Business interruption insurance: planning for disaster
Preparing for the unexpected
Everyone always assumes disasters happen to other people. Well they do, but they can most definitely happen you as well, so it’s important you plan ahead should the unthinkable occur. When it comes to insurance cover, incidents such as floods, fires, burglaries and physical damage are likely to spring to mind. All come under the heading of business interruption insurance. This might appear straightforward, but many business owners underestimate the disruption caused by a major incident such as a fire. It is not merely the rebuilding, lost stock and equipment you will need cash for, but also the loss of business and possibly the time needed to re-recruit staff and to woo former customers who have gone elsewhere. With business continuity, you take out what you need to cover yourself for the worst-case scenario. A cautious business would look to get as much as two years’ worth of cover but many make do with one-year policies or less. The knock-on effects of interruption are hard to predict. Sometimes the trouble doesn’t hit you directly, but you are drawn into the disruption. The July 7 bombings in London are a good example. While no businesses suffered significant property damage, many were behind police cordons and were prevented from trading while investigations were under way. Your policy needs to be extended to cover the big factors that underpin your company. Every business needs water and electricity so you should ensure your policy provides cover for utilities. Some firms get policies which protect them if a key supplier is unable to trade. This might be a worthwhile extension if you are in manufacturing but probably not if you can easily switch suppliers and continue without interruption. When planning for disaster you need to understand what really constitutes a major problem for your business. If you can simply find a way around the problem without using your insurer then you might think twice about buying that policy.