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Very often we forget that being part of a business\u2019 structure is what puts food on our tables, and that the slightest interruption in the business\u2019 operations could be dire to our livelihood. For instance, over a year ago, an internet data service provider, in Accra, had parts of its network installation guttered by fire.<\/p>\n
Even though the company\u2019s management downplayed the impact, there is no need stating the fact that it interrupted their operations for days, before returning to normalcy.<\/p>\n
However, the losses during the problem management could be inundating. Instructively, business operations may be interrupted by both technical and non-technical events such as fire outbreaks, floods and allied perils.<\/p>\n
One might have seen a few filling stations closed down, albeit temporarily, owing to floods cutting them off from their customers, fire gutting them, among others. Unfortunately, these interruptions may occasion several losses, including profits which are the underlying objectives of any business set-up.<\/p>\n
Scenario<\/strong><\/p>\n Nkyenkyen Oil, an Accra-based Oil Marketing Company, shut down its operations for about two months, due to an inferno that destroyed two of its fuel pumps. The company, consequently, lost several thousands of Ghana cedis in revenue.<\/p>\n Though the company had taken a fire insurance, the claim could only be paid, among others, after an investigative report had been concluded. The claim was eventually paid. Unsatisfied with the turn of events, the company sued the insurer for compensation in lieu of the delayed payment, stating that it had lost both revenue and loyal customers, as a result of the delay.<\/p>\n Without prejudice to the possible outcomes, this scenario typifies the essence of Business Interruption Policy (BIP) or Loss of Profit Insurance. This is also called Consequential Loss.<\/p>\n Effects of business interruption<\/strong><\/p>\n Undoubtedly, the lifeblood of every business entity is its cash-flow. In the scenario above, though the insurer paid the claim after two months, the company, undoubtedly, had already lost both customers and revenue, which could significantly affect the livelihood of its employees.<\/p>\n Arguably, revenue (e.g. from sales) is what companies rely on to pay salaries, rent, utilities, procure raw materials, etc, hence any truncation of the source of revenue could have dire consequences for the company. Indeed, in other jurisdictions, companies in such distress would be obliged to declare some employees \u2018redundant,\u2019 and thus, pay them compensation.<\/p>\n Does Nkyenkyen Oil Company have a case?<\/strong><\/p>\n From the scenario, the company may not succeed in its suit, as the insurer could not be compelled to pay claims without recourse to thorough investigations. The company should rather have taken a BIP against consequential losses; arising from such operational interruption in addition to the other \u2018physical\u2019 policies. This may be likened to the loss of a family breadwinner, with its attendant threat to family livelihood and survival.<\/p>\n What is Business Interruption Policy?<\/strong><\/p>\n Business Interruption Policy (BIP), which is also called Loss of Profit Insurance or Consequential Loss, provides indemnity against losses arising from business operational interruptions including loss in turnover.<\/p>\n The associated financial compensation for the insured will normally not exceed the circumstances immediately prior to the material destruction. For instance, if gross trading profit is turning into a net loss from overhead expenses, a business interruption policy would still respond after a disaster (e.g. fire or flooding).<\/p>\n In this regard, the indemnity would be equivalent to the underwritten expenditure on overheads (i.e. insured charges). It\u2019s however, most appropriate for insurers to accept such liability under a typical fire policy.<\/p>\n Meanwhile, experienced loss adjusters are required to ascertain the actual loss before the claim payment. This is to ensure that the indemnity is not increased as a result of pre-existing cash flow challenges.<\/p>\n The cover<\/strong><\/p>\n The policy terms\/conditions usually include:<\/p>\n \u2022 Definition of Consequential Loss exactly the way it appears in the policy document (no curve, no bend)<\/p>\n \u2022 Insured Perils following the fire policy (i.e. if there is no fire policy or incident, no claim can be made on a BIP).<\/p>\n \u2022 Exclusions such as war, toxic properties, radiation, acts of terrorism, pollution, invasion etc do exist but can be \u2018bought back\u2019.<\/p>\n \u2022 Voidable and alteration clauses on the basis of fundamental insurance principles of Utmost Good Faith and Insurable Interest, respectively.<\/p>\n \u2022 Loss of Profits following machinery breakdown and deterioration of stock can also be covered.<\/p>\n Policy Extensions<\/strong><\/p>\n Apart from the standard policy terms and conditions, businesses can request an extension with the payment of additional premiums on a BIP. To explain this better, it is similar to purchasing a car; one may be required to pay extra for an automatic transmission car as against buying a manual one. Other extensions may include:<\/p>\n \u2022 Increased Cost or Above Economic Limit (e.g. The Graphic Communications Group Limited may request this to maintain the daily and weekly outputs of all of its brands including the Daily Graphic and Graphic Business.<\/p>\n \u2022 Goods in bonded warehouses outside the business premises<\/p>\n \u2022 Where key Suppliers and\/or Customers are the main source of turnover.<\/p>\n \u2022 Others are automobile manufacturers\u2019 extension, notifiable diseases especially in the hospitality sector, transit risks, and moulds \/ patterns.<\/p>\n \u2022 Damages and Fines<\/p>\n \u2022 Access limitation owing to the fire gutting an adjoining property<\/p>\n \u2022 Loss of Documents especially for professionals like engineers, lawyers, etc.<\/p>\n Claims Payment Processes<\/strong><\/p>\n \u2022 In the unfortunate event of fire, the insured must take appropriate steps to minimize the loss.<\/p>\n \u2022 The insured must immediately notify the insurer and provide them with all relevant documents to assist in the claim processing.<\/p>\n Failure to honour the above conditions would give the insurer the right to repudiate the claim, by not accepting liability. In the event of disputes however, the parties must first seek arbitration settlement before a court action.<\/p>\n The way forward<\/strong><\/p>\n Given the complexities in BIP, insurers have a responsibility of educating their policyholders about the intricacies of the policy. Policyholders must also appreciate the fact that basic fire insurance does not automatically cover loss of profit during the period that a business grinds to a halt and awaiting indemnity from the insurer.<\/p>\n Claims payment of certain magnitudes can take a while as due process in investigations would have to be conclusively dealt with. Similarly, in order to ensure business continuity, business owners must request additional \/ extended clauses to their policies especially during such seasons as this one.<\/p>\n \u201cUntil next week, This is Insurance from the eyes of my mind\u201d<\/p>\n \u00a0<\/p>\n<\/div>\n