The current coronavirus situation has placed uncertainty in many areas of our lives, but the clear message to our valued clients is Lloyd’s of London…
Is Your Business Interruption Sum Insured Adequate?
A common problem in Business Interruption claims is the insufficiency of the sums insured.
Underestimating the sum to be insured could lead to a significant financial shortfall following a business interruption event, potentially leaving a business in financial difficulty or worse still unable to continue trading.
Business Interruption cover is generally arranged to protect “Gross Profit” and underinsurance in this respect is often due to a misunderstanding about how to calculate ”Gross Profit” for insurance purposes.
Gross Profit as an everyday commercial term can cause confusion because the calculation is different for accountancy purposes and insurance purposes.
Our Client Directors and brokers will work closely with your business at each renewal providing guidance on how to approach the ‘Gross Profit’ calculation.
To assist in avoiding underinsurance, most BI policies are now written on a ‘Declaration linked’ basis. This type of cover requires the policyholder to estimate the gross profit at inception of cover and then Insurers apply a one-third uplift automatically to take account of any future growth in turnover.
In addition to providing a potentially higher sum insured Declaration Linked policies are not subject to the Pro Rata condition of average or “underinsurance” clause.
As your business changes and develops sums insured are likely to require amendment. It is therefore imperative that regular communication is maintained with your Client Director to ensure that cover is extended or adapted as changes happen. This will ensure that you remain ‘extremely confident’ about adequacy.