Selecting perils in business interruption insurance
It is important for the proposer to bear in mind when selecting the rang of peril to note that, even a small physical loss may result in severe interruption to the business.
The areas of differences and similarities in the perils covered by a BIP and a fire material damage policy include:
The BIP explosion cover includes explosion of any other boilers or economisers on the premises in addition to the explosion or domestic boilers or gas. Since the material damage warranty applies and the insured wishes extra cover to operative,then it is essential that an engineering policy be taken out which will cover such boilers.
Riot , Malicious Damage and Theft Covers
The BIP policy extension to riot and malicious damage also differs from the material damage policy wording. The material damage policy covers damage by strikers. The BIP also insures losses consequent upon that damage but does not, for example cover the financial loss resulting from a strike itself. The material damage extension to malicious damage excludes destruction or damage by theft but this exclusion does not apply to the wordings of extension under BIP.
Infections and Contagious Diseases, Food Poisoning, Murder or suicide
These are perils of human nature they do not have a material damage warranty applicable as there is no property capable of being insured. The net effect of the outbreak of these perils to an insured is that they could have a serious drop in business income. Business Interruption insurances especially those for hotels and boarding houses, are extended for additional premium to cover food or drink poisoning, notifiable disease, vermin, defective sanitation, murder and suicide.
The cover provides for fire, lightning, limited explosion. Aircraft damage, storm, flood, bursting of water apparatus and impact damage.
Cover for the following additional perils can be provided sometimes at no extra premium:
- Accidental damage
- Spontaneous combustion
- Subterranean fire
- Sprinkler leakage
Non – damage perils
- Human infectious and contagious diseases occurring within the premises
- Food poisoning
- Murder or suicide at the premises
- Human infections, contagious disease or food poisoning within an area of between five and twenty kilometers of the premises. This is referred to as an area of cover.
Any outbreak of human infections, contagious diseases or food poisoning either at the premises insured or in the immediate vicinity, could have a serious effect on certain businesses such as hotels, restaurants foot retailers, foot processors hospital and leisure centers
Extensions – cover away from the insureds premises
This extension operates on the basis of the insurable perils causing damage to customer’s suppliers and other premises and resulting into loss of income to the insureds business. The policy can be extended on the basis of specified customers, suppliers etc., or on specified or unspecified basis. When on specified basis, the insureds customer(s) or supplier(s) is or are named in the policy.
When setting a specified customers or suppliers limit, the proposer must bear in mind the amount of their business which depends on what customer or supplier and the terms of any contract which are in place. If that the customer/ supplier is no longer able to trade with them because of fire at the premises, the proposer should consider whether;
The customer or supplier is likely to be lost forever
If so, how long would it take them to replace that size of customer or supplier and reinstate their income at the same level as before.
One usual aspect of the extension cover is that it can be extended to apply to overseas locations whose operations may interrupt the insured premises. The underwriter therefore needs to have some knowledge or have access to someone who does of the behavior of the selected perils in the territory involved.
Extensions to other premises
First, it must be noted that, in offering the extensions of cover to premises which are not under the custody or control of the insured. The insurer has to accept that the property damage warranty mentioned earlier cannot be forced as the insured has no control over the arrangements of the insurance for the customers or supplier’s premises.
Loss of supply of electricity, gas or water will usually paralyses a business though only for a time. This extension aims at offering cover for occurrence and can be offered for a damage or failure of the utility.
- Damage cover – at the premises of any of the utility companies from which the insured obtains their supplies, e.g. the location substation for electricity.
- Failure cover – this operates if the supply of, say electricity fails to reach the terminal end at the insureds premises for any reason (subject to some exclusions)
The crucial factor when considering this extension is the location of the insureds premises in relation to surrounding premises and how accessible it would be in the event of serious damage to those other premises by fire or other peril, e.g. narrow road or street having to be closed off for long hours.
Prevention of Access
With increase in terrorism activities, the demand for this cover has grown, particularly in the major cities and especially for retailers. Cover is provided for:
- Occupation by terrorism
- Unlawful occupation by third parties
- Closure by the police or any other statutory body so as to contain an explosive device.
This insurance is referred to as a non – damage type denial of access cover because there does not have to be a damage to either the insureds premises or the subject property for the cover to operate. This cover is subject to time excess of at least the first twelve hours and loss arising from any cause within the control of the insured is excluded.
Access to an insureds premises may also be prevented because of inter alia, damage at nearby premises without damage being done to the insured’s. A large loss of turnover could result if the public were denied access even for a relatively short period of time. The cover is generally subject to a time excess of at least first twelve hours, and loss arising from any cause within the control of the insured is excluded
Terrorism business interruption covers the consequences of interruption of a business by terrorism acts.
Damage at an Exhibition Site
Accidents at exhibition sites due to be attended by an insured can result in a loss of orders. This extension caters for that occurrence. This extension can be written individual for that occurrence. This extension can be written individual for each exhibition attended by the insured or it can be written on an annual basis and details of attended exhibitions given later. It also caters for loss of a delivery vehicle or similar incidents which may cause or result in a loss of income to the insured,