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The Manufacturer’s Guide to Business Interruption Insurance

No manufacturing business would like to think that following a major incident their business would be interrupted for a substantial time, with a resulting loss of income. But this can and does happen and you need to be prepared should you find yourself in this situation.

Business interruption insurance will cover the loss of income and or additional expenses, that your company would suffer in the event of a disaster and is possibly the most important insurance coverage available to manufacturers. There seems little point in replacing Buildings, Machinery and Stock if a sustained loss of income forces the company out of business.

Written by Paul Brown on 26th October 2015

The Manufacturer’s Guide to Business Interruption Insurance

No manufacturing business would like to think that following a major incident their business would be interrupted for a substantial time, with a resulting loss of income. But this can and does happen and you need to be prepared should you find yourself in this situation.

Business interruption insurance will cover the loss of income and or additional expenses, that your company would suffer in the event of a disaster and is possibly the most important insurance coverage available to manufacturers. There seems little point in replacing Buildings, Machinery and Stock if a sustained loss of income forces the company out of business.

Here are six tips to take into account when looking to purchase business interruption insurance:

1. Consider the need for Loss of Profit cover as opposed to Increased Cost of Working only

Many businesses recognise the need to insure the increased costs that will inevitably arise following a major incident, but manufacturing risks will almost certainly face a reduced turnover and a resulting loss of profit and should insure on this basis.

2. Ensure that your insured profit matches the policy definition of profit

The Accountants definition of "Gross Profit” differs from the insurance policy definition and this common misunderstanding leads to significant underinsurance.

3. Don’t underestimate your business recovery period

Manufacturing businesses have a tendency to underestimate how long it would take to fully recover after a disaster. This requires careful consideration so that your indemnity period will reflect this.

4. Always add an item of cover for additional increased cost of working

Having this added extension to your insurance policy will mean that payments can be made that speed up the recovery without the need to prove that such payments pass the economic test as defined by the policy.   

5. Check that all locations are included in your policy

A basic policy wording will not cover your business across multiple sites. Check that your policy includes all locations to avoid any gaps in cover.

6. Consider whether other business interruption cover extensions could be relevant

There is a list of potentially valuable policy extensions to a business interruption policy that are available at little, or no cost upon request. These include customer or supplier dependence, loss of attraction, failure of utilities and denial of access. You should consider whether any of these are relevant to your business and extend your policy accordingly.

Business Interruption is possibly the most important coverage for manufacturing businesses but, in our experience,  is also the cover that tends to be the most poorly arranged.

If you would like to learn more about this subject download our guide on Manufacturing Insurance here.

If you would like a mid-term review of your current arrangements then contact Franklands.

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