sme business interruption webinar series...webinar schedule webinar 2: how we approach business...

SME BUSINESS INTERRUPTION – WEBINAR SERIES Webinar 2 – How we approach Business Interruption cover in SMEs!

Chris Graves

National Underwriting Manager - SME

April 2016

WEBINAR 1 – RECAP

• Webinar recording : http://cgul.ink/BI1

• Q&A Responses : http://cgul.ink/BI1QA

• Presentation Slides :

http://cgul.ink/BI1SLIDES

What does Business Interruption cover mean to your clients – 30 March 2016

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http://cgul.ink/BI1

http://cgul.ink/BI1QA

http://cgul.ink/BI1SLIDES

WEBINAR SCHEDULE

Webinar 2: How we approach Business Interruption cover in SMEs!

Date – 26th April 2016

Webinar 3: Demystifying the claims process!

Date – End of May

Webinar 4: Common mistakes made in Business Interruption - How can we can help.

Date – Mid June

OBJECTIVES OF TODAY’S WEBINAR

• The various options available to insure Business Interruption

• The fundamentals of cover provided within the various Business Interruption options

• The considerations to help select the most appropriate cover for your client

• Application of Additional Benefits

• Extensions of cover available

At the end of this Webinar we want to create awareness around:

HOW IS A BUSINESS’ INCOME SPLIT OUT?

Fixed Expenses

• Rent

• Loan Repayments

• Full time staff

• Staff benefits

• Other contractual commitments

Variable Costs

• Raw Materials

• Stock

• Temporary Staff

• Power

• Advertising

Profit

• Accounting profit

• What is actually left for the owner

Turnover or income received

HOW IS A BUSINESS’ INCOME SPLIT OUT?

• Most business (even those of a similar type)

have different apportionments in relationship

between Fixed & Variable costs.

• In some cases what may be a Fixed cost for

1 business may be Variable for another (ie

rent)

• Alternatively some costs may have a Fixed &

Variable component

• It is critical to work with the insured to work

out the relationship between expense type to

set up the best cover

What do we know about income splits

WHICH COVER IS MOST APPROPRIATE ?

BI

Gross Profit

Annual Gross

Revenue

Payroll

Weekly Revenue

Gross Rentals

AICOW

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TRIGGERS FOR BUSINESS INTERRUPTION

For the policy to be effective:

• The insureds’ business must be interrupted or interfered with as a result of Damage occurring

during the Period of Insurance,

• The policy will respond during the Indemnity Period which means the period beginning with the

date of:

• The occurrence of the Damage and ending not later than the last day of the period specified in

the Schedule, during which the results of the Business are affected as a consequence of the

Damage.

The Policy trigger is always the same

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TRIGGERS FOR BUSINESS INTERRUPTION Why does the damage have to be insured?

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TRIGGERS FOR BUSINESS INTERRUPTION

The Commercial Packages Business Interruption section will be triggered when we pay a claim under

any of the following insured sections:

Section 1 – Property; or

Section 3 – Part A – Theft of Property; or

Section 3 – Part B – Money; or

Section 4 – Glass; or

Section 8 – Part A – Computer and Electronic Equipment, for Fire and Perils or Accidental

Damage(as Defined in Section 8); or

Section 9 – General Property

Note for Machinery Breakdown, unless insured under a Padlock policy, you will need a stand alone

policy with profits cover taken out as an extension.

As are the sections which can trigger a claim

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GROSS PROFIT - COVER

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Adjusted T/O &

closing stock

Opening stock &

Uninsured Working

Expenses

Insured Gross Profit

Insured Gross profit

divided into T/O = Rate of

Gross Profit


The amount produced by applying:

The rate of gross profit to the amount by which the turnover falls short of standard;

Plus

Additional Expenditures associated with minimising the claim.

The Gross profit sum insured must reflect the indemnity Period:

• If it is for less than 12 months the annual Gross Profit (12month) is used.

• If more than 12 months, the SI must represent the entire Gross Profit for the Indemnity Period.

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Good to use Be wary of

When a large portion of income is tied up in

variable costs

Ensuring that UWE are actually fully

variable

If you wish to have a different basis of

settlement with Payroll or Rent Receivable

Ensuring future trends are considered

For larger sized businesses which tend to

have a greater $ amount of costs they don’t

wish to insure

Re-checking calculations each year to see

that splits are still valid

Consider need for appropriate AICOW &

Payroll cover

Pros & Cons

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PAYROLL COVER

Employee remuneration including but not limited to:

• Wages

• Salaries

• Payroll tax

• Fringe benefits tax

• Bonuses

• Holiday pay

• Sick pay

• Worker’s compensation insurance premiums

• Superannuation

What’s included?

