Estimating Business Interruption. It’s not a matter of guts feelings!

Estimating Business Interruption. It’s not a matter of guts feelings!

Sep 17th, 2015

Estimating Business Interruption

Recent media reports on business interruption insurance claims triggered by natural catastrophes have revealed an ubiquitous trend to shortcomings. Business interruption (or BI) insurance policies cover the loss of profit that a business suffers after a disaster (such as the downpours in Quang Ninh, or what Godzilla’ El Nino could create) due to a reduction in turnover and the increased costs in running the business. The loss covered may be due to a disaster-related closing of the business or due to the rebuilding process after a disaster.Flooding from a mountainside creek- debris deposited on road

Riskope has performed  numerous quantitative BI analyses, generally showing agreement with the news: clients all over the world have generally underestimated BI insurances.

Experience shows that oftentimes, even after half a decade, the repairs or the full extent of damages are yet to be determined, whereas many have a bare 12-month indemnity period on BI cover. Indemnity period refers to the maximum length of time during which benefits are paid enabling the business to return to pre-loss trading levels.

Riskope has proposed to clients various innovative ways to reduce BI and avoid excessive premiums. These often require B2B solutions to be developed, contracted and drilled before a disaster hits.

Reportedly some insurers are now offering longer deferment periods – allowing policy holders to delay the triggering of their indemnity period until their business is affected, as opposed to the insurance kicking-in on the date of loss. Beware, though, this flexibility is not offered by all insurers and many who do offer it, limit the ‘deferment’ to 12 months after the damage.
Additionally, businesses will have evaluate if they accept the higher costs of a longer indemnity period, but it is vital to get the length of time right so your business can survive any tragedy.

Riskope recommends clients to take a close quantitative (risk) look at the terms of their BI cover, development of a mitigation plan, possibly based on B2B solutions. Guts feeling and simplistic approaches are showing to be misleading and costly!

See here for additional resssources

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Category: Consequences, Probabilities, Risk analysis

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