Business Interruption Reviews

Financial valuations

There is much more to protecting a business than simply insuring its physical assets. The owners, shareholders and/or those that have provided investment finance expect an income stream that will continue to cover the taxable profit, as well as the ongoing operating costs of the business.

The net profit and ongoing expenses, including payroll, management/staff bonuses and financing costs, are all regarded as insurable Gross Profit, which can and should be protected – this is the purpose of Business Interruption insurance.
There are two possible causes of a reduction in insurable Gross Profit following damage due to an insured peril. The first is a reduction in turnover. In other words, a drop in sales will naturally lead to a loss of insurable Gross Profit. The second cause of a loss of insurable Gross Profit can be from an increase in cost of working to maintain normal sales and/or production. For example, a manufacturer who cannot produce may decide to outsource production in the short-term to another firm so that they can maintain supply to their customer-base; while a retailer may incur additional freight charges or rent temporary premises to allow them to continue to trade; and a service company may have to relocate and work overtime to catch up on the lost billable hours.
Disruption to an organisation can also result from damage that occurs away from the premises. An explosion at a public utility, a fire at a supplier’s factory, or storm damage at a customer’s premises can all lead to disruption for an organisation.
While full Business Interruption insurance covers both forms of loss of insurable Gross Profit at and away from the business premises, and can literally save an organisation from business failure, it is a little appreciated product that is often not taken out or is not set up correctly.
At LMI Group, we believe that this is a vital insurance cover that every business needs in some form to protect against, not only potential loss of cash flow, but the very survival of their business in the event of an insured peril.
We do not sell insurance. Rather, using our vast experience in handling claims for literally thousands of businesses in most industries, our risk management division provides a review service to determine the level of cover that is required to protect the organisation in the event of a loss. This means determining which alternative method of insurance is appropriate and the correct Indemnity Period, as well as reviewing Additional Increase in Cost of Working, Claims Preparation fees and the other extensions of cover that are needed to fully protect the organisation. To learn about our new Platinum Service, click here.
For further information on our risk management services, please use the Contact Us link at the bottom of this page for regional contacts, or click here to view our brochure, which may also be downloaded for your convenience.