Every company should have business interruption insurance in place, so that it has financial protection if operations are disrupted by a catastrophic event such as fire, flood, or equipment failure. Should an incident occur, operations could be impeded for a significant amount of time, which can lead to severe financial losses if they are not adequately insured.
For this reason, it’s also crucial to set the correct indemnity period, so any potential losses are covered during the time it takes the business to resume normal operations. The indemnity period begins from the time the insured event occurs and lasts until the business recovers, or until the time specified in the indemnity period expires, whichever comes first.
If the indemnity period is not adequate to cover the time taken for operations to resume, the business could end up being underinsured. This means that, while insured, the insurance cover it has in place doesn’t fully cover the costs of any claims made. In this scenario, the business will need to cover the shortfall itself, such as rent, payroll, utilities, and other operating costs. This could lead to severe financial losses or, in the worst-case scenario, even bankruptcy.
There are several factors to consider when setting indemnity periods, and cover should be regularly reviewed due to the changing global landscape. For example, in recent years there’s been an increase in climate related disasters, widespread disruption to supply chains and labour shortages. The costs of materials and supplies have also increased which means a business’s interruption insurance and indemnity period might need to be increased, or extended, to ensure the business is adequately protected. Here are some key factors businesses need to consider:
