Q A on Business Interruption

What is BI Insurance?

Business interruption insurance covers businesses for losses in income or profit stemming from unavoidable disruptions to their regular operations because of damage to their own property or that of major suppliers or customers. 

Why Do I Need It? 

In a competitive environment, if your business is the only one affected by a fire for example, then your customers will go to your competitors – and you may not be able to win them back.  

In a disaster, such as the 2017 hurricane seasonwhile your competitors might be similarly affected, so are your customers and suppliers.  Returning to pre-disaster levels of income may take months or years. In the meantime, bills such as loans and staffing costs, continue. 

Companies with business interruption insurance also have the benefit of working with an experienced loss adjuster. While no one knows your own business as well as you do, loss adjusters have the benefit of seeing the measures taken by various businesses to quickly recover from major losses and are a tremendous resource, particularly for businesses facing their first disaster.   

What Businesses Don’t Need BI Insurance? 

Businesses that don’t have audited financials accounts can skip this insurance since claim payments are based on documented evidence of past sales and estimates of future sales.  

If you decide that you would not go back into the same business or if you cannot go back into business because of changes in technology or the environment then you should discuss how best to handle potential loss of income following a partial loss with your account executive. 

Businesses with good cash reserves and a second location from which similar operations are run, may wish to insure only the costs of Additional Expenses’ or Increased Costs of Working (ICOW)’ involved in setting up a new location and expediting expenses to resume normal business operations. Similarly, non-manufacturers or operations with no physical product or service providers, such as financial institutions can insure Additional Expenses or ICOW.  Rental companies can simply insure their potential loss of rent. 

What Claims Aren’t Covered? 

In order to make a claim, there must be property damage covered by insurance.  If the damage is caused by an excluded peril such as looting, the business interruption policy will not respond. 

You must be able to show a loss of profit for the overall business. Depending on the economy, some businesses can resume business very quickly and make up sales at the new location or at their other locations.   

You must have audited financial records to demonstrate the level of income lost. New businesses must be able to prove sales that occurred prior to the loss and show how business was expanding. Offsite duplication of financial records is essential.