UNDERWATER in November 2009 during the
floods in Cockermouth? Affected by the
Buncefield Oil Depot explosion in December
2005? Remember the bomb that ripped the
centre of Manchester apart in 1996? Or were you
caught unawares by the snow which blanketed
the country only last month?
Apart from the obvious human
misery caused by these disasters, a
common bond that they share is
that innocent businesses were
prevented from operating through
no fault of their own. Some
survived but many did not.
As a businessman or woman,
common sense, if nothing else, tells
you that to operate a business
without insurance – whether
buildings, contents, motor or
employers – would be tantamount
to commercial suicide.
Yet why do so many businesses,
including veterinary practices, cover
those elements but not cover their
businesses against unforeseen interruption? Business
Interruption Insurance, BII, is what they are missing.
BII has many facets but, in its ultimate aim, it
seeks to maintain the business’s profits in the event
of disaster of some kind. The problem that all businesses face is that if, for example, the premises
are flooded, destroyed in a fire, or blown up because
of terrorist activity, time is required to get the
business fully functioning again.
Costs will still be incurred while production is
down or non-existent – staff still need to be paid even if the business cannot use them
in the short term. This becomes
particularly acute as the business is
not in a state to bring in any money.
What is BII?
BII operates in three ways. Firstly, it
covers the fixed, or on-going, costs
of a business which cannot be met
out of any financial reserves the
business may have. The majority of
these need to be paid irrespective of
whether work is possible. This might
include leasing and staffing costs,
business rates, and mortgages.
Secondly, BII policies will cover
any increased or new costs that are required to get the business up and
running. This could cover finding a new site, redirecting post and telephones, acquiring new
equipment, paying overtime, using “friendly
competitors” to complete orders, buying new
supplies possibly at a higher rate, and advertisements
to tell your customers of the temporary change in
business circumstances.
Finally, a BII policy will pay enough money to maintain the level of net profits that the practice had
insured for.
What insurers look for
Should a business need to claim on its BII policy, it
needs to be aware that the insurers will need to see
accounts before any payments are made.
Insurers use a variety of accepted accounting
principles to establish their liability to pay a claim.
They would look for information on variable costs
such as raw materials, etc., that rise or fall
depending on the required production or sales;
data on fixed costs such as business rates – things
that do not vary according to the level of sales; net
profit; revenue levels; and gross profit – the
difference between revenue and variable costs.
So make sure that once you’ve taken out a BII
policy that you keep it, the documentation and
detailed business accounts information safe
because without the official paperwork you may
have a devil of a job proving what you’re entitled
to.
It might seem bureaucratic at the time, but no
insurer will pay out a claim unless the loss can be
quantified. So if you have not got copies of your
accounts, expect to have to prove the claim some
other way.
Payment times do vary. It is difficult to quantify
the time it takes to pay a claim since every case is
different. However, insurers will process the claim
on receipt of accounted losses so that they avoid
any further liability for losses.
