Business Interruption Insurance & The Importance Of Setting An Appropriate Indemnity Period

Business Interruption Indemnity Periods

Business interruption provides cover for the loss of profit or loss of revenue following damage or disruption to business premises. This can also include the supply chain that prevents a business from trading normally or prevents trading altogether.

Included in that policy is an indemnity period. This is the maximum period of time during which you think the profit/revenue of the business could be affected by any type of loss. The usual minimum and most common period is 12 months, but the question that you need to ask yourself is whether 12 months is ever enough to provide real protection?

It is essential to remember that this is not just the length of time that it might take to rebuild a burnt-out factory, for example. It includes the total time during which you think your profit/revenue might take to get back to the same level being achieved before the loss.

Plan For Worst-Case Scenarios

Maximum Indemnity Periods must account for worst-case scenarios. This includes considering a vast range of circumstances that can add significant time to an organisation’s recovery, for example:

  • Thinking and decision time
  • Making planning enquiries and applications
  • Dealing with residents objections to planning applications and demolition and site debris removal delays
  • Environmental issues
  • Meeting strict listed-building requirements
  • Delayed planning decisions, or additional requirements added
  • Long lead times for replacing plant, machinery and other essential property
  • Discovery of hazardous materials, such as asbestos
  • Potential Health & Safety Executive (HSE) inquiries or proceedings
  • Recruiting and retraining staff
  • Seasonality – a loss may cause a business to miss important trading periods
  • Difficulty in winning back lost customers and opportunities

Remember, if you double the indemnity period from 12 to 24 months you need to double the amount that you wish to insure, taking into account of any trends. If you don’t, you will only be insured for half of what you should be, and average will apply.

If you are unclear about business interruption or indemnity periods, please do not hesitate to get in touch. We will be able to advise you on the best course of action and what level of cover would be most appropriate for your business.