September 6, 2019
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Are you insured if your business suffers an interruption?
Business interruption is a major risk factor for businesses, with a severe disruption event able to significantly damage revenues, stock prices, customer retention and growth.
 
To protect themselves against the often heavy costs of being forced into suspending trading, firms can take out business interruption insurance.
Business interruption insurance is often available as an add-on for Commercial Property Insurance policies or business insurance packages. Whereas Commercial Property Insurance will cover the physical damage to the property itself, business interruption insurance covers any loss of earnings as a result of the damage.
 
It is designed to financially protect businesses from losing their regular income, so that they remain in the same financial position as their business recovers from the disaster.
 
In this article, we’ll look at what is covered by business interruption insurance, as well as the most common causes of business interruption.
 

Do you need business interruption insurance?

Many business owners still mistakenly believe that their buildings and contents policies will provide them with all the reimbursement they need if their operations are interrupted by events such as breaks-ins, floods or fires.
 
However, while these policies might cover the cost of putting right any physical damage suffered by the business, they make no allowances for the financial losses incurred due to the interruption in trade.
 
Businesses can only absorb these kind of losses for so long – some firms are forced to cease trading altogether having not been able to ride out the period of interruption.
 
That’s why more and more organisations are taking out business interruption cover, which is designed to reimburse the policyholder for income lost due to a prolonged closure – helping them to get back on their feet.
 

What are common causes of a business interruption?

If you’re still weighing up whether or not to take our business interruption insurance, this might help convince you one way or the other: almost every business faces some exposure to the major risks that can result in business interruption.
 
Here are several major risks that can result in business interruption and lost income:
 
·         Structure fires
·         Water damage
·         Loss of electricity or running water
·         Equipment failure
·         Third-party disruptions
·         Crime or vandalism
·         Natural disasters

 
There are also a number of growing threats that can result in your business having to halt its operational function. Cyber-attacks can seriously disrupt business operations – although this will fall under cyber insurance rather than Commercial Property Insurance.
 
Unfortunately, the inconceivable can sometimes happen – it’s why you took out Commercial Property Insurance in the first place. But it’s easy to underestimate the scale of interruption to your business should it encounter one of these events.
 
Take water damage as an example, which is just as likely to occur from a burst pipe or water tank as it is heavy rain. Over the course of the night, while nobody is in the premises, some serious damage can be done by water.
 
While it’s often relatively quick to replace stock and equipment, it can take months for a building to dry out. If the water damage forces your business ‘offline’, you will lose revenue, possibly run out of money, and probably lose irreplaceable staff as well as valuable customers.
 

Does business interruption insurance cover power outages?

The answer to this question will lie in your fine print of your policy (it varies from insurer to insurer).
 
Generally, it depends on what has caused the power outage as to whether you’ll be covered for any related losses.
 
If, for example, a fire damaged the fuse box in your unit and caused the power to go out, you can expect an insurer to pay for any disruption the business suffered because physical damage is involved. However, if the power outage was caused by the failure of a public utility, you may not be able to get compensated for these losses with insurers deeming it to fall under "services away from covered location extension".
 
Some will cover power outages by default; others will only pay out if the interruption is caused by some sort of physical damage.
 
The best thing you can do is to ask your insurer for clarification before starting the cover.
 

What can you do to reduce the risk of interruption?

It’s up to risk managers to decide which events pose the greatest threat to their companies, and then take preventative measures to guard against them.
 
Once risk managers identify the greatest threats, they can prioritise the best strategy. The following actions can reduce the likelihood of suffering a long-term business interruption from some of the most common threats:
 
·        Create a disaster recovery plan – document how your business will cope with various disruptive scenarios, and what everybody should do in the event of a disaster occurring.

·         Maintain machinery to prevent unexpected downtime – the better maintained your equipment, the less likely it is to develop a fault.

·         Safeguard against fire and flood – make sure you have working fire and smoke alarms, extinguishers, fire doors etc.

·         Install a smart sensor system – smart sensor systems will flag up any potential issues in your building in real time, allowing you to act before they cause
serious damage or interruption.
 

Don’t put your business at unnecessary risk

Even if your business stops operating, your costs won't. Rent, salaries, and other expenses will keep accruing. Without business interruption insurance, you're left to pay for this out of pocket, all while generating little to no income.
 
At Insurance Choice Commercial, we’ve been arranging specialist and competitive insurance for over 20 years, specialising in tailoring Commercial Property Insurance policies to meet your individual or business’ requirements. We can also offer flexible payment solutions, including spreading the cost of your insurance in monthly instalments.
 
Business interruption cover can easily be added to your Commercial Property insurance policy – do it today, as you don’t know what tomorrow might bring.
 
It couldn’t be simpler to get a quote with us, simply call 01384 429900 now, or fill in the contact form and we’ll call you back at a time that suits you.