Please enable JavaScript.
Coggle requires JavaScript to display documents.
Business Interruption - Policy Cover, Gross Profit Calc - Coggle Diagram
Business Interruption - Policy Cover
material damage proviso
protected by properties insurer
turnover
pay costs
net profit
insured
purchase of materials
variable costs
variable costs fall
not necessary to insure
Rent Payable
Fixed Costs
BI to cover Net profit & fixed charges
= Gross Profit
Gross Profit = Turnover + closing stock + work in progress -opening stock and work in progress & uninsured working expenses
Small variable costs not excluded
covered on a loss of turnover/fees basis
contractually committed to purchasing? insured can insure as a working expense kept inside the insured gross profit.
Insured must consider Max Indemnity Period.
Envisage worst case scenario
Length of time before normal business resumes. Involves repair or replacement of buildings, machinery & stock
length of time needed to win back customers
Estimate of gross profit will need to reflect indemnity period. ie £100,000 over 12 months will be £200,000 over 24 months.
Traditional underinsurance clause Pro Rata
the amount of loss calculated will be reduced in proportion to the level of underinsurance.
Fair Representation
Premium charged / correct premium x loss
£10,000 / £15,000 x £60,000 = £40,000
The insured suffers a shortfall of £20,000.
Alteration in risk - Insurers are protected via clause if insured goes into administration etc. Protects against fraudulent claims.
Broker can request insurers to continue to hold cover until such times that the company has clarification
Gross Profit Calc
Turnover + closing stock = A
Uninsured working expenses + opening stock = B
A - B = Gross Profit
Homestyles example - 89,572 + 3,832 = 93,404 (a)
42,856 + 4,234 = 47,090 (b)
93,404 - 47,090 = 46,314 = Gross Profit
Rate of Gross Profit Calc - % calculated by dividing GP from prev financial year by turnover x 100 eg. 30,000 / 100,000 x 100 = 30%
Homestyles Turnover '18 £82,674 46,314 / 82,674 x 100 = 56%
If this company lost 50% of their turnover underwriters would pay 44,786 x 56% = £25,080