Blog Question # 2 on Business Interruption – Insuring Net Profit

This is the second question on Business Interruption this week – this time from a broker.

Hi Allan

Query. I have a client who has insured under a CGU business pack policy For NET Profit. Have fully explained and as the Insured is an accountant he should know. 

 As I am about to endorse the policy and put a, general page note, that this is a, net profit, not a Gross Profit, sum insured.

 I have been unable to find a definition (I will use, according to the Insured’s books of accounts, in the general page note).

On this I looked at your book, Business Interruption Insurance and Claims but there is no mention there.

 I know CGU will come back to me, eventually,  and ask. Any idea’s???

Regards Tom [Surname and email provided]

My response was very short and simple:

With a CGU wording you need to record the Uninsured Working Expenses so that the underwriter and in the event of a claim, the loss adjuster and claims handler all know what is the Basis of Settlement and so that co-insurance/average is also calculated correct. If all expenses are to be treated as uninsured then you could just record the Uninsured Working Expenses as “all expenses – that is only net profit is insured”.

This of course only provides a very limited cover, particularly for an office risk where you would expect an accounting practice, assuming this is the occupation, would have no expenses that would be truly variable to sales and therefore I would normally be recommending showing no Uninsured Working Expenses.

With any business, regardless of the occupation, it has to be remembered that most disruptions are only partial or short term in duration and many expenses of the business continue which having been excluded from the sum insured will have to be funded by the Insured.

 Regards

Allan

Tom replied

Thanks Allan, that is exactly what I thought, and needed confirmation on.

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