It’s time to look forward…

By Tim Weymouth, Associate Director, ACII, AIoL

Tim Weymouth outlined why clients should look ahead with their Business Interruption calculations.

I wanted to speak with Tim to establish how this has been received by clients and find out what adjustments they have made.

Penelope Chalk – Tim, have your clients started to review their BI sums insured in more detail?

Tim Weymouth – Definitely. No longer do we see flat numbers year after year. COVID19 brought the whole matter into focus, and more clients are looking to firstly understand what their true exposure looks like from a BI perspective and then look to take an educated business decision in how much risk they wish to transfer to an insurance company.

Penelope Chalk – Can you not just buy enough cover to ensure you will never run out?

Tim Weymouth – Even if the calculation is correct, it doesn’t mean that the insured will recover 100% from the loss as they must still choose how many years to insure for (indemnity period) and the business needs to recover in that time. The indemnity period is a “pure clock” from the time the incident occurs meaning that it’s exhausted even if there is a delay due to an outside influence (E.G COVID19, War in Ukraine). Simply put, even if the business has not recovered to the level of trade that they would have achieved if the loss had never happened, the insurer stops providing financial assistance.

Penelope Chalk – So broker advice when setting a sum insured is more important than ever?

Tim Weymouth – Exactly. We won’t look to produce the sum insured or calculation on behalf of our clients. But what we will do is work with them to produce a calculation which is bespoke to their business, one which includes the trends that they expect to see in the future.

We then look to work with various internal and external consultants to examine what could influence the reinstatement of the business following various events to ensure the client selects the maximum indemnity period that is most applicable for their business.

Penelope Chalk – So everyone is increasing their sum insured and premiums are going up?

Tim Weymouth – Not in every case, no. In most cases, they are looking to track the estimated business performance. But we have had some clients who, through our work with them, have been able to generate a 10% saving for the client by helping them to understand their BI exposure correctly and set a sum insured that was appropriate for their requirements and attitude to risk transfer.

Penelope Chalk – So your article is still very much relevant today.

Tim Weymouth – Yes, certainly, my previous comments very much remain valid and your broker should be challenging you on how your BI sum insured is calculated.

As a quick health check, look at your last three Commercial Combined schedules – if the figures are the same or the sum insured can be divided by your indemnity period and gives a round number (e.g. GBP3m/3 = 1m) then your broker is not looking at this in enough detail. If this is the case, reach out and give us a call as we’d be happy to help – 020 7543 2807.