Your establishment is unexpectedly destroyed by fire or a flash flood, or your daily office operations grind to an irritating halt as the throws of load shedding grip and snuff out your ability to function comprehensively, severely inhibiting the opportunity for you to generate revenue. Are you able to:
– Make up for the profits/revenue lost while your business is shut down?
– Cover ongoing expenses, such as payroll and rents?
– Cover the extra cost of resuming your business as quickly as possible?
Did you answer “NO” to one of these questions?
If yes, please get in touch with us, we are here to help you.
Property Insurance covers the direct loss to property as a result of a fire, flood or other covered events, Business Interruption Insurance covers the direct financial loss caused by the inability to utilize damaged property. It also covers the financial loss incurred when a physical structure of your business is not damaged but is forced to cease operations. (e.g. utility services or a third-party supplier’s inability to provide the components to continue operations). As such, Investing in Business Interruption Insurance in what is deemed to be a third world country is imperative. Consider these alarming statistics for a minute. Should an establishment or part thereof be damaged by e.g. fire today, income will immediately and continue to be lost, resulting in devastating financial ruin.
– Guests require evacuating and booking conditions/ agreement depending, may want the remainder of their stay refunded
– Pending bookings cancelled for the duration the establishment is out of operation
– Revenue from booking fees lost
– Revenue from activities not included in the standard rate lost
– Market share and exposure may be lost
– Fixed costs – salaries, bank charges, interest, advertising, electricity etc require payment
– The site cleared, debris removed, and plans submitted before rebuilding can begin
– Excessive and focused advertising may be necessary when the establishment is operating again
– It may take time for previous financial turnover to be redeemed to pre-damage levels
– Business interruption cover can be issued on either a total annual revenue basis or a gross profits basis.
Revenue basis
This covers the total annual revenue for the period of cover, (i.e. period of cover is normally either 6/12/18/24 months – the period needs to be specified and is normally representative of the time it would take to re-build the establishment if it was destroyed, and therefore out of operation, and not earning revenue – at which time the insurance cover would kick in to cover this lost revenue). With revenue basis the sum insured is the annual revenue = The money paid or payable to the insured for goods sold and for services rendered in the course of the business at the premises.
Gross Profit basis
This covers the gross profits being calculated as total revenue less any variable costs that will cease should the establishment not be operational (so in effect sum insured will be profit plus standing charges/ fixed costs). With this option, the sum insured will be less as gross profit amount will always be less than revenue amount. However, the difficulty is getting the calculation correct, as many of the costs are unknown. If the calculation and the sum insured is incorrect – average is applied to the loss and the insured may end up being paid less than the actual loss suffered.
In view of the above we recommend that our tourism, hospitality and leisure clients opt for the revenue basis of calculation when selecting Business Interruption Insurance.
Please contact us at info@satib.co.za should you require any further information
