M93 - Chapter 8 Flashcards
What is a business at risk from after a claim occurs that stops or inhibits trading?
Losing customers / orders
Lost income / profit
Ongoing costs that could increase (Rent, rates, insurance)
Salary bill
How does a BI policy assist a business in need?
Pays ongoing costs
Makes up profit shortfall
Pays extra costs - Overtime, provisional repairs, subcontractors, temporary premises or machinery
LESS ANY SAVINGS MADE A REDUCTION IN TRADING.
To avoid confusion in BI claims, Insurers often do not use the phrase ‘Gross profit’ what do they use?
Insured profit
What item on the accounts sheet does the book say cannot be insured under BI?
Bad debts
What does turnover consist of?
Variable charges - Variable sales etc.
Standing charges - Fixed payments
Net Profit
Definition of Insured Profit
Equation
TCW
OWU
value of opening stock + work in progress + uninsured working expenses
How will the values of opening and closing stock to ascertained? (deducted from settlement)
Calculated via your normal methods
Make a provision for depreciation
Key difference between Insured and gross profit
Insurers are concerned with
- Profit that relates to the insured business
- That can be subject to indemnity
For Declaration-linked basis of cover - What terms are applied to insured to declare?
- Supply estimate of profit for the year to come, where the indemnity period exceeds 12 months.
- After 6 months supply an accurate declaration
- If higher, pay additional premium with no limit
- if lower, receive an RP but no more than 50%
What is the common liability limit % for BI claims
133.3%
How are ‘extension limits’ controlled within a policy?
By %, inclusive of the 33.3% uplift.
EG
SI: £400,000 + 33.3% Uplift: £533,200
Extension limit 10%
£53,200
For ICW claims cover is restricted to the ‘economic limit’ what is this?
The insurer will pay for more than £1 for every £1 to prevent the loss of profit.
In short, who is increased cost of working best suited for?
Those who don’t rely on their premises to trade EG Financial advisors, legal people, brokers.
However, they may still be some loss of profit from lost appointments, leads and documentation.
How is adequacy of ICW cover assessed?
Costs could be ‘reasonably & necessarily incurred’
- What expenses will I incur to get back trading quickly?
- How much will this be?
- When will these costs happen?
On what basis does ICW claims work?
First loss
What are ‘revenue’ type BI covers?
Gross Revenue (Solicitors and other professionals)
Gross Fess (Private schools and similar)
Gross Rentals (Property owners)
What does rent receivable cover?
Loss rental income whilst property is uninhabitable and until a tenant can move back in.
What does Advanced profits insurance cover?
The profits/future earnings of a new business to be set up, is to be financed by firm and its bankers and has business plan, purchased/tendered equipment and employed staff.
How is advanced profits cover limits made up?
Equation
Loss of insured profit + Increased cost of working - Saving on business costs
Subjected to average, consequences of damage caused by an insured contingency, and occurring within the policy period.
2 x other BI covers
Book Debts Research Expenditure (delays in R&D)
2 x Indemnity periods
Indemnity period - The amount of time the event effects the insured.
Maximum Indemnity period - Maximum period that the insurance will pay out for (as losses may exceed the period that the claim is fixed in)
To forecast maximum indemnity period, the factors to be considered are?
Time to
- Rebuild
- Reequip
- Stock up
- Time to resume production
+ Time to regain market share (reduced by outworkers, buffer stocks and overtime)
For a seasonal business what factors must be considered for a BI limit?
Rebuilding of premises + re-quipping
Repair of facilities
Period to regain market share/guests
What is a special feature of Advanced profits cover concerning the indemnity period?
The period starts from when the business would have commenced trading
What is the typical maximum cover under capital additions
£500,000
When does average apply to a declaration linked BI Insurance
If profit is 50% under estimate
How is the economic limit calculated?
Gross profit / Reduction in turnover avoided
What factor influences the basis rate for BI
Material damage inception hazard
How can a BCP assist an insurer
When assessing EML
What restrictions do Insurers place on ICW payments?
Max 50% in the first 3 months of the loss
One ninth of the difference between SI and amount in the next 3 quarters of the 12 months.
Other options include pro-rata, or no restrictions.
