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Business Insurance
Thursday, November 1, 2007
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While a business may be out of operation after a disaster such as extensive fire damage, there are still fixed costs that require payment. Staff costs, leases and general running costs do not halt while a business is closed for refurbishment. A business interruption policy ensures that the company can continue to meet its fixed outlays until it can return to full operation.

“The process of calculating the financial loss due to a catastrophic fire is not well understood,” comments Jonjon Smit, National Sales Manager for CIB Insurance Solutions. “Considering that the policy holder can select the period of indemnity, anywhere from three to 12 months, dependant on the nature of the business insured, the policy is relatively inexpensive. It also offers various extensions to the basic cover, for example, the failure of the electricity supply and prevention of access to the premises.”
The gross profit of the company determines the value of the business interruption policy, and how much the policy holder can expect to be compensated during the period the business is out of operation. By subtracting the sum of the annual opening stock value and uninsured working expenses (see below) from the total for the annual closing stock value and turnover, the gross profit can be determined.
“In most cases the profit claim will exceed the material damage claim,” he notes. “To me this is probably the most neglected class of insurance, yet if we follow the simple rules an insurer can underwrite the policy prudently and a broker can be satisfied he has done his job too. However, we advise that the calculation of the sums insured should rather be done by the client’s auditors.”

Uninsured Working Expenses. These include:
• Purchases (Less discounts received)
• Bad Debts
• Delivery & Packaging
• Discounts Allowed

Standing Charges can also be included and these are charges and expenses which continue to be payable in full, irrespective of the volume of turnover, or which do not reduce in direct ratio to a reduction in the volume of turnover.
Increased Cost of Working (No Gross Profit Cover) is limited to the reasonable increase in expenditure incurred by the insured during the indemnity period in consequence of damage for the purpose of maintaining the normal operation of the business.

Copyright © Insurance Times and Investments® Vol:20.10 1st November, 2007
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