Business interruption (BI) insurance can often be a lifeline to businesses after a disaster to help get them back on track and recover from the damage; but which cover is best?
There are three main types of BI insurance: loss of gross profit, loss of gross revenue and increased cost of working. Each of the covers provide the necessary recovery plans for businesses and provide different options depending on the businesses needs.
Loss of gross profit
Loss of gross profit covers the loss of net profit after a disaster and is the most common choice of BI insurance. Policy holders can state which costs to deduct in order to reach their final sum insured. They do this by declaring the deductions as Uninsured Working Expenses (UWEs) that vary in relation to turnover. Therefore, if turnover drops after a disaster, so do these costs. This often reduces the insurance premium. However, it is important to be realistic with estimating UWEs as incorrect values can result in underinsurance.
Loss of gross profit BI insurance is most suitable for those with lots of directly variable costs.
Loss of gross revenue
Loss of gross revenue covers the loss of turnover after a disaster and any increased costs of working. If there are few variable costs directly linked to the turnover, then loss of gross revenue is the ideal solution. To calculate the loss of gross revenue sum insured, you need to know the turnover and length of indemnity period.
Loss of gross revenue is most suitable for businesses whose costs are not directly influenced by a loss of turnover.
Increased cost of working
Increased cost of working covers additional costs due to a loss of revenue. It is covered by both the gross profit and gross revenue bases, but subject to an economic limit. However, if arranged separately, it will not be restricted to an economic limit.
Increased cost of working is suitable for businesses who are deemed resilient to a loss. For example, businesses who can easily minimise the risk of impact on their business and only require additional money to put a recovery plan into action. Multinational organisations are an example of this as a loss in one area of the business may be covered by additional cash reserves elsewhere.
If you want more information on which type of BI insurance is most suitable for your business, how much your sum insured should be, or the best indemnity period or you, then contact Insync Insurance today. We can create your own tailored insurance cover to meet your business needs and give guidance every step of the way.