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Events outside your control can bring your business to a screeching halt. After one of your best quarters, a wildfire could engulf your warehouse in flames. A hurricane could destroy your hotel’s roof, forcing you to shut down for weeks, costing millions of dollars in potential revenue.
Business interruption (BI) insurance is a business owner’s best friend when that worst-case scenario hits. Here’s a guide to BI coverage — what you need to know, and do, to keep your company on track.
When disaster strikes, business interruption (BI) insurance can replace profit and fixed expenses. To be covered under a BI policy, your business pause must relate directly to physical loss or damage. Further, the loss or damage must be caused by a loss event listed in your commercial property insurance policy.
Things BI can cover can include:
Business interruption risks range broadly — from heavy rain causing water damage that shuts you down for a week to ongoing wildfires pausing operations for months. In the past three years, unprecedented BI losses have stemmed from:
BI is not cut and dry. All these perils could impact your business. By working with a team of experts, you can understand the complexities within your policy and make sure you’re covered.
Pre-loss claims management can be just as important as how you handle your claim after a loss. Set yourself up for business interruption coverage success using the following tactics:
Go through your policy page by page. Ensure it makes sense and that your business will be able to survive catastrophic scenarios under your written coverage. Look at it from all angles and assess the language using multiple interpretations.
For added assurance, consult outside or internal counsel, including your broker and underwriter.
Carriers require a BI worksheet and statement of values prior to renewal. You can’t change the documented values of property or BI-covered assets at the time of a loss, so ensure that values are always up to date. Assess the values at every renewal to account for inflation, acquisitions, etc.
While the loss will not be adjusted based on the BI worksheet, it’s important that location allocations reflect each location’s revenue and expenses for probable maximum loss (PML), maximum foreseeable loss (MFL), and catastrophe (CAT) exposure analyses.
Conduct a “what if” analysis to determine the potential costs to your business under different scenarios. Quantify financial and operational risks as you think through each scenario. For example, if you can transfer calls to a different call center if one center is damaged, how much will your business be affected? Could you continue shipments from a different location if one distribution center is flooded?
These assessments, alongside consultations with your broker, will help you make informed decisions about what type of BI insurance and limits your company needs.
Work with your team to determine what will happen if an event occurs. Institute guidelines that will protect your employees and your customers and keep your business running as smoothly as possible.
Put your team together before a loss. That way when something happens, you can start the claims process immediately and keep your business afloat. Best practices call for internal and external professionals:
If your business is bigger and you have the ability, establish a named adjuster in advance of a loss. The adjuster can be pre-determined and agreed upon by the insurer and the policyholder. This helps ensure you’ll work with an adjuster you trust and who knows your business.
The early days after a business interruption event are key. These 10 steps can make the claims process smoother:
Business interruption claims are complex — filled with projections, assumptions, and “what ifs”. Settling a BI claim requires managing expectations, heaps of evidence, and a willingness to negotiate. Claim settlement can be cooperative yet tense at the same time.
Understand the unique facts and circumstances surrounding your claim and policy. Make sure to support everything with documented proof. You’ll have a better chance of success if you consider the viewpoint of the insurer. Understand the strengths and weaknesses of the claim and anticipate where they might push back.
Here are some of the documents insurers may request to substantiate your claim:
They may require additional documentation to measure the claim.
When you reach the negotiating table and are face to face with the insurance company, resolve your differences item by item. The carrier may soften after finding areas of agreement elsewhere. Compromise can be a beautiful thing. If neither side is willing to compromise, it could lead to appraisal or litigation — both costly and lengthy processes.
If you prepare a credible claim, you can get paid more quickly, and all parties are happier.
A natural disaster or an equipment failure doesn’t have to derail your business. By working with an experienced team and adopting key BI strategies, you can get the coverage you need to come back better than ever.
Want to learn more?
Connect with the Risk Strategies Loss Control and Safety team at safety@risk‐strategies.com.
About the authors
Mike Bostley handles large and complex property claims nationally, including those for business interruption.
Peter Fallon, National Property Practice Leader at Risk Strategies, helps companies structure and place property and business interruption insurance programs.
Amy Hahn, a Certified Fire Protection Specialist (CFPS), assists clients in identifying property-related risks and ways to mitigate them, including analyzing exposures to catastrophes.