Property and Business Interruption Insurance
Property cover
Understand the perils covered, the difference between named perils and all-risks cover, and the treatment of exclusions such as wear and tear, faulty design and gradual deterioration. Know the meaning of sum insured, average, reinstatement and day-one cover.
Business interruption
Understand the basis of cover: gross profit, gross revenue, increased cost of working and the indemnity period. Know the difference between loss of gross profit and loss of revenue, and the effect of the maximum indemnity period. Understand the role of the material damage proviso and the prevention of access extension.
Traps
Questions often test whether average applies to business interruption and whether the indemnity period runs from the date of damage or the date of interruption. Another trap is treating increased cost of working as unlimited; it is subject to the sum insured and the economic limit.
Worked example
A fire stops production for four months. The policy has a six-month indemnity period and a gross profit sum insured. The claim is the reduction in turnover less saved costs, plus increased cost of working, capped by the sum insured. Rule of thumb: match the indemnity period to the time needed to restore turnover.