Business Interruption Insurance – Introduction:
Business interruption insurance plays a crucial role, as highlighted by a recent fire incident at a waste fuel depot in Adelaide. Although the immediate physical impact on nearby businesses appeared minimal, the true extent of the damage became apparent in the following days. Notably, a mobile food business faced significant financial consequences without experiencing physical harm. This incident serves as a reminder that being adequately insured against an interruption is essential, surpassing the risks of being underinsured.
The Fire and its Aftermath:
The fire at the waste fuel depot required the efforts of over 100 firefighters, spanning many hours, to bring it under control. Fortunately, the neighbouring properties escaped significant physical damage. However, the incident had far-reaching effects on the business community, as demonstrated by the mobile food business that was featured in news reports.
Losses Without Physical Damage:
The mobile food business experienced a critical setback due to the fire. For approximately 48 hours, they were unable to access their property, leading to a loss of power and subsequent destruction of all the food stored. Additionally, their vans were inaccessible, further exacerbating their financial losses. Despite escaping physical damage, the business found itself tens of thousands of dollars out of pocket.
A Potential Solution:
The mobile food business’s predicament highlights the significance of business interruption insurance. While the article discusses the limitations of certain insurance policies and their failure to pay out for damage claims, it underscores the potential coverage provided by business interruption insurance. Many insurers offer this type of coverage for loss of income resulting from restricted access to a property due to a defined event covered by the policy.
Recouping Income Losses:
Had the mobile food business opted for the correct cover, it might have been able to recoup a portion of its income loss. This cover is specifically designed to mitigate the financial impact of interruptions, allowing businesses to recover lost earnings and cover various costs associated with resuming operations.
The Importance of Business Interruption Insurance:
The reluctance of businesses to obtain business interruption insurance remains a puzzling phenomenon. While property insurance is commonly considered adequate, the time and costs involved in getting a business up and running again are often overlooked. The inability to trade results in a loss of income, leaving businesses burdened with ongoing expenses.
Key Questions and Considerations:
To illustrate the necessity of this insurance cover, several crucial questions arise:
- Where will the business generate income during an interruption?
- How will the business attract customers back after they have turned to competitors during the interruption?
- What if the business needs to relocate to alternative premises?
- Who bears the cost of such relocation?
Business interruption insurance can address these questions and cover the associated expenses, ensuring a smoother recovery process for affected businesses.
Conclusion:
The recent fire incident at the waste fuel depot in Adelaide serves as a stark reminder of the importance of business interruption insurance. Despite not sustaining physical damage, the mobile food business suffered significant financial losses due to the interruption caused by the fire. This incident underscores the need for businesses to consider the potential long-term consequences of interruptions and to secure adequate coverage. Being over-insured rather than under-insured remains a valuable lesson for businesses seeking to safeguard their financial stability in the face of unforeseen events.
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It’s very interesting to see how many businesses are still well under insured and continually take the gamble with their livelihood. I would be interested in seeing some figures around how many businesses make a claim and find out they are not covered for a lot of what they thought they were.
Why do you think so many businesses are under insured? Is it due to a lack of education or do businesses have an attitude of “it won’t happen to me”?
For a simple reason, they are not willing to pay extra premiums for the additional cover-BI as they are probably of the view that it wont happen to them or unlikely to happen, why pay the extra premium and they are willing to take the gamble/chances. In my view, I would not use the terminology “under-insured”. Self-insured is more appropriate to describe the situation
that’s my two-cents worth view.