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CONSEQUENTIAL LOSS – Does the cover include all the relevant Extensions?

Published

2014

Mon

27

Oct

 

By Richard Stevens, Deputy Bracnch Manager
Renasa Insurance Company Limited

When arranging Consequential Loss (also referred to as Loss of Profits / Business Interruption) cover the focus is always on:

  1. Basis of cover

  2. Indemnity Period

  3. Sum Insured

The above is supplied and underwriters can use same to prepare a quotation in respect of the basic cover afforded by the policy which is normally limited to the Insured’s premises only. It excludes the possibility of events occurring at other premises (Suppliers of raw material to the Insured or Customers to whom the Insured is supplying a product) which could have a negative impact on the Insured’s business operation.  

A number of Extensions are available, offering cover over and above the basic cover and the business profile of a particular instance will determine which extensions are applicable. It is not unusual to find that once a quotation has been accepted that closings will follow which include just about every available Extension (whether or not it is applicable) at no extra cost! There could be a number of reasons for this but apparently it is due to a misunderstanding as to what is intended by the Extensions and how to rate it. The following are some of the Extensions that are available:

  1. Suppliers Premises – the supplier is unable to supply -business is interrupted

  2. Customers Premises – the insured cannot deliver to customer - business is interrupted

  3. Preventions of Access – the insured’s premises cannot be accessed – business is interrupted

  4. Public Utilities – damage at electricity /water plants interrupting supply – business is interrupted

Essentially, these extension cover:

  1. Suppliers Extension: This extension covers loss suffered by the insured as a result of a break in the supply of goods sustained through damage caused by an Insured peril covered by the underlying policy.

    This protection is important to the manufacturers of products reliant upon the supply of raw material from suppliers. It is important to establish the percentage of dependency on a particular supplier as this has a bearing on the rate to be charged. Also required are the full names and addresses of all suppliers.

  2. Customers Extension:This extension covers loss suffered by the insured as a result of a peril covered by the underlying policy at the customer’s premises. Similar to the Suppliers Premises extension, cover is restricted to and rated according to the percentage dependency.

    This cover is required where a large proportion of the insured’s sales emanate from dependence between companies in an associate group. As with the previous extension full names and addresses of customers are required.

  3. Prevention of Access: Access to an insured’s premises may be prevented as a result of damage to nearby or surrounding buildings even although there is no damage to the insured’s premises. Premium is charged on the Indemnity period selected which, normally, can be anything up to 12 months.

  4. Public Utilities: Refers to property at electricity generating stations, sub-stations or transmission networks, gas works, water purification plants etcetera supplied by local authorities / municipalities.

    The interruption (due to an insured peril) of such supplies to the premises of the insured could result in loss. Cover can also be extended at an additional premium to include total or partial failure  of supply to the premises subject to certain exclusions.

There are a few more Extensions not covered above and as indicated above not all are necessarily applicable to a particular case but with a proper analysis and understanding of the client’s needs it should not be difficult to determine which are required. It all comes at a cost obviously but the rates are not exorbitant and advisors should endeavor to include the Extensions when quoting – it was mentioned at the outset that often only the basic cover is arranged. It is imperative that the applicable Extensions are included to adequately protect the client from financial prejudice and the advisors against potential Professional Indemnity claims.                   

 
Source: Renasa Insurance Company Limited
 
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