When disaster strikes: is your company covered with business interruption insurance?

Most business owners know they need to insure their premises, materials, and tools. After all, if disaster strikes, you’ll need to repair or replace these essential elements so your business can keep operating. These types of insurance are often seen as a no-brainer for business owners who are well aware of the importance of managing risk to run a healthy business.

However, there is often a hidden cost when disaster strikes, which many business owners don’t necessarily think about and, therefore, don’t insure for. That’s the cost of being unable to do business while your premises are being repaired or your tools are being replaced.

What is the risk of business interruption?

If your business can’t operate for reasons outside your control, such as an earthquake, storm, flood, fire, vandalism, or a simple power outage, then you can’t earn your normal income. And that’s a problem for most businesses, because cash flow is absolutely necessary to make sure you can pay your staff and suppliers, and service your debts.

Furthermore, if you can’t serve your customers, they’ll look elsewhere for what you provide. And there’s no guarantee they’ll return to your business once you’re back up and running; you could lose loyal customers for life.

For some businesses, the cost of not being able to generate an income for weeks or even months at a time can be significant enough to put the business at risk of insolvency. Unless the business has strong cash reserves, such a long period of inactivity can be hugely detrimental.

This is where business interruption insurance can mean the difference between being able to continue operating or not.

What is business interruption insurance?

Just as the name suggests, business interruption insurance covers the shortfall when your business can’t operate due to an insurable event. This keeps cash flowing just when you need it most, as you’re getting your business back up and running. It lets you:

  • continue to pay your employees so they don’t need to find other jobs to stay afloat while the business is rebuilding. This also means you can continue to rely on your employees during the rebuilding process, which can help you get back up and running sooner
  • continue to pay your suppliers so you can get the materials you need to start operating again
  • service your debts so your credit rating remains intact and you can continue to access finance cost effectively in future
  • pay the costs associated with finding new premises and fitting them out, plus letting customers know you’ve moved.

It’s important to note that business interruption insurance can cover you for events that happen to other businesses. For example, if a power outage means you can’t do business, or a key purchaser can’t buy your goods, or a supplier can’t supply, then business interruption insurance may cover you.

What are the benefits of business interruption insurance?

The main benefit of this type of insurance is that you will still have access to cash even if something happens to stop you from generating revenue temporarily. This can provide enormous peace of mind as you recover from an event. It can also minimise the impact of the disruption to your employees, partners, and customers, ensuring they stay loyal to your business.

How to get business interruption insurance for your business

The first step is to speak with an experienced insurance broker who can act as a risk advisor to help you understand what risks your business faces. Then you can decide important factors such as how long you would need the business interruption insurance to cover you for (some events can take a surprisingly long time to recover from) and how much you would need to insure your business for. Your insurance broker can then help you understand what policies are available to you and which one is best suited for your needs.

Importantly, if you need to make a claim, your broker will be with you every step of the way. Contact us today to discuss your requirements.

Source: NZbrokers https://www.nzbrokers.co.nz/site/blog