HOW LONG DO I NEED TO INSURE FOR?
The indemnity period is the period which the insurance policy will provide cover for disruption to your business. It not only covers the period which it takes to rebuild a damaged building or replace stock etcetera it is the period which you expect the business will take to be back exactly were it was at the time of the loss. This means getting back or replacing any lost customers and/or protection for any ongoing increased costs of working to the business. There is no use having a short indemnity period if a) your client has to incur the costs of moving back into the finished building after the indemnity period has expired or b) they have to determine the lease and agree with the Landlord an amount to cover the rent due for the remaining lease period to allow his tenant to leave without any further liability.
Other things to think about are:
ACCEPTANCE OF THE PROPERTY CLAIM
How long will it take the insurance company to accept your claim in respect of the loss of assets. In respect of any claim, this entails a through investigation by Loss Adjusters into the cause and the compliance with any warranties that may within the policy schedule or the policy wording. This process can typically take up to 3 months but once this amount of time has passed advice should be sought as to what action your client can take to protect their own position..
Let us assume you cannot occupy the building you usually do. There has been a fire, or flood. What alternatively premises are available to you? In many areas, such as shopping centres, retail shopping areas, country towns that there is a shortage of alternative accommodation available. This is particularly relevant in cases where your business has particular needs. Health department approval for food handling, particular requirements for electricity, gas, lifting, delivery, and storage facilities are just a few examples.
THE CONNECTION OF SERVICES
The connection or reconnection of electricity, gas, telecommunications can be a problem for the original premises or to the premises to which you may relocate, temporarily or permanently, particularly to newer areas. The timescales for any of these services can be very extended and it is essential to place orders with the relevant supplier as early in the claim process as possible to avoid any undue delay in the recommencment of trading whether from temporary premises or the risk address once it has been reinstated after the damage.
REMOVAL OF DEBRIS
How long will it take, allowing for the Environmental Health Authority and HSE rules and regulations to clear the damaged property ready for replacement? In the event of foods and hazourdous materials such as asbestos then the removal of these must be by a properly licensed company to the appropriate waste sites.
The time frame to obtain planning permission to rebuild to current standards sometimes requiring a new planning application which can take several months. This is why most commercial leases now allow the landlord a minimum of three years before they have to complete repairs. Please check your clients lease as part of your review process.
There is the tender phase of obtaining quotations for the reinstatement of the building, machinery and plant etcetera. It takes time to prepare an adequate scope of works and then receive back priced tenders. The timescale for receiving the necessary quotations can seriously eat into the Indemnity Period if is 12 months.
LEAD TIMES ON REPLACEMENT EQUIPMENT
If your business relies on product or machinery that is imported from overseas or is otherwise not immediately available then you need to factor this into your calculations. The more complex the machinery typically the longer the lead time.
INSTALLATION, TESTING AND COMMISSIONING
It is one thing to rebuild a building but then it has to be fitted out. Partitions may have to be built, telephone cables laid, computer networks installed etcetera. For some risks this can be many weeks of work.
Similarly, any new equipment needs to be installed, tested and commissioned. What reasonable timescale is required to carry out the full installation and commissioning programme. This period will once again reflect on the length of the Indemnity Period to be chosen.
THE TIME TO RELOCATE BACK INTO YOUR PREMISES
If your business has temporarily relocated after a loss, you will need to return to your original premises. This can be a time consuming and disruptive period.
WINNING BACK NEW CUSTOMERS
This is the major point that most or many people overlook. Even when all the property is reinstated your client is entitled to continue to claim under an interruption policy until the turnover has returned to normal as has your expense rate providing the Indemnity Period has been adequately stated.
Regardless of the type of insurance, the time taken to win back your customers should be carefully considered when determining what level of indemnity period is required.
The standard 12 month maximum indemnity period is almost always insufficient. Indemnity periods of 24 months or longer will, for virtually every business, be a period which will allow a sufficient length of time for the business to properly recover back to the position it would have been in had the loss never occurred.