Operating loss: why take out insurance?
insure against business interruption As a business owner, it is important to insure against material damage that may affect your business or your business premises as it is also important to take out the right insurance to cover the financial risk of operating loss.
A disaster such as a fire, storm or water damage can hit your business at an unexpected time. Your professional activity will be affected and disrupted, leading to a deterioration and even a total absence of turnover for a long period. Property insurance allows you to be compensated, but does not compensate for loss of business.
Your usual expenses (creditors, suppliers, employee salaries) will still be present and you may have difficulty honoring them, this is where the operating loss guarantee comes in.
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The majority of companies cover property damage by taking out professional comprehensive insurance. Building, machinery, equipment, stock will be compensated, however the loss of turnover due to the cessation of professional activity, as well as its possible financial consequences, will not be covered by this insurance.
This is why business interruption insurance is essential in order to get your business back to business as quickly as possible and to prevent the company's turnover from dropping dangerously or going to zero.
Taking out this guarantee is the solution that will allow you to continue your professional activities, while ensuring the sustainability of your business, thanks to compensation paid by your insurance company, covering operating costs (fixed costs). In order to restore your financial situation as quickly as possible and recover the operating income that preceded the disaster.
This business insurance only comes into play if the causes which caused this loss are accidental or random.
What does the operating loss guarantee cover?
A bit like a provident insurance, this insurance is a financial protection that covers you against all the financial risks affecting your business following a disaster. In the event of an operating loss, it makes it possible to receive compensation equivalent to the loss of gross margin linked to the incident. The gross margin is calculated based on the amount of expenses that will continue after the loss, so you don't have to use your savings to maintain your business.
Losses resulting from the following damage are covered by business interruption insurance:
Water damage and flooding
A natural disaster
Fire or explosion
Damage caused by a storm, hail or snow
Electrical damage and lightning
Machine breakdown (covered by a specific guarantee, machine breakage insurance)
Acts of vandalism, terrorism and sabotage
The damage caused by the riots
The business manager can subscribe to the basic operating loss guarantee which is intended to cover only the drop or absence of turnover and the expenses relating to the incident or subscribe to optional guarantees which will cover the expenses. essential to the operation of the activity and delays due to the disaster.
Depending on the size of your business, your industry and your analysis of the possible risks your business may face, you will determine the level of coverage to be set in the business interruption contract.
The insurance contract offers basic guarantees and additional guarantees to cover all of these costs.
Basic guarantees
Business interruption insurance offers basic guarantees to deal with the most common difficulties following a disaster:
an indemnity will be paid to compensate for a financial loss of the company following a stoppage or a decline in activity;
payment of additional costs incurred to continue your professional activity.
Additional guarantees
These additional guarantees cover expenses not reimbursed by the basic guarantees:
compensation for additional costs incurred in maintaining the products or services provided by your business on the market;
operating loss due to a claim affecting suppliers, subcontractors, or even a company located not far from yours;
interest or compensation for late payment to cover the damage;
workers' wages that you will have to pay despite stopping or reducing activities;
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