Business Interruption Cover – when “Increased Cost Of Working” is not enough
We would always recommend insuring on a Gross Revenue / Gross Profit basis, together with additional costs as from experience following a loss, the policyholder would have to spend more money than necessary in order to keep the business functioning in the short term.
Some policyholders feel “Increased Cost of Working” is acceptable for their needs especially as alternative accommodation and equipment may not be as great.
We see many claims and following a loss, complications can occur if there isn’t the appropriate insurance in place. One example was a fire that occurred to the next door neighbour of a company, and though it did not directly affect our client’s building, there was enough damage for alternative premises to be required. Having “Increased Cost of Working” cover only meant the Loss Adjuster needed proof that it was more cost effective to move than stay in their current building.
Furthermore, loss of Gross Profit cover provides various extensions including “Denial of Access” which is not covered under an “Increased Cost of Working” section.
It is important to understand the difference between the two and how your business would be affected following a severe loss:-
Loss of Gross Profit / Revenue Insurance
If, for example, a fire destroys your premises then your company would not be able to continue to operate. You will be insured for your contents, stock and machinery and possibly the building but you will lose Profit / Revenue whilst the business is out of action and this loss is covered and helps pay wages and other none variable overheads.
Until the business is trading as it was prior to the incident, expenses will be covered though it is important to have an adequate indemnity period. A standard indemnity period is 12 months but we would always recommend 24 months if not longer as it takes time to source buildings, equipment and recover fully following an incident.
We also recommend an extra layer cover called “Additional Increased Cost of Working” whereby money can be spent uneconomically in reducing the loss of gross profit.
Increased Cost of Working
This insurance is theoretically for companies with more simpler requirements i.e. computers, desks etc if the business can be back up in running in the new premises within a couple of days. This insurance is less costly and more suitable, however even a more simpler business can lose gross profit following an incident and so it is worth considering the extra costs of loss of gross profit insurance.