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BUSINESS INTERRUPTION INSURANCE (Indemnity (Definition: “A contract by…
BUSINESS INTERRUPTION INSURANCE
Definition
A type of insurance that covers the loss of income that a business suffers after a disaster.
The income loss covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.
Purpose
Protect the insured against loss of income.
Put the insured in the same financial position as if no loss had occurred.
Business Interruption Coverage
Revenue – Income earned during period
Rent or lease payments – Continue payment
Relocation – Temporary location
Employee wages – Make payroll
Taxes – Required tax
Business Interruption Insurance Cannot Cover
Utilities – Typically stopped
Income that isn't documented – Important to document.
Losses from partial closures
Losses from closures caused by non-covered damages
Indemnity
Definition: “A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a Contract of Indemnity”
TWO parties- Insurer and Insured.
All insurance contracts are contracts of indemnity except life insurance
Measure of indemnity
Measure 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 and at the place of the loss.
If the value has increased during the currency of the policy, the policyholder is therefore entitled to an indemnity on the basis of the increased value subject of course to policy limits such as sum insured or average.
Factors to consider
Actual experience of the business before the loss
Expected experience of the business after the loss
Actual experience of the business after the loss – Mitigation
Indemnity period on a business interruption policy
The indemnity period or maximum indemnity period, is the maximum length of time specified in months, that the policy will support the business following an insured event causing an interruption to the business.
Minimum is three months while maximum is 3 years
Working of sum insured
Understand client’s needs & objectives
Underwriting Considerations
Type of Policies and Clauses
Working of Claim Amount
What Is not Covered
Rating Factors
Ascertainment of liability
A liability is said to be ascertained liability if it is determined or fixed or imposed under some contract, law or other such act
Unascertained Liability
Liability which is not determined / fixed and a provision is created for such anticipated liability then it is to be added to net profit.
Rating Factors
The premium is calculated by applying a rate to the Gross profit sums insured
The rate applied will be based on the property damage rate and so will reflect a variety of factors including
This rate is then adjusted to reflect business interruption specific factors, including the maximum indemnity period.