Disaster strikes and you are forced to cease operations – this could mean lost profits and disgruntled customers. Anything that seriously interrupts your business can end up costing you a lot of money and even destroying your business altogether. One way to avoid this is by taking out business interruption insurance to cover the loss.
You should understand that no business interruption insurance policy is going to provide your company with compensation over a long period. Most policies only cover a number of weeks or a few months at most. The idea is that you are being covered for an interruption – not simply for lack of business due to the prevailing economic circumstances.
A well drawn up policy will cover you for:
- Losses due to sudden personal incapacity
- Losses due to a sudden and unforeseen natural disaster (e.g. flood damage, fire, storms)
- Losses due to local government action (e.g. road works)
- Losses due to theft and vandalism
- IT failure
- Losses due to action by the emergency services (e.g. a police cordon preventing entry to your workplace)
- Power or utility cuts which prevent normal operations taking place
Unlike other forms of insurance (e.g. fire and theft), with business loss insurance you are not insuring actual goods. Consequently you will need to have a very good idea of how much your business earns to assess accurately the amount of your potential business losses. Also, you need to understand how much it would cost if you needed to restart operations elsewhere while the interruption was ongoing.
The insurance company you approach will also work out these figures. It will insist on seeing detailed audited records, so be prepared to do a considerable amount of paperwork and to get a third party (accountant's) opinion if required.
You should be aware that finding a suitable insurer to give you this type of cover may involve quite a detailed search. It will help if you identify an insurer who knows your type of business thoroughly, your trade association or union may be able to suggest a company.
Remember above all that after the disaster is not the time to start looking up your insurance policies and finding that they are inadequate. Also, if your business is growing or is changing in its nature you may need regular reviews to ensure your policies are up to date.