A Guide to Business Interruption Insurance


May 1, 2020

It is fair to say that Business Interruption Insurance has emerged as the insurance buzzphrase in these challenging times of limiting the damaging effects of COVID-19 on businesses. Here we will explore, as concisely as possible:

-What it is

-Who needs it

-When you would need it

-COVID/Pandemic & Business Interruption

-What people should know about it right now

What is Business Interruption Insurance?

Your ability to generate sales is the cornerstone of ensuring the continuity of your company, and it could be threatened at any time. Business Interruption Insurance is designed to allow a business owner to collect the income they would have otherwise expected to make, were it not for some unknown and unexpected event. It can also be extended to include additional expenses that can help you minimize the blow and get you back on track as soon as possible thereafter.

It's really important - especially now - to note that business interruption insurance is a type of property coverage. It covers the indirect costs of property damage, rather than the actual property damage itself, such as the loss of income you would have made if your business were to continue operating as usual. Your own specific policy will outline which sort of perils are covered and when the coverage can be applied, but generally, the peril would likely need to have been triggered by a root cause considered property damage under the policy wording.

Who needs Business Interruption Insurance?

The short answer is every business. When a blow to your continuity strikes, you might need money to pay for salaries, rent equipment, pay for temporary office space and then there are other, previously unforeseen costs. Regardless of the motivation for your business, you need to have a failsafe strategy, and having some Business Interruption Insurance should form part of that plan.

For example:

A brewer's facility partially catches fire, damaging equipment, and halting production for an extended period. It's the brewery's business interruption provision that comes in keep the business solvent during the repair process. New kilns, the brew master's wages and those of the canning staff, rental of an off-site cool storage facility for finished beer etc.

In the above example, the business interruption is triggered into action because the root cause of the incident is damage to the property because of an insured peril. In this case; fire.

Business Interruption & COVID-19

Is Your Business Covered?

The situation continues evolving all the time. This likely once-in-a-lifetime circumstance means that it'll ultimately be your insurer's prerogative on how they choose to interpret your policy.

Business Interruption Insurance provides coverage when an insured peril halts the continuity of your organization in the form of property damage. Making a claim of this type is clear cut when it comes to fire or flooding (a.k.a. the new fire). It becomes less clear in the case of COVID-19 as there is no specific clause relating to a pandemic or shutdown.

Typically, catastrophic events are limited to specific and localized geographic areas. For example, a flood may impact businesses located on the coast, but leave in-land businesses untouched. The complexities of measuring a business interruption claim are heightened as a result of this pandemic, given that the entire global economy is impacted, not just limited geographic regions.

What can you do?

It's a good idea and should be understood a standard practice to document all financial losses and any efforts you're taking to mitigate risks. There's no harm in presenting your case to your insurer and seeing what provisions can be called upon to help out.

Listen to the relevant authorities

Business owners must stay abreast of government programs they can take advantage of to supplement income and ensure continuity. It's an incredibly fluid and concerning business landscape that will eventually pass. For now, it is a priority to stay informed and for you and your employees to stay safe.

Have a physical location or office for your business? Check out these safety tips for your business property during Coronavirus. Having an idle, closed business property can leave you vulnerable to nature and crime without the right precautions.

We hope that this guide can help you understand Business Interruption Insurance and how it may be affected by COVID-19. If you would like us to promote your small business or if you have any additional business tips to share, let us know or comment below; we're happy to share our Foxquilt platform and social channels with you.

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