Comprehensive Machinery Insurance (CMI) & Business Interruption Insurance (BI)

Business interruption (BI) insurance is a vital form of coverage that protects a company's financial stability when its operations are disrupted by a covered event like a natural disaster, fire, or equipment failure. This policy acts as a safety net, compensating the business for lost income, ongoing fixed expenses (such as rent and payroll), and any extra costs incurred to get back up and running.

KEY COMPONENTS:

​BI insurance typically covers three main areas:

1. Lost Profits: It replaces the profit the business would have earned had the interruption not occurred. This calculation is based on the company’s financial history and future projections.
2. Continuing Expenses: It covers the fixed costs that a business must continue to pay even when it's not operational, including rent, loan payments, and employee salaries.
3. ​Extra Expenses: This includes any costs beyond normal operating expenses that are necessary to minimize the interruption and get the business back to its normal state quickly. Examples include renting temporary office space or bringing in specialized equipment.

Usually BI cover offers along side with Comprehensive Machinery (CMI) Cover or Property Cover. 

ACCOUNTING GROSS PROFIT IS NOT GROSS PROFIT FOR BI?

CMI POLICY VS PROPERTY POLICY:

PROPERY POLICY:

Covers building, machinery and other contents against damage caused by 

1. Fire & Specified Perils

2. All Risk

CMI POLOCY:

Covers any sudden physical loss of or damage to the property insured which the insured couldn't reasonably have foreseen due to any cause not specially excluded and which results in property insured needing to be repaired or replaced. 

Covers breakdown but also Fire and specified perils including Machinery. 

TARGET RISKS FOR CMI POLICY:

Following industries are best fit for Comprehensive Machinery Cover (CMI).

1. Power Generation
2. Chemical Industry
3. Cement Industry
4. Steel Production
5. Metal Working Industry 
6. Sugar Plants
7. Food Industry
8. Paper and Printing Industry etc.

IS ACCOUNTING PROFIT IS BEST CHOICE FOR PROFIT CALCULATION :

Answer to this perception is simply NO as profit calculation should be based on industries and subject matter of insurance. Following are the "best basis" for the calculation of Business Interruption (BI) profit values.

1. Gross Profit: Gross Profit must be used by Manufacturers, Assemblers, Retail and Wholesale.
2. ICOW: Services where income does not fail (If premises move).
3. Gross Revenue: Services where income would fail (if premises move).
4. Gross Rental Income: Property Owners.
5. Loss of Production: Oil and Gas.

Hence, accounting profit is not the profit for Business Interruption cover.

CORE ASSUMPTIONS OF CMI & BI:

Requires extensive working at the time of underwriting including detailed survey, breakdown of machinery (make, model, erection, pressure, temperature etc.), old machinery have their own limitation, annual turnovers, key suppliers and proper computation of Business Interruption values for insurance. On the other hand BI portion of claim requires more time to settle. 

Further high premiums for CMI and BI and reduction of cost is only possible if you have alternate plan for energy and operations. 

Business Interruption due to supplies shall be categorically addressed with proper information and road map of supplies along with segregation of potential suppliers.

In a nutshell its very good choice for industries/ manufacturers but requires trained staff for optimal pricing and coverage. 

During recent Covid lockdown which shaken the business industry in which this coverage missed by millions.