What is Business Interruption Insurance?

Business Interruption Insurance (BI Insurance) is probably the most important insurance you will buy as a retailer. It is also the most complicated and often is not arranged in a way that meets your needs. The insurance must be very specific to each individual business and must be tailored accordingly.

Your Property Damage insurance will reinstate your Balance Sheet. Business Interruption insurance will reinstate your profit and loss account. This means that, if the insurance is arranged correctly, your loss of gross profit will be covered and any additional costs that the business might incur to minimise any loss of revenue during an interruption.

So, how to ensure that the BI Cover meets your specific needs?

The starting point is that if your retail facility suffers major damage and is forced to close for a protracted period, what is your contingency plan and who will pay the resultant losses? There are some critical matters to review and discuss with your insurance advisor. Examples of these matters are:

1. How long would you be out of action?

2. Would there be planning delays in relation to the rebuild?

3. Could you operate in a limited way during the interruption?

4. What additional costs could arise in this scenario?

5. To what extent would these costs be covered by insurance?

6. What costs in your business would you want covered by insurance during the interruption period?

All the above impacts the sum insured you select in relation to gross profit. This will be different for each business. You will have to consider the implication of an extended interruption that might go beyond 12 months. Your analysis of the level of cover required won’t just be based on historical financial performance but it will have to look into the future as well.

The answers to these questions will dictate how you approach your purchase of BI insurance and how you make critical decisions to protect your business and the inherent value of that business. This will require careful consideration of the issues referenced above and detailed discussion with an experienced broker such as Arachas. This needs to be done well in advance of your renewal date. The operation of your BI insurance should reinstate your Profit & Loss account and cover any relevant additional costs that might arise. It should also play a large part in getting your business up and running and thereby preserve the underlying long-term value of your business.

If you would like a consultation on Business Interruption insurance or any other insurance considerations to secure your business, contact our team at Arachas today on 01 2135000 or email us at [email protected].