Is Business Interruption Insurance the Answer to the Threats Which Could Put You Out of Business?


What risks could be potentially serious enough to put you out of business, at least temporarily? How long would it take to recover? How much money would you lose during that time?

Here are some examples of risks which have done serious, even in some cases permanent, damage to some businesses.

· Property damage, caused by anything from fire to severe weather or deliberate malicious acts.

· Access to your property, caused by any of the above, or by disruption to transport.

· Machinery breakdown, and difficulty in obtaining replacements or repairs.

· Cyber-risks, including loss of computing facilities, loss of data, or misuse of computers, data, the internet or social media.

· Power cuts.

· Employee absence, caused by sickness, strikes, or difficulty recruiting following departures.

· Damage to reputation caused by a public relations catastrophe.

· Intervention by a regulatory body due to non-compliance.

When did you last spend any time thinking about how to prevent or limit the effects of, each of the above? It may be time you discussed them with col,leagues or independent persons. In addition to these, there is the question of the supply chain. Many businessmen look carefully at the risks threatening their own businesses but have no idea how well other organisations are managed, whilst in the present global economy we are all increasingly interdependent. Floods in the Indian Subcontinent a few years ago seriously disrupted the provision of certain minerals used in manufacturing computer parts. Some British business owners thought they would be able to switch suppliers fairly easily, but found that all supply routes led back to a few mines in one small area.

Some people think the answer lies in Business Interruption Insurance, and I certainly recommend looking into the cost and the extent of cover available to your business.

However, this type of insurance covers only the interruption of your business resulting from damage to property or machinery, and also the loss of computer services, and even there, the cover is usually quite limited in scope. It follows that losses arising from the other risks listed cannot usually be insured. Therefore, the only way to protect your business is to have procedures in place to reduce the chances of such events occurring, and to have plans for recovering quickly from whatever does occur.

Given the effects of stress on people’s decision-making abilities, the best time to make your contingency plans is before the contingency happens.

You may also find that the cost and availability of Business Interruption Insurance is influenced by your ability to provide evidence of your risk management and disaster recovery policies, so even those risks you can insure against need to be managed as positively and effectively as possible.

If you are in rented property, you need to look into the arrangements your landlord has for insuring it and for rebuilding in the event of a major loss. His loss of rent may be much less than your loss of turnover. Similarly, you need to look at the insurance and disaster recovery arrangements of anyone providing machinery or computers on which you depend.

In summary, do not let all your hard work in building up your business be wiped out by events which you may wrongly think are beyond your control or influence. Look into the practical measures you can take to reduce the risks or at least to reduce their potential severity, and look into the different insurances there may be available to help you contain the costs if the worst does happen.

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