Companies understand the importance of insurance to protect their business against perils such as fire, theft, and vandalism. However, many do not consider how their business would survive if they were unable to do business in their location due to a disaster.
Ill-Prepared Businesses Often Fail
This may sound like insurance doom and gloom, but statistics support this claim. The Federal Emergency Management Agency (FEMA) estimates between 40 and 60 percent of all small businesses fail to reopen after a disaster. That’s a risk no business should ignore.
What constitutes a disaster? Basically, anything that brings operations to a grinding halt. This includes events such as natural disasters, burst pipes, fire, server failure, a flu epidemic, terrorism, a key employee fatality, and even executive kidnapping.
Many companies aren’t financially prepared for unexpected business interruptions and every day their doors stay closed they lose revenue. They still need to pay ongoing expenses even when they can’t conduct business. Plus, their future earnings may take a hit if competitors pick up their business.
A quick return to business after a disaster isn’t always a possibility. However, business interruption insurance can provide a financial cushion until your company can return to normal.
What is Business Interruption Insurance?
Business interruption insurance is not a stand-alone policy. It is added to a property/casualty insurance policy or included in a package policy as an add-on or rider.
This coverage compensates for lost income by providing your company with the revenue you would have earned, based on your historical financial records. It also covers operating expenses that continue even when operations are at a temporary halt due to denied access or forced evacuation. These include items such as rent, electricity, payroll, property taxes, loan payments, and more.
Coverage is also available for extra expenses if your company needs to carry on business at another location. You may need to set up temporary internet, telephone, and electricity, rental equipment and space, pay for movers, and outsource work. This coverage may also cover employee training on new equipment or software after a loss.
Policies normally include a 48-hour waiting period after the event. Coverage typically lasts until the end of the business interruption period, which is usually from the occurrence date until the damaged property is returned to its prior condition.
Mitigating Business Interruption Risk
No two businesses are precisely the same, so their insurance coverage shouldn’t be either. Business interruption coverage is definitely one area in which clients benefit from an insurance agent’s knowledge, experience, and advice.
With so many different types of coverage, we can recommend the best possible coverage at the most reasonable cost. Business interruption insurance may overlap other forms of insurance such as property and cyber liability, so coverage needs to mesh well to prevent duplication or insurance gaps.
Rely on a skilled insurance agency like ours to tailor your business interruption coverage to the appropriate exposures. We’re experts in business interruption risk mitigation and can provide your company with the safety net it needs should it ever face a disaster.