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BUSINESS INTERRUPTION INSURANCE (SCOPE & PURPOSE (COVERAGE (Revenue-…
BUSINESS INTERRUPTION INSURANCE
SCOPE & PURPOSE
Covers loss of income that a business suffers after a disaster. Income loss covered may due to a disaster-related closing of business facility/ rebuilding process after a disaster
Protect insured against loss of income
Put insured in same financial position as if no loss had occured
COVERAGE
Revenue- Income earned during period
Rent/Lease payments- Continue payment
Relocation- Temporary location
Employee wages- make payroll
Taxes- Required tax
NOT IN COVERAGE
Utilities- Typically stopped
Income that isn't documented- Important to document
Losses from partial closures
Losses from closures caused by non-covered damages
MEASURES OF INDEMNITY
In respect of the loss of any property is determined not by its cost but by its value at the date of the loss & at the place of the loss.
Factors to consider
Actual experience of the business before the loss
Expected experience of business after the loss
Actual experience of business after the loss- Mitigation
SUM INSURED
What is insured?
Gross profit- standing of charges & net profit
Increase in cost of working
How to fix sum insured
Gross profit should arrived at from last years account
In case last years account affected by certain abnormal circumstances account of preceding year(s) may be considered
Often results of 2-3 years are taken into account to understand trend & make due adjustments for future
If chosen insurance policy is more than 12 months, the gross profits need to be increased proportionately
ASCERTAINMENT OF LIABILITY
A liability is said to be ascertained liability if it is determined / fixed/ imposed under some contract, law or other such act
UN-ASCERTAINED LIABILITY
Which is not determined/ fixed and a provision is created for such anticipated liability then it is to be added to net profit
INDEMNITY PERIOD
Maximum length of time specified in months, the policy will support the business following an insured event causing an interruption to the business
You need to establish the max period which you want insurers to compensate following damage results from one of the perils named in your policy
Period of 6 months, 12 months, 18 months and 24 months are common. There will often be a standard limit written into a policy, especially a package policy
RATING FACTORS
The premium is calculated by applying rate to the Gross profit sums insured
Rate applied will be based on the property damage rate and so will reflect a variety of factors including
This rate then adjusted to reflect business interruption specific factors, including the maximum indemnity period