Business interruption occurs where unforeseen closures and unexpected events temporarily stall the generation of revenue. In a highly competitive business environment, even the loss of a day’s trading due to a computer glitch or road closure or power outage may be prohibitively expensive. Ideally business operations will be protected by an insurance policy that is backed by diligent accounting to identity the exact period of interruption and subsequent loss of revenue.
Even when cash flow is halted, a business will still be liable for rent, wages, loan repayments, and any other ongoing costs until normality is restored.
Surveys have indicated that many small businesses can not withstand a protracted business disruption such as a major fire or flood, especially if the interruption coincided with a critically busy trading period such as Christmas. A florist that had to temporarily close during Valentine’s Day or Mother’s Day would lose a large proportion of its annual income. Further analysis indicates that about one in seven businesses experience an interruption-related fall in income each year.
Some of the possible events that business interruption insurance can insure against include:
- A delay in waiting for council planning permission and permits while a rebuild or renovation takes place.
- Moving premises, covering the costs of searching for, and fitting out, new premises, advertising to let customers know that a business has moved and when it will be operational again.
- The expenses associated with moving to, and operating from, a temporary location.
- Delays in the supply chain i.e. other businesses experience an interruption in their own operations which impacts the flow of parts, produce, and inventory downstream
- Outages in utilities such as gas, electricity, water, internet, telephone
Typically, when a business takes out business interruption insurance, it selects an indemnity period for how long it requires the cover to be when an interruption takes place. Some of the other issues that businesses need to consider are:
- The profits that would have been earned during the time that the business is not operating (based on a previous accounting period’s income such as weekly, monthly or quarterly).
- The operating expenses and fixed costs that continue to arise even though the business is not operating (based on prior costs according to financial statements). Examples include council rates and staff superannuation.
- Any costs associated with the interruption caused by utility companies including electricity, water and telecommunications
- Reimbursing ‘reasonable expenses’ (beyond the fixed costs) that allow the business to continue to operate while the property
At the bottom of this profile are brief details of a number of the experts that Expert Experts represents. Call our office to discuss your requirements and to obtain a recommendation that suits your needs and budget.
Expertise in Action
Experts relevant to issues of business interruption include experts in:
- Financial and management accounting
- Insurance policy analysis – the level of premiums compared to industry norms, appropriate level of cover, the typical clauses, terms, conditions, exclusions, and the unusual events which can and should be covered, and how policies vary across industries
- What can go wrong with business interruption insurance – issues relating to inadequate coverage and dealing with disputes about size and duration of pay-outs, and pitfalls when interpreting and relying upon contract clauses
For some fields of expertise we have some sample sections of de-identified reports. Please contact our office if you are interested in a sample.
The overall cost of expert opinion depends on the services required. Some of the key factors that affect the cost of advice include:
- The need for a view or inspection of a location
- The quantity of documentary material to be reviewed
- Whether there are reports of other experts to be reviewed and commented on in detail
- Whether there is a need for conferences with the expert either in person or by telephone/Skype
Understanding Business Interruption
The National Insurance Brokers Association (NIBA) of Australia has compiled a list of common triggers for claiming interruption insurance. Obvious examples such as floods and earthquakes are listed as well as less obvious ones such as loss of attraction and closure by public authority.
The key tool for the Preparedness element is the Business Impact Analysis. This is where key activities of the firm that may be adversely affected by any disruptions are identified and prioritised.
Naomi Marble & Granite P/L v FAI & All Risks Management P/L  QSC 76
The plaintiff's property was vandalised, causing $1M in damage and further losses from interruption or interference with the carrying on of its business and that such losses fell within the interruption insurance covered by a cover note promised orally
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