Business Interruption Sum Insured Review


LMI Group's Forensic Accounting team use their vast experience in handling Business Interruption claims for thousands of businesses in most industries to provide an expert review service. This is to determine the level of cover that is required to protect the business in the event of a loss.

This involves establishing which alternative method of insurance is appropriate and the correct Indemnity Period, as well as reviewing Additional Increase in Cost of Working, Claims Preparation fees and the other extensions of cover that are needed to fully protect the organisation.

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There is much more to protecting a business than simply insuring its physical assets.

The net profit and ongoing expenses, including payroll, management/staff bonuses and financing costs are all regarded as insurable Gross Profit, which can and should be protected – this is the purpose of Business Interruption insurance.

There are two possible causes of a reduction in insurable Gross Profit following damage due to an insured peril.

  1. A reduction in turnover (In other words, a drop-in sales) will naturally lead to a loss of insurable Gross Profit
  2. An Increase in cost of working to maintain normal level sales and/or production For example, a manufacturer who cannot produce may decide to outsource production in the short-term to another firm so that they can maintain supply to their customer-base. A retailer may incur additional freight charges or rent temporary premises to allow them to continue to trade, and a service company may have to relocate and work overtime to catch up on the lost billable hours.

Disruption to an organisation can also result from damage that occurs away from the premises. An explosion at a public utility, a fire at a supplier’s factory, or storm damage at a customer’s premises can all lead to disruption for an organisation.

While full Business Interruption insurance covers both forms of loss of insurable Gross Profit at and away from the business premises. This cover saves an organisation from business failure, it is a vital product that is often not taken out or is set up incorrectly.