By Claire West

Business owners are putting their livelihoods at risk from underinsurance by failing to properly calculate the value of their Business Interruption (BI) cover, according to Aviva.

BI insurance covers for the loss of profits and increase in costs suffered by a business resulting from a fire or other insured event. Typical increased costs incurred after damage include renting and fitting out temporary premises, overtime payments to staff, payments to other companies to provide services or goods, hiring of plant and equipment, additional advertising and extra transport costs.

Aviva Risk Management Solutions (ARMS) found that in 41 per cent of cases it investigated last year some adjustment to the BI sum insured figure was required. For 2010, 32 per cent1 have so far required an adjustment.

Dave Cowsill, business interruption risk adviser at Aviva, said: “So far this year, almost a third of the businesses we have reviewed have needed corrections to their BI sum insured. Clearly businesses are not prioritising their BI sum insured figure which is very worrying.

“In one case, we had a situation where both the broker and client actually admitted that they did not know exactly how the BI figure had been calculated, and that it had not been updated for a number of years".

“In cases where the level of underinsurance is particularly serious it can prompt the insurer concerned to consider voiding the policy and therefore the claim".

“The worst time to discover that your business interruption cover is inadequate is when you need to make a claim and you will be looking to get your business back up and running as quickly as possible".

Cowsill continued: “Setting the correct level of BI cover can be a daunting prospect. It is hard to predict the future, estimate recovery time and to anticipate the costs that might be incurred. That is why it is important to get expert advice and speak to your broker. Our team of business interruption specialists work alongside brokers to ensure that the right levels of cover are taken out to suit your particular business".

“Companies which have not updated their BI cover for some time, or those businesses with the more limited Increased Cost of Working (ICOW) cover, which does not cover profit, should consider a BI review immediately, as they may not have sufficient reserves to deal with the consequences of underinsurance".

“Businesses grow, develop new revenue streams, and take on new contracts, and all of these can affect BI cover. Having a professional review carried out from time to time on a business will ensure it is covered for the correct sum insured amount, for the most suitable length of time (Maximum Indemnity Period2) and with the necessary cover extensions.”