Our experts are often asked to examine the financial implications of prolonged shutdown of production following fire or machine breakdown incidents. This study is multi-disciplinary with the contribution of the engineers and finance technicians of the CES among our permanent team and / or collaborating staff.
For a company, the damage caused by a fire, a storm or a machine breakdown is not limited to the material damage directly caused by the disaster. If he accident has been important enough to stop the production, the company will have to deal with the repairs required by the event, but will also dry up its revenue.
Certain expenses will no longer be incurred during the stop period of production: purchases of raw materials, energy, transport, etc., theses are costs that vary according to production. But others will continue to run: these are all fixed costs independent of the level of production: financial expenses, depreciation, structural costs and at least for a certain time wages and social charges.
If production is stopped for a long period of time (as after a fire or broken machine may take several months or even more than a year to repair), the capital can be quickly absorbed by the fixed costs and the The company may never recover if it has not taken out insurance which proves indispensable in addition to that of the direct damage: it is the insurance of the Losses of Exploitation after fire or after Breakown of Machines, formerly called imperfectly Losses of benifits (Loss of Profit).
As it is a question of ensuring the fixed costs and possibly the profit which would normally have had the company if it did not suffer from a disaster, the subscription of the contract requires a careful study of the account of exploitation. Only companies with fully and regularly kept accounts can be insured. Generally, the choice of insured capital is based on an average of the fixed costs incurred over the last three known financial years. multiplies by the duration of the compensation period.
This must be assessed by the technical services engineers of the insured who can assess the time required for the complete restoration of the production line after the disaster, taking into account the clearing, the administrative authorizations that may be required, the order and manufacturing timeframes imposed by the supplier of machinery and equipment, delivery times, assembly and installation and testing, reconstruction of buildings, etc.
The compensation period may be a few months (six months for example) or exceed the annual duration of the contrats (eighteen months or two years, for example, if one plans for particularly long rehabilitation work). A deductible of a few days to a month is often provided to avoid the complex work of calculating the indemnity owed by the insurer when the restoration is quick and the period of production stop is too short to have a impact on the company's operating account.
Salaries and additional costs
Among the fixed costs that must be insured, wages can pose a particular problem of evaluation. Indeed, these can be considered at least partly as variable costs because if the company stops working after a major disaster that prohibits reclamation for several months, the interest of the company orders to the management to put the staff out of work or to dismiss them during the period of the work, even if it is necessary to rehire them when the activity can resume.
However, for reasons related to the social peace in the company, the need to avoid that employees or some of them, are hired by competitors, the importance of retaining a research team or a commercial network, the dismissal may appear to be contrary to the long-term interest of the company. In any case, the dismissal is expensive because it requires the payment of various legal and contractual allowances.
