According to the Insurance Council of Australia, most business interruption policies weren’t designed to cover pandemics. Insurers didn’t factor them into their costs, and reinsurance wasn’t generally available for pandemic cover. This means there were no reserves set up for pandemic-related claims.
But businesses shouldn’t necessarily see that as a brick wall to claiming on business interruption insurance. This cover protects against direct and indirect risks – unexpected events – that force you to close your business or stop operations for a while. In such circumstances, this insurance helps support the cash flow and income stream for small-to-medium-sized enterprises.
The Federal Court dismissed an appeal to an initial test case. The Court of Appeal held that insurers were not able to rely on a policy exclusion which referred to the Quarantine Act 1908. This Act was repealed with the introduction of the new Biosecurity Act 2015.’ As of late June, insurers are still in that court for a second test case to work out how policy wording relates to pandemic coverage.
Check for updates about the business interruption test case from the Insurance Council.
What you can do about business interruption now
However, while that test case continues, it’s still worthwhile claiming for business interruption insurance if required. That’s due to the pandemic’s direct and indirect impact, as well as a whole range of other events. We’ll explain how to go about it.
We’re your first port of call to help you develop an action plan because it can be time-consuming, comprehensive work. We’ll review your policy with you regarding coverage and advise you on how best to prepare your claim.
Measuring your loss
To prepare for your claim, you’ll need to quantify what the unexpected event has cost your business. Relevant evidence includes invoices, receipts, cancelled orders, etc. To work out the claim value, insurers will need details about:
- Loss of gross profit/rent
- Extra expenses
- What you saved in expenses
- Logs and other evidence to document your efforts to get your business fully running
- Claim preparation costs.
Take into consideration business trends and seasonality, the availability of records, as well as sales.
We’ll guide you through your insurance policy’s evidence requirements. It may call for comprehensive expert reports. Your process needs to follow loss-quantification methodologies and be communicated as insurers dictate. Remember, it’s not just the revenue loss but that minus the expenses your business would have incurred to generate that income. Insurers will expect to see about two years of historical data from your business.
Work out your extra expenses
Ensure you factor in the extra costs of running your business due to the unexpected event. That could include sourcing alternative suppliers, relocating to and from a temporary site, rental costs, buying new stock to replace what’s been damaged, and training costs for your staff to use replacement machinery. You may have paid higher courier costs to receive goods faster from your suppliers, or be out of pocket for staff overtime or temporary hire, for example.
You’ll have additional costs such as claims preparation fees to experts such as an accountant, insurance loss assessor, or auditor. And, yes, your insurance will usually cover their fees to prepare aspects of your claim.
Your loss mitigation plan
Take time to create and roll out a plan to mitigate your losses after the event that’s disrupted your business. Losses could include operating from another or temporary location and targeting different suppliers and customers. Your plan should assess potential recovery scenarios – best, base, and worst case – to get you back to fully operational. Include a cash flow projection. Don’t forget to list the additional expenses you’re expecting to incur, and we’ll work with your insurer to make sure they’ll preapprove them.
Help at hand to formalise your claim
Insurers can be very particular about the documentation they need to assess your claim. Avoid any delays or hiccups by having us guide you through the process. We’ll triple-check your claim documentation ticks all of the boxes before sending it. If your claim is well-documented, you’re more likely to have it processed quickly and get a higher settlement value.