Business Interruption Claims
Business interruption insurance typically covers short-term financial loss arising from interruption to a business’s operations as a result of damage to the business premises or equipment.
Cogence Group has provided calculation support to small businesses submitting claims and negotiating claims with their insurance carriers to arrive at a satisfactory result.
To calculate your business interruption losses, consider the following categories:
Lost business income for the interruption period
Lost inventory, unpaid receivables, and other assets
Restart costs / additional expenses
Lost business value
Lost business income for a business interruption claim is calculated as lost sales less avoided costs. To estimate lost monthly sales, most small businesses are able to look at the few months before the event. Seasonal businesses could look to the previous year’s sales during the same time of year and adjust for any changes to the overall business trend.
Avoided costs are the variable costs that were not incurred because of the business interruption. Avoided costs are a little trickier to calculate. These are commonly inventory that was not purchased or wages that were not paid to employees. Again, comparing the company’s recent history to the loss period will be the best place to start to identify these types of costs.
The next thing to consider are assets that were lost due to the business interruption. These lost assets could include inventory that expired or were damaged. Lost assets could also be damaged equipment or lost data. Depending on your business, there could be many more.
The third category of claims are costs that will be incurred to mitigate damages or restart operations. If your building was destroyed in a fire, you may be able to claim moving costs to reopen. Your business may incur significant costs re-hiring the same or different workforce. There may be deposits incurred to set up relationships with new suppliers. These are just some examples of possible costs associated with restarting your small business.
Lastly, to claim a total business loss, have an independent, third party, value your business before the loss event. This is a worst-case scenario claim for lost business value because your business is forced to close permanently.
Does calculating business interruption losses sound like something you need?