You may hear the phrase “actual loss sustained” in discussions about coverage under your business interruption insurance policy, but what does it really mean? Understanding this coverage and how it is calculated helps you to determine how it might respond to a potential loss and how much money you might be compensated in an insurance claim.
When a fire or flood damages your business property, you face more concerns than just repairing your property. You might have to close your business or operate at a reduced pace. You also need to stay on top of fixed costs such as loan payments, rent, payroll and utility costs, without generating the revenue you would expect under normal circumstances. This is why any business with physical locations and assets should consider having some form of business interruption coverage as a part of their insurance program.
Actual loss sustained, or ALS, is a form of business interruption insurance and is defined as all actual costs and expenses incurred due to a claim as a result of direct physical loss, damage, or destruction to insured property by a covered peril. This includes loss of profits as a result of the claim, including reduced income after reopening as the business ramps back up to normal operations.
It also includes coverage for fixed ongoing expenses, such as rent or mortgage payments, utility bills, key staff salaries, property taxes and other costs that aren’t reduced by virtue of the business being closed.
Other forms of business interruption insurance, such as Gross Profits, also cover both ongoing expenses and lost profits, but what really makes ALS special is that it has no dollar limit on the policy. This means that you will not face a monetary cap on your payout, nor suffer from any co-insurance penalty as is often the case with a Gross Profits form.
There is still a limit in terms of time, with many policies being limited to 12 months of indemnity. This can be increased to 18 or even 24 months, if needed, for an appropriate additional premium. Still, this time limit is also found in other business interruption policies, so given the absence of a dollar amount cap, Actual Loss Sustained is clearly the best form of business interruption coverage available to commercial operations.
As you can imagine, the calculation process for lost profits can be quite complicated. It involves looking at a number of factors that forecast what would have happened in a normal period of time. This could include reviewing:
- Company forecasts
- Competitor landscape
- New product or service launches and initiatives
- Changes in the specific market for your products or services
- Large contracts
- Historical trends
- Changes in the economy
Quality business interruption policies include some coverage for professional fees, which includes the cost of hiring specialist accountants to help with these calculations.
Remember, as broad as ALS coverage is, it is the insured’s obligation to minimize loss. This means you should still do everything you would do if the loss was not covered by insurance. Coverage is afforded for a loss of business income only during the reasonable time period required to rebuild, repair or replace damaged property. In other words, it is in your and your insurer’s best interest to get your business back up and running as soon as possible.
Considering the relevant variables and asking the right questions will help you develop a business interruption policy that is a reasonable fit for your business. The right broker will help you pick coverage that best suits your business and keeps you protected – so you can get back to running your business. The brokers at Fuse Insurance work with the top insurers in Canada to ensure you receive comprehensive business interruption coverage. To get a quote today, use our online form or call 1-866-387-FUSE (3873) to get in contact with a Fuse Insurance broker.
