The effects of cutting or cancelling your business interruption insurance
Economic uncertainty may have prompted you to reduce, change or cancel your business interruption insurance. That’s a natural reaction in these uncertain times. However, as your broker/advisor, we’re mindful of how that could impact your business and possibly come back to bite you.
You’d know this essential cover replaces the business income you lose in a disaster that causes physical damage or loss to the assets your business needs to keep operating. Your policy sets down the limits, such as the time period covered, though most businesses underestimate how long it takes to operate fully again.
Business interruption insurance is usually part of your package of insurance policies, rather than a standalone. It’s also called revenue or consequential loss insurance and may cover:
Operating expenses
Ongoing expenses such as employee wages
Loan repayments
Government mandated closures
Replacing equipment and machinery, commissioning it and retraining staff how to use it, and
Even moving to temporary premises.
In short, it covers your ongoing expenses and can help you maintain profitability. It protects your business from interruptions such as a fire, flood, accident, burglary or major computer failures.
What underinsurance looks like
Meanwhile, business owners are rethinking their cover, looking to reduce the amount paid by restricting their insurance and risk categories. It’s not a strategy we would advise. Here’s why.
If you’re not covered or are underinsured for business interruption, the next disaster leaves you very vulnerable. Without protection, your business may not survive unless you have a large nest egg to cover contingencies. You risk foreclosure or bankruptcy when a significant disruption cuts your income, yet you must still pay wages and suppliers. Disasters - theft and burglary included - will still happen even when COVID-19 forces businesses to temporarily shut down or vacate the premises. Keep in mind, too that, someone injured at your workplace, such as a staff member checking on your empty premises, can still make a workers’ compensation claim against you.
You might consider stopping and starting your business interruption insurance, but it will cost you in other ways. Insurers will see you as more of a risk because of those gaps, so your new premium will be higher. You may not get a full refund either if you temporarily suspend your cover.
As your broker/advisor, we can negotiate a different payment plan to suit you, such as deferring or extending payments. As well, we can help you work out if your current cover needs adjusting, through the insured values or your profit estimate.
Making this insurance work for you
Going forward, it pays to have records to support your claim. Your business should already collect and store evidence of what’s ‘normal’ business, including expected orders. When a disaster happens, think about what new expenses you’re incurring. That could include cancelled orders, enquiries about orders you couldn’t fulfil due to the disaster and its impacts to your suppliers or customers whose businesses have also been disrupted. Major disruptions to public utilities such as power, water or gas could also affect your business, so should be recorded, too.
Feel free to ask us how we can help you better protect the risks of business interruption. We’re up with the latest cover options, too, as we can tap into both the local and the global insurance market.