanding book debts, which serves |
| insure 100 per cent of the remuneration of all | | | | as a datum against which after damage the shortfall |
| employees at a reduced-rate level, but more | | | | in recovery of book debts can be measured. A low |
| employee cover can be arranged in this respect in | | | | rate is involved and the degree of duplication, |
| suitable cases. This limited cover is largely a 'social' | | | | protection of the records and sum insured |
| protection to staff and their retention after a loss is | | | | determines further reduction to it. |
| thus safeguarded. While savings can be made by | | | | It is in the field of interruption insurance that the |
| non-replacement where employees leave, the cover | | | | importance of the assistance from loss adjusters and |
| is not on the basis of the insured having to minimise | | | | others arises, since as witnessed in the spate of |
| the loss by dismissals. | | | | recent natural disasters that have occurred, much |
| The indemnity period, usually at least 12 months, is | | | | can be done in emergency conditions to minimise the |
| the limit up to which the recompense under the | | | | potential loss. |