How to Calculate Business Interruption Sums Insured

Welcome to the second instalment of our four-part series on Business Interruption Insurance, in which Account Manager Nicholas Marshall looks at how to calculate the Sums Insured.

Previously, Nicholas emphasised the importance of having Business Interruption insurance in place and how, here at Reason Global, we recommend that our clients insure on a Gross Revenue basis. Thus, before calculating the Sums Insured on a Gross Revenue basis, you should consider the following points:

• What is your annual Gross Revenue? (i.e. all income generated by your business)
• What is your business forecast for the next five years?

Once you have determined your annual Gross Revenue and business forecast, you can address the level of cover needed.

What level of cover do Removers and Self-Storage businesses need?

If you are a self-storage company only, you need to consider your storage income plus any associated income, such as the sale of packing materials. However, if you are more than self-storage only, or indeed a removal and storage company, rather than insuring your Gross Revenue as one single figure, your cover can be arranged as follows:

Loss of Storage (and transit from storage) Revenue: This should represent your income from customer storage charges including the income generated for the transits for those goods into and out of store.

+ Plus

Loss of Transit Revenue: This should represent your income from removals only and covers you for the loss of income you would usually receive from this, for example, typical A to B moves.

All other revenue

As we advise Reason Global clients to insure based on a Gross Revenue basis, we will not discuss the Gross Profit basis. This method of calculating the insurance sum insured reflects actual gross profit and is, therefore, more suitable for manufacturing businesses.

Please note that Loss of Rent Receivable cover is normally insured separately. This cover is placed under the Loss of Rent section of the policy and covers the rent you receive from any tenant(s).

In the next instalment of our series of Business Interruption Cover, Nicholas Marshall will take a closer look at the Indemnity Period; what is it and what does it mean for your Moving & Storage business?

Read Part 1: What is Business Interruption Insurance ››

Read more from our series on Business Interruption Insurance here:

PART 1: What is Business Interruption Insurance

PART 3: Business Interruption Insurance: Indemnity Period

PART 4: Tailoring Your Business Interruption Insurance to Suit Your Needs