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Business Interruption: Is Your Indemnity Period Adequate?
Under-insurance can be caused by the selection of an inadequate Indemnity Period.
The Indemnity Period in a Business Interruption Insurance policy is a limited post-incident period for which an insurer will indemnify a client for financial loss.
Research indicates businesses often choose an insufficient maximum indemnity period.
This is typically due to a failure in understanding the full range of factors that could delay business recovery following a loss. Setting an adequate Indemnity Period is vital because once this period ends, the claim payments will cease, even if the sum insured has not been exhausted.
Businesses should factor in worst case scenarios when calculating their required Indemnity Period. Creating or refining business continuity plans will be central to determining what length of indemnity period your business might need.
In deciding what Indemnity Period will be sufficient many factors will need to be considered including:
- Thinking and decision time
- Lead times and commissioning periods for replacement machinery and stock.
- Making planning enquiries and applications and dealing with objections to any planning applications.
- Demolition and site debris removal delays
- Environmental issues
- Meeting strict listed-building requirements
- Discovery of hazardous materials, such as asbestos
- Potential Health and 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