What’s So Important About Business Interruption Coverage?


Today, as director of entrepreneurial training for Chicago-based Women’s Business Development Center, a National Association of Women Business Owners (NAWBO) affiliate partner, Sara is the one touting the merits of business interruption coverage to others. She learned two things firsthand: If there’s a catastrophe, the bills don’t cease even if business does; and the better you’re prepared, the faster you can get back on your feet.

If a fire or other insured disaster forces you out of your location, business interruption coverage compensates you for the profits you would have earned—based on your financial records—had the event not happened. It also covers continuing operating expenses, like utilities and rent.

Just as important, extra expenses related to re-establishing your business also can be covered. These costs can include everything from rent for your temporary location to advertising that brings customers back.

And if your business is dependent on a particular supplier, and a catastrophe at their facility prohibits you from conducting business, you also can be protected with contingent business interruption coverage.

If you run a small business, chances are your insurance policy includes some coverage for business interruption and extra expenses. But don’t take this for granted. It’s worth a call to your agent to find out exactly how well you’re protected and what coverage gaps may need to be addressed.

It’s also in your best interest to prepare a comprehensive business continuity plan that, obviously, should be stored somewhere other than your location. Research shows a third of businesses fail within a year after a major loss event. A solid plan that addresses every vital aspect of your business could spell the difference between success and failure.

You should consider:

  • Potential locations that can accommodate your business
  • How you can quickly replace your equipment, office furniture, computers, and other vital property
  • A process for establishing essential services at the new location, including utilities, telephone, Internet connections, and other technology-related needs
  • Temporary staffing to help with the transition
  • How you will communicate with customers and the community at large
  • Business records and other key documents
  • Shipping, warehousing, and transportation issues

Reading that list, one thought should be obvious: the steps you take before a disaster can make a possible transition much smoother. For example, if you have back-up copies of important files and records stored safely at a second location, you can avoid the time, expense, and headaches involved in recreating them from scratch—assuming that’s even possible.

Preparation is the very definition of risk management. All business owners should complete a risk assessment to determine potential exposures that could cause a business interruption. They should determine how well-equipped they are to manage those exposures, and then address those places where deficiencies exist. Your agent or insurance company has both the desire and ability to help you conduct a professional review. Online resources also can be valuable, such as the one offered by CNA at www.cna.com/riskcontrol.

Additionally, once your risk assessment is completed, agents and insurers can assist you in creating a plan that will prepare you for possible disaster; can guide your actions during a catastrophic event; and can help you re-establish your business after the loss is incurred. And most importantly, they can recommend the appropriate insurance coverage and amounts for making a rapid and full recovery.

Article by CNA.



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