Why effective business interruption insurance requires an effective broker?
Business interruption insurance is a cover type that helps your business financially should something unexpectedly stop trade. This could be for a number of reasons, but mainly involves fire, flood, or major theft, all of which could leave your premises unusable for your business. When this happens, Business Interruption insurance will kick in. The funds available should not only help a business survive, but also get back on it’s feet after an incident and quickly return to full function.
In Allianz’s Risk Barometer 2024, Business Interruption placed second as the most important corporate concern for the year. It placed just behind cyber incidents as the top concern. Allianz stated that the BI portion of a claim can outweigh the property loss massively. Even seemingly simple claims can setback businesses years, therefore the significant BI cover is necessary to get businesses trading again.
And yet, it’s estimated that 40% of businesses don’t have enough business interruption cover. This means that if an unexpected incident occurs which means that this business cannot trade for a period of time, it is likely the business will not have sufficient funds to reopen.
Knowing how much business interruption a business needs is difficult, requiring knowledge of the business and the market. A dedicated and longstanding insurance broker is essential in achieving the best insurance terms and limits.
Here is everything corporate and commercial businesses need to know about business interruption insurance:
What is business interruption insurance?
Business interruption is a type of insurance that activates when a business’s normal practices are interrupted in conjunction with a claim. This policy recoups lost funds, designed to equal the expected revenue over the affected time period.
Unexpected temporary closures will significantly impact a business’s profits; therefore without BI cover, businesses at risk of permanent closure. The types of financial losses covered are varied. Business interruption includes lost expected profits, businesses expenses, and the cost of workers.
What circumstances would activate business interruption insurance?
Common circumstances that activate business interruption insurance include:
- Natural Disasters: Floods, earthquakes, hurricanes, or other catastrophic weather events that render business premises unusable. (Some insurance policies will exclude damage caused by average weather, such as guttering overflowing, which has not been deemed severe or necessitated Met Office alerts.)
- Fire Damage: Fires that destroy critical infrastructure, machinery, or inventory.
- Major Theft or Vandalism: A theft of critical assets causing businesses to stop operation, or significant damage due to criminal activity.
- Supply Chain Disruptions: A claim made which involves the loss of a key supplier, which in turn affects the business’s ability to operate.
- Government-Mandated Shutdowns: Public access or safety concerns or regulatory requirements that cause a closure are covered.
- Utility Failures: Power outages, water supply, gas supply, telecommunications are covered – this may require extensions such as terminal ends cover.
It is an insurance broker’s responsibility to understand and identify how a business could be impacted. Specific circumstances which activate the insurance need to be included, ensure businesses remain fully protected.
Why commercial businesses require sufficient business interruption insurance?
For commercial businesses, the financial impact of operation disruption is severe. It risks not being able to pay fixed fees, hire equipment or retain staff. The following reasons need to be calculated in determining the scale of BI cover needed, and show why BI insurance is vital:
- Cover lost revenue: Funds are needed to cover for lost revenue. Revenue ensures employees and suppliers are paid during the recovery period. The sum should equal the expected revenue of the business during normal operations.
- Cover Fixed Costs: Fixed costs include rent, utility bills, loan payments.
- To Speed-Up Recovery: Good BI cover is essential for businesses to quickly get back to practicing. This also helps minimise potential long-term losses.
- To Preserve Customer Relationships: PR management as well as speeding up the time it takes to get back to normal working order is essential to rebuild customer relationships.
- Market Volatility: External economic conditions can exacerbate losses. Your business being down may even affect the market. BI cover is a business’s protection from financial instability.
The ultimate aim of business interruption insurance is to quickly get commercial businesses back to their best, and to reduce the risks of permanent closure.
Why corporate businesses require sufficient business interruption insurance?
Similarly to commercial businesses, corporate businesses require comprehensive BI cover. Corporate businesses often have complex operations, many financial commitments, multiple premises in separate locations, and extensive supply chains – these factors making business interruption insurance even more critical, as any downtime can severely affect a business’s chance of survival. The key reasons why corporate entities need sufficient BI coverage include:
- A Worldwide Supply Chain: Suppliers for corporations are situated all over the world. Therefore disruptions to the supply chain can affect relationships and cause longstanding effects. Getting back up and running quickly is imperative.
- Compliance Issues: Contract breaches, legal liabilities, and financial penalties can build up the longer a business is out of commission.
- Shareholder and Investor Confidence: Many corporate businesses have a web of shareholders and investors. To maintain their confidence and trust, businesses need to be operational. Moreover, having sufficient BI cover in place demonstrates risk management responsibility.
- Business Continuity: Although your business is interrupted, large-scale projects may still go ahead. Ensure you comply with your financial backing by maintaining cash flow through BI cover.
- Reputation: Downtime can impact a brand’s image and their market position.
For corporate businesses, the financial stakes are high. Insufficient cover can lead to significant losses and reputational damage. Maintain relationships and projects with effective business interruption insurance.
Why a dedicated broker is essential for securing comprehensive business interruption insurance.
A professional insurance broker plays a crucial role in ensuring businesses obtain the right level of business interruption (BI) coverage. Given the complexity of calculating appropriate coverage levels, a broker’s expertise is invaluable in assessing risks, understanding policy intricacies, and negotiating favourable terms on behalf of the business.
Here are some of the reasons why Romero Insurance delivers the best policies and service to clients:
Accurate Assessment of Business Risks and Needs
Understanding an organisation’s operational structure, revenue stream, and supply chain is key to delivering the most suitable insurance policy. Due diligence of a dedicated broker regarding possible business interruption should include:
- Accurate Revenue Analysis: Calculating projected revenue losses
- Evaluating Impact: Assessing the time required to resume normal operations.
- Understanding the Supply Chain: Understanding the role of suppliers and how they may disrupt business operation .
- Fixed and Variable Costs: Understanding and valuing the expenses of the business; including rent, salaries, and loan payments.
Understanding which Insurer is right for your Business
Not all businesses are the same, which is why not all business interruption policies are the same. An experienced broker will tailor coverage to suit specific business needs. Variables include:
- Indemnity Period: Ensuring the policy provides coverage for a sufficient duration to allow full recovery.
- Extensions and Add-Ons: Understanding the extensions required as well as incorporating additional protection for supply chain disruptions, denial of access, or loss of key customers, where relevant.
Brokers should customise and tailor cover to the client, this ensures businesses avoid underinsurance while preventing unnecessary premium costs.
Successful Claims and Recovery Processes
In the unfortunate event of a claim, having a skilled broker can be the difference between a swift recovery and prolonged financial distress. A good claims team will advocate for the clients, negotiate with insurers, and secure a prompt settlement as quickly as possible. Claims teams also need to work with loss adjusters and ensure all impacts statements are correctly prepared and submitted.
At Romero Insurance,we take pride in our excellent level of client service and our strong inhouse claims team. By leveraging their expertise and industry relationships, we are able to quickly deliver the best outcome for clients.
Arrange a confidential review
Contact us today to get started with Romero Insurance Brokers. With your permission, we will be able to perform a confidential review of your business and insurance terms, including your business interruption details. We are also able to go to insurers and determine a best offer which might be better than your current provider.
A confidential review will not affect your current relationship or arrangement with your broker or insurer.
