At Hayes Parsons Insurance Brokers, we understand that running an educational institution is about far more than just bricks and mortar—it’s about continuity of education, protecting your students’ future, and supporting your dedicated staff. The purpose of business interruption insurance is to ensure that in the event of a major loss at your school, the cover protects your fee income, your commercial income and meets the additional costs incurred to allow you to continue operating and teaching with minimal disruption.
Indemnity Period
The period of cover in force, otherwise known as the indemnity period, needs to consider your initial response, the planning stage, rebuilding the premises and then the reoccupation of the building.
Business Continuity Plan
The business interruption section of the insurance policy should link into the school’s business continuity plan. The details within the continuity plan would be based on:
- The use of certain buildings and your reliance on them
- Construction of the schools buildings
- Whether the school could use other buildings on site
- How and where the school would set up temporary structures
- What are the relationships with other schools to use their premises
- How will the school go about communicating with parents and staff
Basis of cover
There are three key methods of writing this cover for schools
Loss of revenue
- This would be the sum insured based on the annual revenue of the school for all activities multiplied by the number of years to be insured for and making an allowance for growth over the period
- The definition of loss of revenue will include proportionate expenses incurred to mitigate the loss of income
- An example would be to put up a portacabin which cost £100,000 that would save you about £100,000 in lost income, if you didn’t take this course of action
Additional increased cost of working
- This is a form of business interruption cover that can be taken in conjection with loss of revenue
- This provides a sum insured chosen by the school which would cover additional uneconomical expenses
- Such expenditure does not need to be directly linked to any potential loss of income, but the cost so not need to be reasonable to continue school operations
Flexible limits of loss
- This is a sum insured by determined by the school based upon your estimated maximum financial exposure if the worst were to happen
- This sum insured could be a combination of loss of revenue, whether it be fee related or letting/commercial related or any form of additional expenditure incurred to continue your operations
First loss
- Should you have an indemnity period which is three or four years, you may find that the most expenditure or loss of income relates to years one and two
- To ensure relevance of cover, you can choose a sum insured which may be linked to your continuity plan or only be two years worth of revenue if that option is chosen but covers the four-year period.
- Under the most insurance cover you would be considered underinsured as you has not reflected the full income for the indemnity period chosen. However, with Fist Loss, the underinsurance clause does not apply
Key Extensions
The cover under the business interruption corresponds to the perils insured under the property section – these are usually specified in the policy working but typically relate to firm, storm and flood as a few examples.
Within the policy wording, there is the option to have additional extensions with smaller sums insured attaching
These can include losses as a result of:
- The failure of Public Utilities
- Prevention of access to your school – whether it be through damage or non damage incidents within the area
- Guidance issued by a competent authority
FCA Test Case
- The results of the FCA test case and the High Court and Supreme Court rulings relating the Covid were in relation to the non-damage denial of access, competent authority and any clauses pertaining to diseases
- As a result of uncertainty and the reinsurance market you will find insurers approach is changing in these areas in respect of their availability
- You will find most policies now have a communicable and infectious disease clause excluding such losses
- Where limited specified disease cover is available, the working will now restrict any losses relating to an outbreak at the insured premises and only relate to a very restricted list of diseases
- If cover is provided, the sum insured applying will be much reduced. Your business continuity plan should be mindful of these insurance changed.
As an independent, Chartered broker with decades of expertise, our commitment is to provide clear, trusted advice. We take pride in being trusted advisors who help you manage risks holistically, ensuring your school’s educational and financial future is secure.
Contact our specialist commercial team today to review your existing Business Interruption cover and ensure your school has the right protection in place.
