Business Interruption
Business interruption is the reduction or complete cessation of production/service in your business. This process will cause your turnover to decrease and the continuation of your expenses on the other hand will result in a decrease in your expected operational profit and market share and therefore a decrease in your equity capital, i.e. your liquidity, which will pose a great risk for you.
In this respect, "business world" and "risk" are inseparable from each other. Regardless of the activity of your business, your business is faced with many unpredictable risks. In the event of the realisation of these risks caused by fire, internal flooding, terrorism and similar events and natural disasters such as earthquakes, floods, storms and landslides, you will be faced with many losses and the profit-making purpose of your business will be interrupted.
Insurance is one of the most effective ways to protect the movable and immovable assets, machinery or goods you use in your business activity against these risks. However, standard insurance policies only cover material damages and do not give you the opportunity to replace your diminished and lost values. If we assume that one of the specified risks is realised, if the production or service provided is completely or partially interrupted for a period of time, the work flow will be affected for an indefinite period of time. A work interruption leads to a reduction or complete cessation of production or service. On the other hand, as a result of this situation, it will be inevitable that fixedcosts will continue, profits and market share will decrease, and therefore your equity capital, i.e. your liquidity, will decrease. Another inevitable result is that, as research shows, the liquidity difficulties that most of the enterprises where these risks are realised lead to bankruptcy or downsizing after the damage. Loss of profit insurance is a product designed to protect businesses from these risks with extremely perilous consequences.
Profit Loss Insurance
Loss of profit insurance covers the loss of gross profit arising from the decrease in turnover and increased operating costs to prevent this decrease, provided that it remains within the indemnity period as a result of the cessation or disruption of commercial activities.
Compensates for the ongoing costs of the operating profit.
Provides the qualified labour force that will be needed in the critical period after the damage.
Ensures that your interest obligations are fulfilled during the downtime, thus maintaining the creditworthiness of your business.
Provides cash flow by paying your profit loss in appropriate instalments.
Finances activities to minimise the negative effects after the damage.
Eliminates the effects that may occur with the complete cessation of your production after a small fire.
Creates a financial bridge for your business to reach its pre-damage state. This period varies according to the extent of the damage and the maximum period for the company in question is determined before insurance.
Provides stability in the stock market in publicly traded companies.
Compensation Scope of Profit Loss Insurance
The enterprise has variable and fixed costs depending on the production activities.
Variable Costs:
Purchases (raw materials / auxiliary materials etc.) (deducting all discounts)
Packaging and wrapping costs
Transport and freight expenses
Costs (energy, gas, steam, water, etc.) that can be proportionately reduced or completely eliminated by the cessation of work
Charges
Advertising expenditure
Other variable costs
If personnel expenses are insured separately from the annual gross profit amount, they should be insured with a separate statement.
Fixed Costs
These are costs that have no relation with the cessation of the work and will continue in case of cessation and cannot be reduced.
Labour and/or civil servant wages and bonuses
Interest rates
Rental costs
Insurance premiums
Depreciation
Maintenance costs
Selling and administrative expenses
Research and development expenses
Other fixed costs
While calculating the sum insured in Profit Loss Insurance, the balance sheet and profit/loss information of the previous financial year should be used. In general, the gross profit obtained by the enterprise in the previous financial year is taken as the basis for the calculation of the insurance value. However, this value should be updated based on the following principles.
The period between the end of the Previous Financial Year and the beginning of the Current Insurance Year
Current Insurance Year Budget Accounts
Maximum Compensation Period
Expectation of growth in the business volume
Inflation rate