Business interruption insurance

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A business interruption insurance is the collective term for those types of insurance of non-life insurance , the insurance cover for loss of income due to business interruption grant or deterioration in operational service provision and utilization.

Basics

Insured interest: The insured company is the risk subject . However, the insured interest is not based on the intrinsic value of its production factors , but on their potential for use or earning power for the operational performance process. The insured company is usually the production site of the policyholder. In general, the insurance also covers the effects of property damage within a company or group of companies (damage caused by interaction). If there is property damage at operating point A, as a result of which operating point B can no longer produce due to a lack of deliveries, there is insurance cover. As part of the contract drafting, it is also possible to involve direct suppliers and buyers (protection against retroactive damage). As a result of globalization, however, there is considerable potential for accumulation of damage for direct insurers and reinsurers, since the failure of a major supplier can affect a large number of companies. Examples of this are the earthquake in Japan in 2011 and the floods in Thailand in the same year. This is why insurers usually limit the protection for retroactive damage to low maximum indemnities. In some cases, insurers require extensive risk information on supply chains and fire protection from suppliers before cover is granted.

The prerequisite for compensation from the business interruption insurance is property damage at the place of insurance that caused the interruption. The property damage must have been caused by an insured hazard, for example fire and damage to an object that serves the company. It does not have to be the property of the policyholder. For example, business interruption following fire damage to a transformer on the premises is insured if the transformer is owned by an energy supplier. Since 2010, business interruption insurance that is independent of property damage has been offered to some of its major customers. For example, loss of earnings due to the interruption of supply chains (such as after the volcanic eruption in Iceland in 2010 ) or the insolvency of the supplier can be insured. However, these products are not yet widespread and are only offered to large customers.

The property damage does not have to lead to a complete standstill of production. There is already an interruption of operation if the operation cannot be continued in the previous manner.

As in most insurance lines, deductibles can also be agreed in business interruption insurance . The amount of the deductible has a significant influence on the premium. In addition to a deductible measured in financial terms (e.g. 5,000 EUR), there are also temporary deductibles on the market, especially in machine business interruption insurance. The insurer does not provide any compensation for a specified period of time from the start of a business interruption. Common time deductibles are z. B. 5 or 10 days.

Term of detention and evaluation period

The business interruption insurance replaces the lost profit as well as the non-generated ongoing (fixed) costs during the so-called liability period. The period of liability is usually 12 months from the occurrence of the property damage (and not the business interruption). The term of detention can be extended through separate agreements, e.g. B. if a resumption of operation cannot be foreseeably achieved within this time. For example, long-term imprisonment periods of 24 or 36 months are quite common. The business interruption ends when the full commercial and technical operational readiness is restored. This is more than just restoring production capacity and is often difficult to determine in practice. If the agreed period of liability ends before operational readiness is restored, the policyholder will no longer receive any compensation for the subsequent loss of damage.

The so-called evaluation period is to be distinguished from the detention period. This has the same duration as the detention period, but there is no fixed start. Rather, the evaluation period ends with the end of the business interruption and is then to be set retrospectively (e.g. 12 months with 12 months of liability). The evaluation period is used to check for possible underinsurance . The sum insured is compared with the income actually generated during the evaluation period. However, this is problematic because the evaluation period always extends to the period in which no income could be generated due to the damage and therefore only fictitious figures are to be used.

Sum insured

The problem with business interruption insurance is setting an insured amount. In principle, the insurance should cover the possible loss of earnings in the future, although only rough estimates of these values ​​can be made in advance. In practice, various concepts are used to circumvent this problem. For example, so-called additional liability, which usually amounts to 30%, can be added to the sum insured. At the end of an insurance year, the company income actually generated is compared with the sum insured and, if necessary, the premium is raised or reimbursed (within certain limits). The reimbursement of premiums is usually limited to 30% or 50% of the premium originally paid. Ultimately, however, the sum insured can be set significantly higher as a result. With a reimbursement of 50%, the sum insured can be twice the actual insured value without incurring financial losses.

In practice, the compensation is often limited by a maximum compensation per claim. In the case of companies with various operating locations, it can generally not be assumed that damage will cause the entire production to fail within the detention period. The premium will continue to be calculated from the (higher) insured value, but depending on the structure of the maximum compensation, significant discounts can be granted.

Risk assessment

To assess the risk in business interruption insurance, the insurers first use the risk data for property insurance. In addition to the usual information, for example on fire protection, details of the production process are also important. If the failure of a single machine has a major impact on the entire production of a company (so-called bottleneck machines or bottlenecks), an increased risk for the insurer can be assumed. Because even a minor damage to property can trigger high claims for compensation in the business interruption insurance. In practice, in the case of major loss events, business interruption insurance usually accounts for a larger proportion than property insurance.

The period within which the company buildings and machines can be restored is essential for the assessment of the premium and the determination of the term of detention. In particular when using custom-made products, the replacement can take longer periods of time. Depending on the location of the company, official construction restrictions or lengthy approval procedures must also be observed.

An insurer must therefore have sufficient business and technical knowledge of the business to be insured in order to be able to calculate an appropriate premium.

It should be noted that, according to various statistics, around a third of all companies affected by a serious business interruption have to file for bankruptcy within a few years after the event. The conclusion of business interruption insurance must therefore be accompanied by measures such as business continuity management .

Business interruptions also result in opportunities (cf. Treibmann, Felix: "Business interruption as an opportunity - the use of entrepreneurial development opportunities with special consideration of insurance"; Düsseldorf, 2005).

Divisions

a) General divisions are the

  • Fire business interruption insurance (supplemented by the extended coverage business interruption insurance)
secures damages due to fire , explosion or lightning from
  • Machine business interruption insurance
protects against device failure due to operational damage (technical defect, incorrect operation)
  • Medium fire business interruption insurance
Business interruption insurance with simplified sums
  • Small business interruption insurance
The sum insured is based on the existing material assets
Loss of income after the insured business has been closed by an authority based on the Infection Protection Act

b) Special forms include the

  • All-risk business interruption insurance,
  • Construction business interruption insurance ( construction freeze ),
  • Bed business interruption insurance (for hospitals ),
  • Electronics business interruption insurance (electronically controlled vehicle parts )
  • Elementary business interruption insurance,
Damage caused by natural forces such as hail , storm , lightning strike , flood or prolonged drought
  • Film cancellation insurance (film insurance),
  • Additional cost insurance,
  • Loss of rent insurance (replaces loss of rent after an insured event)
  • Assembly business interruption insurance,
  • Event cancellation insurance (protection against the cancellation of an event, e.g. due to bad weather or illness of the people performing)

See also

Individual evidence

  1. ^ Business interruption insurance in the Gabler Business Dictionary , accessed on April 30, 2011