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Understanding Business Interruption Insurance in the Australian Commercial Property Landscape   

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We are all aware that life can interrupt even the best-laid plans. While many companies ensure their buildings and contents are covered for fire and accidental damage, physical property loss or damage, the potential disruption to business operations is often overlooked. This oversight can lead to financial strain and, in some cases, the failure of the business itself.  

This article covers: 

  • What is Business Interruption Insurance
  • Coverage and Importance 
  • Determining the Indemnity Period and Costs 
  • What Does Business Interruption Insurance Cover? 
  • Who Needs This Type of Cover? 
  • Checklist for Businesses 
  • FAQ 

What is Business Interruption Insurance? 

Business Interruption insurance is a specialised policy designed to provide protection for the business due to an interruption to revenue after a loss following unforeseen circumstances that impact the business. For example, Loss of revenue following a fire or insured interruption at the business premises.

Simply put, Business Interruption Insurance protects your business in case of a disaster. It is designed to cover the loss of revenue and associated ongoing costs to the business.

While nobody likes paying for insurance they might not use, Business Interruption Insurance is crucial. If a disaster forces your business to close, it can provide a safety net to cover your business profits.

Common Scenarios Covered by Business Interruption Insurance   

Business Interruption Insurance does not just cover lost profits. It can be extended to cover wages for owners, key staff wages, additional labour costs, ongoing expenses, leases on equipment, and even costs associated with relocating the business.  

Determining the Indemnity Period and Costs 

Businesses need to accurately assess the potential downtime which could be incurred by the business. The coverage is arranged for a set, indemnity period; which refers to the duration That the business requires the Business interruption coverage for. Insurance companies typically offer indemnity periods ranging from 3 to 36 months (about 3 years). The premium for Business Interruption Insurance is influenced by factors such as the length of the indemnity period and the loss of revenue / gross profit sum insured. The protection offered is invaluable for keeping businesses afloat. 

What Does it Cover? 

Business Interruption Insurance compensates business owners from the time of the loss or damage for the duration of the indemnity period. This depends on the circumstances of your business and the event of loss. Each business and its insurance policy is slightly different regarding how it will be compensated.


Key Factors to Consider 

When choosing the best basis of cover, key factors need consideration: 

  1. Indemnity time Period: How long do you need the cover? How long will it take your business to return to pre-loss trading? 
  2. Salaries and Payroll: Being an optional cover, how many employees do you have to pay throughout the interrupted period?  
  3. Claims preparation fees: Providing reasonable costs incurred by the business in preparing the claim.
  4. Economic cycles: Consider what will happen if you need to claim throughout seasonal fluctuations or economic cycles where business operations are not static. 
  5. Suppliers: How adequate would your coverage be if a customer or supplier suffers considerable damage? How would your business suffer as a result? 
  6. Additional or increased working costs: Increased costs may be incurred by the business in trying to maintain turnover following an insured loss. Eg, rental of a new location or equipment hire.

Who Needs This Type of Cover? 

All Businesses, particularly in the wholesale, manufacturing, hospitality, and retail industries, will benefit from having Business Interruption Insurance.

However, as there are different businesses, it takes specialist knowledge to ensure the coverage provided is adequate.   Unfortunately, expenses, such as rent, subscriptions, etc., will still need to be paid, even if the business is no longer trading due to an interruption. This is a problem you can avoid with proper insurance cover. 

This is where talking to a professional at ACS Financial would benefit your business. We tailor-make solutions and will endeavour to create a policy that suits your specific needs. 

Checklist of Considerations for Businesses  

When deciding whether your business requires interruption insurance coverage, here are some essential items to consider: 

  1. Do you have employees and are required to pay wages?
  2. Do you have leases or loans or rent a space? Will these expenses continue if you don’t have any business revenue? 
  3. Do you have continue to pay suppliers? 
  4. Do you want to protect your hard-earned business profits?

If the answer to these questions is yes, business interruption insurance is bound to be an invaluable risk management strategy for you.   

Call us today on 1800 646 777 to see how you we can be a part of protecting your commercial business.  

At ACS Financial, we’re here for you. 

Frequently Asked Questions (FAQs)   

What is Business Interruption Insurance? 

Business Interruption Insurance is a specialised policy that provides financial protection to businesses in the event of a shutdown due to an insurable loss. It aims to replace lost income and cover additional expenses during the interruption.

Why do businesses need Business Interruption Insurance? 

Many companies focus on insuring buildings and contents against physical damage, but they may overlook the potential disruption to business operations. Business Interruption Insurance is crucial to prevent financial strain and business failure during unforeseen events.

What scenarios does Business Interruption Insurance cover? 

It covers a range of scenarios beyond lost profits, including wages for business owners and key staff, additional labour costs/ hire costs, ongoing expenses, leases on equipment, and can assist in providing costs associated with relocating the business. 

How is the indemnity period determined, and what costs are involved? 

The indemnity period does not just need to cover getting a business back to trading again, it’s about making sure the business gets back to the same trading conditions and cash flow it had before the claim.

What specifically does Business Interruption Insurance cover? 

The insurance compensates business owners for the period of loss or damage until the business.

Who benefits from Business Interruption Insurance? 

Most businesses, especially in wholesale, manufacturing, hospitality, and retail industries, can benefit. Any business relying on a specific location for operations is advised to consider this coverage. 

How can ACS Financial assist in tailoring Business Interruption Insurance? 

ACS Financial provides specialist knowledge to determine the correct sum insured, tailoring cover options for different businesses. Contact ACS Financial to ensure a policy suited to your specific needs. 

ACS Financial has provided expert insurance advice and tailored insurance solutions across Australia for 30 years. Our team of insurance experts have access to a broad range of products that will protect your activities, allowing your investment or business to grow and flourish.

Contact our team at 1800 860 787 to discuss your commercial insurance and protection requirements today.

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