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Frequently Asked Questions

Selling Business Interruption Insurance


Brokers are not builders and cannot advise on building replacement values. Why are brokers responsible for ensuring the client provides the correct figures as we are not accountants?

We can use the tools available but the accountant would have a better understanding of the financials.

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Brokers are not expected to replace the client’s accountant or financial advisor nor are they to be held responsible for the preparation of financial information. However, brokers need to be able to interpret the financial information provided to them, particularly the Profit and Loss statements for the purpose of arranging Business Interruption insurance. If a broker is not skilled in interpreting financial information then they need to seek assistance from professional firms such as MSM Loss Management. The Eurokey Recycling Ltd v Giles Insurance Brokers UK legal case provides guidance on the role of the broker and their responsibilities. Please see the below links for further information on the Eurokey case: http://www.insuranceandrisk.com.au/article/deciding-where-the-buck-stops/

Can a client over insure and ‘cash in’ or ‘profit’ in the event of a claim or are financials considered?

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No. Insurance is not designed for a client to profit from a claim. The principle is one of indemnity i.e. put the client back in the position they were in had the loss not occurred. The cover pays for the ongoing fixed costs of the business plus any net profit.

Can MSM assist with sub limit testing?

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Yes the MSM Technical Helpline is the place to start to discuss your requirements. We will advise whether a formal review is required or a simpler approach is appropriate.

Even if the client says they do not need Business Interruption cover should isn’t it our duty to obtain their financials and provide an indicative quote anyway, much like we do with flood cover?

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You cannot force your client to provide their financial reports so that you can give them a quote on Business Interruption cover but we agree with the sentiment of your view. Your relationship and approach are crucial as is providing your client with the right of options.

I have heard of the Eurokey v Giles Insurance Brokers case which relates to the responsibilities of brokers. It is a United Kingdom legal decision. How would it be applied in Australia?

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Australian legal system has a lot in common with UK legal system and it is quite common for Australian legal experts including judges to use UK case law as precedent.

It then depends upon the circumstances of the individual case and any other case law that may apply.

Please see the Eurokey case for further information: http://www.insuranceandrisk.com.au/article/deciding-where-the-buck-stops/

If we use the MSMLM helpline what response timeframes can we expect?

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Normally, we will contact you the same day or at least 24 hours. Some complex matter may require longer for an answer but we would keep you informed of progress.

I need a simple way to calculate Insurable Gross Profit for my smaller clients – any tips – do you have a one pager?

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The simplest method is to arrange a business interruption cover based on Annual Revenue – alternatively turnover less purchases is a good approach but you must allow for trend during the insurance year and Indemnity Period.

Many clients these days can easily work from home or anywhere and say they don’t need Business Interruption cover. How would you respond to this?

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That depends if the business is premises dependent i.e. if they lose the premises will they have a reduction in turnover?

In general it is not advisable to have AICW only in place for majority of businesses. AICW does not cover the loss of Insurable Gross Profit and payroll. In the event of a partial or total loss, the majority of businesses will not be able to resume operations by simply relocating their office or changing their address and telephone numbers, etc.

If clients won’t take Gross Profit cover, AICW provides some protection but in our view rarely enough.

Service based businesses such as accounting firms, management consultancy organisations, lawyers, etc. may not need to cover their gross profit, as they are able to relocate their offices and resume operations with a minimum disruption to their clients. To recommend this approach to your client, you need to be very confident that you understand their business model and that the client understands the potential exposures which may eventuate from this approach.

Multiple entities with separate financials Each named insured under a policy Are there separate claims for say the property owner (I.e. a trust or super fund) and the business loss – are they treated as separate claims or one claim under the policy?

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That depends on the circumstances and the interdependencies. The Policy allows us to present claims at departmental level i.e. each entity with separate financial data.

The accounting industry doesn’t understand Insurable Gross Profit why doesn’t the insurance industry just insure Gross Turnover?

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Good question – the Insurance industry would need to establish a rating model to take into account different rates of Gross Turnover and risks for different businesses.

Why is Business Interruption so difficult to sell?

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It is difficult to sell as it is complex but in our view there are very few businesses that would be appropriately insured without some sort of Business Interruption cover. MSM is in the process of developing a publication to assist with the selling of Business Interruption insurance. We will make this accessible to brokers on our website www.msmlm.com when available.

What is an estimated cost for MSM to undertake a Business Interruption review? Could you provide a range and recommended review timeframe. (E.g. Done every 3 years)

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Steadfast requires a BI review to be undertaken every 3 years in order to waive the coinsurance clause. The cost of BI review depends on the size and complexity of the business. For an SME the cost is around $2,500 to $5,000 plus GST (for businesses up to say $20m turnover). It depends upon the business, the location and the complexity.

Will MSM meet with clients to explain BI and how it works?

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Yes. If we are appointed to review BI we will make ourselves available to explain how BI works.

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