Of brokers and business interruption

THE present realities have exposed the world. Uncertainties truly exist, and yes, we don’t have all the answers. Our readiness has been tested and our response is critical. Borders are closed, institutions are shutting down, there is a general lockdown, hence there is business interruption. The role of insurance is to cater for risk, reduce it or replace properties affected by insurable risk. The role of an insurance broker can be classified as advisory or as the middleman who uses models, surveys and data analysis to prescribe insurance solutions and policies needed by the insured; examples are Risk Management Solutions (RIMs) and damage impact survey. Insurance brokers use Aggregated Exceedance Probability (AEP) versus Occurrence Exceedance Probability (OEP).

The AEP is the probability that the associated loss level will be exceeded by the aggregated loss in any given year. The OEP is the probability the associated loss level will be exceeded by an event in the any given year. Insurance brokers use the modelling results to help design the program structure by transferring risk to both the insured via the excess clause in a policy, the insurer and the reinsurers, by looking at the Annual Average Loss (AAL) figures. They run models on the insurers aggregate exposure. The role of a broker can be summarized as one consultant who conducts a diagnostics for another consultant to come and perform a surgery.

Business interruption is an insurance policy that pays for the actual loss of business income you sustain due to the necessary suspension of your ‘operations’ during the period of restoration. The suspension must be caused by  direct physical loss, damage or destruction to property. The loss or damage must be caused by or result from a covered clause ( an insured risk). The terms that explains the concept of business interruption are actual loss, business income and period of restoration. Many businesses may have paid for business interruption insurance intended to cover losses in the event of forced business closure. Business interruption insurance may cover material damage to property resulting in partial or total closure of business but may be limited to fire, flood, other natural disasters. Event cancellation insurance covers losses arising from cancellation of events such as concerts, conventions, festivals and other events which may have been cancelled.

The escalating coronavirus pandemic is putting immense pressure on businesses which are facing potential breaches of banking covenants, day to day cash flow, liquidity concerns and fears of jobs. This begs the question: can a company make a case or claim for indemnity under this circumstances?’Insurance policies mostly include extensions, exclusions, scope, limitations and warranties like every other business. Note that if the scope of cover does not include a risk or certain warranties and conditions are not met , the insurer would not be liable to pay. An example of exclusions are ‘an act of God’, government decree, War etc. If so, is the Covid-19 an act of God or the business interruption caused by governments decree? If it is from the government, the insured hope for compensation from government, as we see in the United States and other European nations.

Nigeria is not left out as our government moved to reduce fuel prices and put out more lending funds. Any time a natural disaster or man made crisis happen, businesses often suspend operations or operate at a reduced capacity for a period of time.Small business owners should learn that insurance policies protecting companies against any interruption of service, a supply line shutdown, a fire or even a government order to close do not cover damages that result from bacterial or virus contaminations. For insurance policies to be adequately made to serve in times like this, there is a need for the expertise of an insurance broker, agent or consultant. Businesses seeking to file claims for business interruptions insurance may be denied due to policy wordings. This explains the need to employ the services of an expert. It is often said that the best insurance is that done by a broker. Insurance policies and benefits can be tailor made for the advantage of you and your company,

• Oyediran writes in via Oyediranoyekolade@gmail.com

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