The Chartered Institute of Loss Adjusters (CILA) and the Insurance Institute of London (IIL) have jointly released the 2024 edition of the Business Interruption (BI) insurance guide which brings to the forefront critical updates and clarifications in BI policy wordings.
The publication addresses the persistent issue of underinsurance in business interruption claims, offering strategic recommendations to mitigate this challenge. Among the key suggestions is the proposal to abandon the term “gross profit” in favour of “insurable profit,” aiming to clear ambiguities and ensure consistent policy interpretation.
Significant recommendations introduced in the 2024 BI guide include the adoption of declaration-linked policies for coverage periods extending beyond 12 months, necessitating policyholders to forecast their yearly earnings. This approach anticipates an adjustment in coverage to accommodate longer maximum indemnity periods (MIPs), with insurers recommended to calculate the extended coverage.
Furthermore, the guide calls for greater clarity on handling depreciation savings, citing contrasting judicial decisions in the Mobis Parts case in Australia and Synergy Health v CGU in the UK. The guide suggests clear policy wording to resolve the confusion surrounding the recovery of mitigation expenses and the application of the economic limit on increased costs of working.
The 2024 edition also revisits wide area damage coverage in light of the Supreme Court's decision in FCA v Arch & Others (2021), updating guidelines to reflect current legal interpretations.
Damian Glynn, former chair of CILA’s business interruption special interest group, emphasised the importance of contract certainty, particularly following the introduction of the FCA Consumer Duty in the UK.
“We were concerned that there might be a presumption that anything pre-dating the pandemic on the world of business interruption was historic and not of current concern,” Glynn said. “So, our primary motive in issuing this update was to avoid that perception, and to apply minor tweaks such as updating newer survey data.”
“This report addresses topics identified by the BI community and CILA, highlighting those areas where we think some clarification would help customers, insurers and adjusters. We are grateful for the input of all original contributors, and to Sue Taylor, Tim McGain and John Pyall for their help with the 2024 update,” current CILA business interruption special interest group chair Aruna Chandrapalan said.
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