Material Damage & Business Interruption Insurance
What is Material Damage?
After a fire, flood, burglary, earthquake or other such event, there is obvious destruction, loss or damage to buildings, plant and stock. This physical loss or damage is commonly insured under a Material Damage policy.
The purpose of Material Damage insurance is to reinstate the asset lost or damaged, as it was if no fire or other insured event had occurred. The insured may elect not to reinstate and can negotiate a financial settlement, which would reflect a depreciated reinstatement value. However the insurer is not liable under the policy unless the property is insured property and the insurer has accepted a valid claim for the damage.
Material Damage Insurance is the modern form of the fire & perils insurance. It is superior because of its broadness of coverage, meaning that if it is not excluded then it is covered. The policy also provides accidental type coverage and is adaptable to extend and limit coverage as required.
Three of the common extensions to a Material Damage policy are:
- Electric Current Damage
Three common exclusions to a Material Damage policy are:
- Electronic Data
- Building Defects
Material Damage insurance is subject to a deductible. This means that before the policy will respond the loss must exceed a pre-agreed amount. The standard deductible is £250 however this will vary between policies and insurers for a number of reasons:
- Previous claims experience
- Business activities
- Building construction/location
A customer may also elect to take a higher deductible to achieve a premium discount.
What is business interruption insurance?
Business interruption is a type of insurance that is designed to protect businesses against the financial loss suffered as the result of a property claim.
Unlike buildings insurance, which only covers physical damage, business interruption exists to cover the income a business would have received had the incident not happened. For businesses affected by fires, floods and other similar incidents, business interruption insurance can mean the difference between ensuring a long-term future and going under.
Who needs business interruption insurance?
There are a number of factors that determine whether or not a business requires business interruption insurance, but above all else it comes down to whether or not substantial damage inflicted on the business’ property or physical assets would affect its ability to trade for any sustained period of time.
For example, in the event of a flood, a sole trader who relies only on a laptop and an internet connection to work would have little trouble finding a replacement machine and temporary premises from which to operate. However, at the other end of a scale, a large business that holds a lot of stock or equipment would be more exposed should its assets be damaged or destroyed.
Because business interruption insurance is not a legal requirement, the onus is on the business owner to assess the risks, and consider whether a large scale disaster would affect its ability to trade. If the answer is “no”, then it is unlikely a business interruption policy will be necessary. However if the answer is “yes” then it’s likely that the business needs protecting with business interruption insurance.
What events does business interruption insurance cover?
The two most common causes of business interruption claims are fires and floods. Ultimately though, business interruption exists to protect businesses from any property related incident that affects its ability to trade, so other causes for a claim may include burst pipes, impact, storms, theft and vandalism.
What is the business interruption indemnity period?
The business interruption insurance indemnity period is the period during which a business’ earnings are covered under the terms of the insurance policy. The ‘maximum indemnity period’ is the period of time (usually 12, 24 or 36 months) that the insurer will cover business interruption losses, starting from the date of the claim incident.
When choosing an indemnity period, it is important to consider the maximum amount of time it would realistically take for your business to be able to trade again independently, taking into account such factors as how long it would take to rebuild damaged buildings, and replace lost stock and equipment. Therefore, it is arguably best to have an over generous indemnity period, rather than one that may fall short.
What is the material damage proviso?
In simplest terms, the material damage proviso is a condition within the business interruption policy that exists to minimise the period during which the affected business will be interrupted. All business interruption policies have a material damage proviso.
The proviso requires that the policyholder maintains active material damage policies at all times to protect the property in question. The purpose of this proviso is to ensure that in the event of damage, funds are available to repair or replace damaged assets, thus minimising the time it takes for a business to resume full trading, thereby reducing the time the business interruption insurer is required to pay out.
Am I covered?
Business owners often assume that other insurances, such as buildings and contents, will cover loss of income following a disaster at their business, however these insurances make no allowance for any financial losses sustained as a result of the initial damage sustained.
While buildings insurance can be bought as a standalone policy, business interruption is typically sold as an add-on to a business policy, and therefore it is important to check the level of cover when taking out or reviewing a policy.How do I make a claim?
Due to the complexities and forensic nature of business interruption claims, it can pay to have a professional on your side to help calculate the claim on your behalf. This is where a Loss Assessor can help.
A Loss Assessor is an insurance professional, who works on your behalf to prepare and present your claims and negotiate a fair settlement in a timely and efficient manner. The Loss Assessor will calculate your business’ loss of profits, and ensure the claim is inclusive of both tangible and intangible losses. Crucially, the evaluated loss should be based on business forecasts (what would have been achieved had the event not happened) and not simply the previous years’ earnings. This should take into account all influencing factors such as seasonal variations and planned expansion.
Using a Loss Assessor takes much of the stress away from making a claim, which frees you up to focus on getting your business back on its feet.
What else do I need?
For more information or a quotation for this type of cover, please Contact Us, call 01702 560230 or email us at email@example.com
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