A fire or flood can prove crippling for a small business, so you should have a plan of action in place, should you fall victim to such a disaster at your business premises.
Failing to do so could prove to be an extremely costly, or potentially fatal, oversight. So here are some practical tips to help you get things right, should you need to make an insurance claim on your business premises;
In the immediate aftermath of an incident
The first consideration should always be safety. It is your responsibility to minimise any damage, prevent theft, and make sure the premises is safe and secure. This is a legal responsibility, so if you believe there is any immediate danger, you can act immediately without any reference from your insurer.
If there is no immediate danger, you can wait for your insurer to secure the premises on your behalf, but ultimately any immediate legal responsibility lies with you.
Notify your landlord
If you do not own the property, which is most likely the case for the vast majority of small businesses, you must notify your landlord as soon as possible so that they can file a buildings insurance claim – this would also cover any contents and fixtures & fittings owned by the landlord.
Everything else – loss of stock, business interruption & any of your own contents and fixtures & fittings – is down to you, so you must also file a separate claim with your insurer as soon as possible following an incident.
In the wake of a disaster, it’s natural to want to tend to the most pressing problems first, but the importance of clear communication should not be overlooked.
Provide your staff with as much information about the incident as possible, and reassure them that everything is being done to resolve the problem. Make sure everyone knows what is required of them, even if that means simply staying away from the premises until further notice.
You should also inform any customers/clients and suppliers who may be affected by the potential break in business. Issuing a holding statement is a good way of communicating a message to a lot of people in one go, and should suffice until you have a firmer business continuity plan in place.
Make sure communication is maintained throughout the entire claim process, as this will help reassure all stakeholders you are doing everything in your power to get the business back up and running.
Consider appointing a loss assessor
The majority of insurance claims are, or at least should be, simple and relatively stress-free, particularly when they involve claiming for loss of assets and nothing more. In those situations, small business owners should be more than capable of handling the claim themselves.
However, when it comes to more complex claims, such as serious flooding or fire, which affect the running of a business, it is always beneficial to draft in a professional who can handle the process on your behalf.
A good loss assessing firm will do just that; work for you, and manage your entire claim from start to finish. Specifically, a loss assessing firm will help with the following:
- Manage emergency building works
- Negotiate interim payments to cover emergency costs (such as re-stocking, replacing damaged equipment and covering staff wages)
- Advise on options regarding finding a temporary premises, if necessary
- Assess damage and loss, prepare your claim and negotiate with your insurer’s loss adjuster
- Liaise with your insurance company, their loss adjuster, investigator, surveyor, contractors, solicitors, etc. on your behalf
- Ensure you receive the maximum settlement you are entitled to under the terms of your policy
- Compile a claim for business interruption which accurately calculates your loss of profits – this isn’t necessarily based on the turnover you achieved in previous years, it should be based on forecasts of what you would have achieved in the future (taking into consideration business trends, seasonality, budget forecasts and increased costs of working etc.)
A good loss assessing firm will also have a long history with reputable professionals who understand the time restraints and high expectations involved in making an insurance claim. Ultimately however, who works to get your business back on track is your choice.
When looking for a loss assessing firm, you will tend to find they operate by assigning you a loss assessor, chartered surveyor, contents specialist and builder. There is typically no fee for this arrangement.
Alternatively, you may prefer to use your own builder, in which case the loss assessing firm will work with them to guide them through the claim process. You’ll still be assigned a loss assessor, chartered surveyor and contents specialist, but by using your own builder you’ll likely incur a small fee.
The knowledge of how to speed up and maximise settlements
To show how small businesses can benefit from the experience of a specialist loss assessor to help make an insurance claim, here are two examples of real-life businesses;
Example Business 1
A fire at a motor repair centre caused extensive damage to the building, machinery, tools and equipment, and vehicles.
Due to the complex nature of this particular case, and exacerbated by the fact that there was no business interruption cover in place, there was a three month delay before anything happened.
As a result the business found it itself in severe financial difficulties as it was not able to continue work in the damaged premises.
Within two weeks of appointing a loss assessor, the insurance company accepted liability and agreed to an interim payment of £40,000 – this proved instrumental in ensuring the survival of the business.
The loss assessor also assisted in finding new premises, and releasing the business from its old lease, so that trading could continue as quickly as possible.
In the end a cash settlement of £85,000 was agreed, but only after the loss assessor took the case up with a senior manager at the insurance company.
Example Business 2
An industrial unit and all of the equipment inside was wrecked following a flash flood that left behind a trail of sewage and debris in its wake.
The Managing Director of the company tried in vain to get his insurance company to come out and inspect the damage straight away but to no avail.
At this point he appointed a loss assessor to take over the claim on his behalf – an interim claim was then submitted immediately to maintain cash flow and keep the business on its feet, after which a comprehensive buildings, tenant’s fixtures and fittings, contents and business interruption claim was submitted.
A £220,000 claim for material damage was successfully negotiated, but more crucially a business interruption claim of £90,000 for loss of turnover was achieved.
The dangers of delay
Business claims can take months, even years to process – time during which your insurer will still expect you to mitigate your losses.
More often than not a commercial insurance policy will cover any loss of profits (although you should never assume this and always check that the level of cover is suitable for your business) but not if they feel those losses were in any way avoidable.
For instance, if you can minimise loss by continuing to trade in a reduced capacity after the event, then your insurers will expect you to do so. It may sound obvious, but you must do everything you can to continue trading, even if that involves moving to a temporary premises, or outsourcing work to a competitor.
Making an interim claim
Interim payments are payments that are made to you by your insurer, during the course of your claim. You or your loss assessor – should you opt to appoint one – can submit an interim claim to cover any immediate costs such as staff wages, material damage and business interruption.
Interim claims can be a lifeline for businesses who do not have the funds available to cover such immediate costs themselves – they exist to keep your head above water until you can continue trading as normal.
Recovering lost profits
Your insurance policy should allow you to claim for business interruption to recover any loss of gross profit, but again it is important that you check with your insurer that the level of business interruption offered, if any, is sufficient for your business.
Unfortunately it is not unusual to find that your indemnity period is insufficient to get your business fully operational. A business interruption indemnity period is the period during which the business’ results are affected by loss or damage, starting at the date of the incident, and ending no later than the maximum indemnity period.
A maximum indemnity period is typically either 12, 18, 24 or 36 months – this how long it would take the business to fully recover following an incident such as a fire or flood, and is something that should be agreed prior to taking out your policy.
The maximum indemnity period will differ for every business, based on how long it would take them to replenish stock, replace machinery & tools, carry out repairs to property etc..
Again, this is where it’s beneficial to have a professional on your side. By appointing a loss assessor you can put forward a much stronger case for the earnings your business would have enjoyed had the event never happened.
As mentioned earlier, these estimated earnings should not be based on previous turnover alone. It’s important to consider what the business would have achieved had it been unaffected; that big contract you were on the brink of winning, for example – that’s a loss and it should be covered.
About the author
This guide has been written exclusively for ByteStart by Phil Morgan of Morgan Clark – the UK’s most established loss assessing firm.
Other types of business insurance
ByteStart has a series of practical guides to help businesses get to grips with the various types of business insurance, including;
- Which Types of Insurance Must Your Business Have?
- What is Public Liability Insurance? – A Guide for Businesses
- What is Employers Liability Insurance, & Is My Business Legally Required to Have Cover?
- ByteStart’s Guide to Professional Indemnity Insurance – What You Need to Know Before Buying Cover
- Guide to Intellectual Property insurance for start-ups and small businesses