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PAYROLL COVER

• If you wish to have flexibility in retention of

employees post loss via dual basis method

incl option to consolidate

• If looking only to insure for Payroll under

Business Interruption

• Where you may have concerns that rolling

the Payroll loss into the Gross Profit

settlement may not always be appropriate (ie

retain all employees but business may have

fluctuating sales year to year)

When to insure separately

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GROSS REVENUE - COVER

Claim is settled by applying:

The amount by which Revenue earned during the Indemnity Period falls short of the Standard

Revenue (less any savings achieved);

Plus


The Gross Revenue sum insured must reflect the indemnity Period:

• If it is for less than 12 months the annual T/O (12month) is used.

• If more than 12 months, the SI must represent the entire Revenue (with adjustment for trends) for the Indemnity Period.

T/O is declared as Annual Revenue

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GROSS REVENUE - COVER


There are limited variable costs or you are

unsure how much may be variable –

particularly smaller businesses.

Ensuring future trends are considered and

adjusted

For accommodation, some manufacturing,

repairers, cafes, transport/logistics,

professional services, medical industries

Wish to have full Payroll cover

Not difficult to calculate

Pros & Cons

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WEEKLY REVENUE COVER


The percentage reduction in Actual Weekly

Income following Damage compared to the

weekly average achieved in the 12 months

immediately prior to the loss or damage.

Notes

• IP begins with occurrence of Damage

• Payments cease when income after damage exceeds 95% of Actual Average Income

• Not a suitable cover if the business is subject to seasonal variations

Sum Insured is calculated on the same basis as Revenue & divided into no of weeks

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GROSS RENTALS - COVER


The amount by which Rentals earned during the Indemnity Period falls short of the Annual Rentals

(less any savings achieved);

Plus


The Gross Rentals sum insured must reflect the indemnity Period:

• If it is for less than 12 months the annual rentals (12month) are used.

• If more than 12 months, the SI must represent the entire Rentals (with adjustment for trend) for the Indemnity Period.

Rent Received is declared as Annual Rentals

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GROSS RENTALS - COVER


For Property Owners Risks Ensuring future trends are considered &

adjusted

In Padlock this includes other income

received from operation of the business (on

a Gross Revenue basis)

Ensure that any contributions to outgoings

are included in Rentals sum insured if the

insured is liable for these

If you have property owners & business

operations activities & you need to

separate basis of settlement

Not difficult to calculate

Pros & Cons

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ADDITIONAL INCREASED COST OF WORKING COVER

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• Advertising campaigns

• Increased costs in sourcing replacement stock

• Hiring additional staff or paying overtime to reduce production backlogs

• Providing sales incentives to retain key customers

• Outsourcing of existing contracts to Third Parties

• Obtaining expert help/advice for the business

Types of costs that may be covered

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• Additional expenditure not otherwise payable under the Business

Interruption section, necessarily & reasonably incurred during the

IP to avoid or diminish a reduction in income or maintain normal

operation of the business.

Covers

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ADDITIONAL BENEFITS – CONTINGENT EXPOSURES

Unspecified Customers/Suppliers Premises

• Covers Interruption as a result of insured damage (as per Buspack Policy) to their premises anywhere in Australia

• 20% of Business Interruption SI automatic

• Extensions to auto limits can be allowed subject to EP & UW consideration

Murder Suicide, Disease

• Triggers at Situation; murder or suicide, illness through food consumption, closure by public authority for vermin, bomb threat, defects in sanitary arrangements

• Outbreak of Infectious Disease (excl 1908 Quarantine Act) within 20km of situation

• No sub limit


Public Utilities

• Covers land based property in Australia for suppliers of; electricity, gas, communications, water/sewerage suppliers

• Covers Interruption as a result of insured damage (as per Buspack Policy) to their premises anywhere in Australia

• No Sublimit

• Interruption needs to extend 2 days

Prevention of Access

• Covers Interruption as a result of insured damage (as per Buspack Policy) to property (incl roads, bridges etc) within 50km of the insured premises that prevents our hinders access to the insureds property.

• No Sub limit



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Property in a Commercial Complex

• Covers Interruption as a result of insured damage (as per Buspack Policy) to another commercial property within the complex of the insured premises where it can be demonstrated that the loss of that property results in a loss of trade to the insureds business.

• No Sub limit


OTHER ADDITIONAL BENEFITS

Clause Benefit

Fines & Damages Min 20% of Business Interruption SI

Accountants Fees Min $5K

Damage at Storage sites 20% of Business Interruption SI

Damage whilst in Transit in Australia 20% of SI

Damage to Documents/Records not at

premises

20% of SI

The following are also included under the BI policy

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NEXT WEBINAR

Demystifying the claims process!

Date: 25th May 2016 (Tentative)

MARKETING MATERIAL

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KEY THINGS TO CONSIDER

How strong is your understanding of your clients

operations?

Which option best suits their needs?

Have a think about it and have the conversation…

Speak to your CGU Business Relationship Manager to find out more!

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