Why Business Interruption is so important to your Practice Insurance
Business Interruption insurance covers the loss of income that your practice suffers after a disaster.
The income loss covered may be due to disaster-related closing of the practice or the re-building process. Flooding is one of the most common causes of business interruption in the UK and it is in situations like this that BI insurance can be vital.
The intention of BI insurance is to restore your practice to the same financial position as if the loss had not occurred (subject to policy coverage and the terms and conditions of the policy). It may take your practice months to recover from such a loss. BI insurance provides time and peace of mind that the practice will be able to continue business as normal.
Claims are normally linked to material or property damage and can often be complex and confusing, which is why in most cases the insurer will appoint a loss adjuster. Their role is to investigate the circumstances of the claim and the extent of the loss.
They will provide advice in relation to the relevant documentation that the insurer will require to help consider the claim. Please note that for there to be a successful claim it must be shown that damage/loss you are claiming for was caused by an insured peril or event as listed in the policy.
Within the practice insurance provided by Royal Sun and Alliance, BI is included subject to the level of cover needed by the practice. It is important that you review carefully if the practice has an adequate indemnity period as many standard policies offer 12 months, which in many circumstances may prove insufficient. A good broker will ask you how you have arrived at that figure, challenge its adequacy and discuss the benefits of different indemnity periods.
Be mindful of under-insurance!
Up to 80% of the UK’s commercial properties were thought to be under-insured in 2012 and it has been found that this is likely to be the same case for the years following (BCIS 2012). It is the difference between the sum declared to represent the value of the subject matter insured and the value established at the time of the claim. It is a term given to those who do not possess the proper level of insurance coverage.
What may happen if I am under-insured?
If your practice is under-insured, even in partial losses, the practice may be deemed to be carrying some of the risk itself and the insurer will require the practice to pay a portion of the claim. In these circumstances, the insurer may choose to apply the “average clause” to the claim.
It is important that you fully recognise the length of time it may take the practice to recover following a loss and why it is wise to get a professional valuation of the property periodically to reduce the possibility of being under-insured.
Another aspect to be mindful of is whether the accountant’s figures for gross profit match those defined in the policy. This is important as information required by insurers is often expressed in different terms from those used by an accountant. It can be seen why it is imperative that your practice is insured for the correct sums. It will save you from paying a huge proportion of the claim yourself.
A quick example on under-insurance:
1) A practice insures their building & contents for a total of £400,000
2) They make a claim for £50,000 following a major flood
3) The insurer assesses the total value of building & contents to be £450,000
4) This means the original policy was only for 80% of the actual value
5) Therefore, the claim payment made when the insurer applies the “average clause” will be 80% of £50,000: the claim settlement from the insurer would be £40,000 and the practice will need to find £10,000 themselves.
If you have any queries regarding BI or under-insurance, please do not hesitate to contact us on 01438 730210. To find out more about our Practice Insurance policy please visit our Practice Insurance page.