Protecting your bottom line: The need for adequate business interruption insurance
With storms becoming more frequent due to climate change and almost a year since Storm Ciaran wrought varying degrees of havoc to our Islands, the awareness of the need for correctly arranged insurance is greater than ever.
In this, the third of our articles, we explore the case for business interruption cover and include steps that businesses should take in order to ensure they are adequately protected
A business is faced with many risks ranging from cyber attacks to natural disasters. Many are beyond a company's control and even if prepared for, can severely interrupt regular operations and cause financial loss to a business. Correctly arranged Business Interruption insurance can be a lifesaver in these situations, helping a business survive ‘the storm’ and recover.
Whilst many business owners recognise the need for traditional property insurance, business interruption insurance is often an afterthought, however business interruption cover can provide crucial financial support to replace lost revenue during the period after an insured event.
A business interruption claim can often outweigh the property loss value by several times. Costs, along with raw materials, have been rising with the cost of living crisis. Such insurance is also complex, so companies must share detailed information with their broker to ensure they are appropriately indemnified.
The time it takes to return to ‘normal’ trading can vary, particularly over the last few years when recruitment of labour has been challenging and building materials are subject to supply chain issues. Following a rebuild or repair to property additional time may then be required to attract sales and/or recruit customers to the level the business had previously enjoyed. Business Interruption cover will continue to supplement the business revenue until the Business recovers to the position it was in prior to the loss
Steps a business can take
A properly developed business continuity plan will help reduce the risks of downtime and minimise financial losses. It should outline the key areas of concern, including alternative work locations for employees, data recovery and designated back-up suppliers.
Each company must prioritise coverage for events that are unique to their area, sector and type of operation. Understanding these risks is important in securing cover. A technology-dependent business should consider cyber insurance, for example, whilst businesses located in areas on the Islands’ coasts that are prone to flooding must be appropriately indemnified.
Existing policyholders are encouraged to review their insurance with their broker regularly to ensure it remains aligned with operational needs. Businesses expand, recruit additional staff or invest in new equipment and business interruption policies vary, so it is important to fully understand what they cover.
An important consideration is for businesses to maintain detailed records of their revenues, profits and expenses as Insurers will need to verify financial losses in detail following a loss. The more accurate data available to them, the better.
It is possible that the business interruption element of a cyber policy may not be as closely reviewed as it is in a combined policy. The limit could potentially be exhausted, leaving clients without cover for the losses exceeding this amount.
Understanding indemnity periods
In the case of a claim the indemnity period agreed with the insured and specified in the schedule is important. This is the maximum period in which the insurer will continue to provide cover. Therefore, the indemnity period needs to be sufficient for the business to recover. Whilst 12/24 month indemnity periods were once common, in today’s economy it generally takes much longer to obtain relevant planning, rebuild/repair commercial premises, restart operations, recruit and recover clients and reach the profit levels enjoyed prior to the loss, therefore a 36/48 months indemnity period is often more appropriate.
Conclusion
This short article hopefully illustrates that business interruption insurance is a critical tool in any company’s risk management strategy and a key component to the transfer risk. It ensures that businesses can survive a temporary halt in operations without suffering catastrophic financial losses.
By understanding its value, evaluating risks, and taking proactive steps, a business can be shielded from the unexpected. The peace of mind and protection offered by interruption insurance makes it an essential investment for the long-term sustainability and success of a company.
Services offered
Insurers are generally well versed in supporting policyholders.
Gallagher, one of the largest insurance broking groups in the world, provides comprehensive advice and placement of business interruption insurance,
Our team of specialists can help new customers and existing policyholders navigate their way through the complex, but vital world of interruption insurance to understand what level of cover they require.
Contact details
Natasha Lucock, ACII Chartered Insurance Broker - Group Sales Development Director
Direct: +44 (0)1534 500639
Stephen Rafferty - Business Development Executive Channel Islands & Isle of Man
Direct: +44 (0)1534 500 516 | M: +44 (0)7797 845 038